Obligations of companies in connection with the reporting of sustainability information

As some might mistakenly think, the acronym ESG (environmental, social and corporate governance) is not an extension of companies’ marketing activities in the field of corporate social responsibility (CSR). Indeed, the areas of environment, society and governance are coming into practice in the form of legal obligations that companies across a range of sectors and size criteria will face in the coming years.

From this year, companies’ approach to sustainability reporting will shift from voluntary to mandatory. Indeed, relevant legislation in the form of directives and guidance will require both public and private companies to comply with requirements to measure and report sustainability information. An example is the sustainability reporting directive, also known as the CSRD (the Corporate Sustainability Reporting Directive), which was approved by the European Parliament in 2023.

With the entry into force of the relevant EU legislation and its transition into national legislation (primarily the Accounting Act from 1 June 2024), a new era in the reporting of sustainability information will begin. The CSRD not only brings about harmonisation of sustainability reporting requirements, but will apply to many more companies. In Slovakia, there should be about 700 companies with more than 500 employees, which will have to publish data for the 2024 accounting period as early as in 2025. Businesses with the criteria below will be subject to sustainability disclosure one year later. Small and medium-sized enterprises will be required to collect ESG information by clients, who will have to demonstrate compliance with ESG criteria in their supply chains.

The expected national legislation will define, inter alia, the following:

Sustainability aspects are environmental, social, human rights and governance factors, including sustainability factors in the financial services sector. Reporting sustainability information means reporting information that relates to aspects of sustainability, either on an individual basis or on a consolidated basis.

The annual report also includes the reporting of sustainability information and, in such case, also includes a report of the statutory auditor on the assurance provided on the reporting of sustainability information; this auditor does not need to be the same as the auditor auditing the entity’s financial statements.

A business company (other than a bank, a reinsurance company and an insurance company) is obliged to report sustainability information individually, in a separate section of the annual report, if it meets at least two of the following three size conditions in each of the two immediately preceding accounting periods:

• total amount of assets has exceeded EUR 25,000,000,
• net turnover has exceeded EUR 50,000,000,
• average recalculated number of employees has exceeded 250.

In certain circumstances, the issuance of securities traded on a regulated market also creates this obligation for a company.

The sustainability information is structured into the following areas:

• description of the business model and business strategy (e.g. risk resilience, identification of opportunities related to sustainability aspects, plans and measures to ensure that the business model and business strategy are compatible with a sustainable economy, climate neutrality and limiting global warming),
• description of the targets and deadlines relating to sustainability aspects (e.g. reduction of greenhouse gas emissions), description of the progress towards achieving the targets, statement that the environmental targets are based on convincing scientific evidence,
• description of the role of the entity’s bodies with regard to sustainability aspects (e.g. expertise and skills),
• description of the entity’s policies in relation to sustainability aspects,
• information on the existence of incentive schemes related to sustainability aspects offered by the entity to members of the entity’s bodies,
• description of due diligence procedures, description of the adverse effects of the entity’s activities and measures to eliminate those adverse effects,
• description of the main risks to the entity and the management of those risks, in the context of sustainability aspects,
• relevant indicators to the previous information.

Sensitive information – an entity does not need not to disclose information about its future development or matters that have not yet been decided by the entity’s competent authority if disclosure of such information could reasonably be expected to be seriously prejudicial to the entity’s business.

Simplified reporting of sustainability information – small and less complex institutions, further defined in the Act, may report simplified sustainability information from the following areas:

• description of the business model and business strategy,
• description of the entity’s policies in relation to sustainability aspects,
• description of the adverse effects of the entity’s activities and measures to eliminate those adverse effects,
• description of the main risks to the entity and the management of those risks,
• relevant indicators to the previous information.

The exemption from the obligation of individual reporting of sustainability information applies to a subsidiary if it is included in the consolidated annual report of the parent entity; in order to qualify for the exemption, other conditions must be met at the same time, for example – the annual report of the subsidiary must contain a link to the website of the parent entity where the consolidated annual report and the auditor’s assurance report on the reporting of sustainability information are available.