Sustainability reporting will gradually become imposed on all companies. What may at first seem like a constraint turns out to be full of opportunities. Aurore Damiani and Nicolas Aubrun, associates Advolis Orfis, independent member of Walter France, explain how ESG indicators (Environment Social Governance) can be a performance lever for companies, and the central role of the financial function in the process.
The need to preserve the planet's resources and fight against climate change was recognized in 2015 when the Paris agreement was signed during COP 21.. Since this date, several European directives have been issued with the aim of highlighting sustainability issues, to strengthen the place of CSR in companies, and to bring financial and “extra-financial” reporting to the same level, also called sustainability reporting. Businesses need to know the regulatory context, take ownership of ESG indicators to integrate them into a performance strategy, and organize yourself internally by relying on financial functions.
An evolving regulatory context
The objectives of the European Green Deal of June 7, 2021 are clear : achieve carbon neutrality by 2050 and support the ambitious European strategy for sustainable finance. As part of the Sustainable Finance plan, Europe has set three objectives : redirect capital flows towards sustainable investments ; integrating sustainability into risk management ; promote transparency and a long-term vision. These objectives are broken down into ten actions, four of which have a direct impact on finance professions : establish a taxonomy of sustainable activities ; create standards and labels on green financial products ; improve the transparency of sustainability reporting ; clarify the duties of investors and asset managers regarding sustainability.
Taxonomy and CSRD guideline : two essential texts
The European taxonomy is a regulatory text adopted by the EU in 2020. It classifies economic activities according to their environmental impact in order to direct investments towards those which are the least polluting.. Taxonomy is one of the texts 
keys to the European Union on green finance. It has partially applied since 2022 for EIPs (public interest entities) of more than 500 people. Nowadays, these are the two climate-related objectives (mitigation and adaptation to climate change) which are implemented. Delegated acts linked to the other four objectives are expected in 2023. La directive CSRD (corporate sustainability reporting directif) aims to harmonize corporate sustainability reporting and improve the availability and quality of published ESG data. It was adopted by the European Council in November 2022, with a deadline for transposition into national laws of eighteen months. For Europe, the applicable standards will be the ESRS (european sustainability eeporting standards) issued by EFRAG. The implementation schedule extends from 2025 to 2029 depending on the type of business.
Soon all companies will be affected
For the moment, these are mainly listed companies (« EIP ») exceeding certain thresholds which are subject to these obligations. More, attention, all businesses must prepare, for two reasons. First reason : obligation thresholds (number of employees, turnover and balance sheet total) were revised downwards, whether listed or unlisted companies. Second reason : an SME not meeting the “obligatory” criteria could well see itself penalized within the framework of a call for tenders if the latter includes, as is increasingly the case, questions about the company's sustainability commitments. And even without a call for tenders, more and more companies will ask their service providers to “voluntarily” comply with these obligations in order to be able to integrate their entire value chain into their own sustainability report.. So it’s better to get started without delay. !
Sustainability performance impacts business value
Here is yet another reason for all companies to work on the subject and which perfectly illustrates the overlap between sustainability and valorization.. A company that does not take into account consumer demand or, wider, environmental stakeholders, for example by not offering a second life to its products, could be “penalized” and suffer a financial reduction. This has already happened for listed companies, and no business, even of a more modest size, is not safe.
SUSTAINABILITY REPORTING, VECTOR OF OPPORTUNITIES
Four opportunities in particular are available to companies embarking on an ESG approach : save money by reducing their environmental impact, attract young people sensitive to ESG issues, meet consumer expectations, access new financing.
By reflecting on its sustainability issues, the company will ask itself a certain number of questions about its energy consumption, of water, etc. By finding solutions to reduce its environmental impact, it will certainly save money. Younger generations are sensitive to ESG issues. In a context of talent shortage, being engaged in such an approach will be likely to attract new collaborators, and, by involving them, to retain them. By satisfying the expectations of increasingly demanding consumers in this area, and enhancing its brand image, the “committed” company will be able to see a positive impact on its turnover. Finally, it will be able to access new financing. We are currently witnessing the emergence of “green” bank loans or those backed by sustainability criteria., which are not necessarily linked to the environment, but which can integrate, for example, objectives for reducing work accidents, of gender equality, etc. These bank loans offer bonuses on financing rates. We are also witnessing the rise of socially responsible investment via “impact” funds which concern more capital and equity investments.. Concerning financial companies, they now have “green” asset ratio objectives in their investments. Finally, the State can grant subsidies and aid as part of certain ecological transition projects.
THE KEY ROLE OF FINANCIAL FUNCTIONS
The CFO – administrative and financial director – and financial management in the broad sense have a key role to play in the production of corporate sustainability reporting to ensure its reliability and consistency..
ESG is a subject that is still relatively little known. However, the first publications of ESG reports will soon be a reality and will require a lot of work. CFO and financial management are used to communicating with other functions and therefore have every legitimacy to ensure the connection between the large number of teams involved. Their mission will be divided into three stages. Step 1 : prepare governance as well as all company functions for the attribution of new responsibilities and the consideration of ESG themes ; clarify future interactions ; and create an ESG steering committee. Step 2 : establish collaboration between the different functions of the company, above all by establishing consistency between financial reporting and sustainability reporting and by adapting the company's business model to ESG issues. Step 3 : build ESG performance monitoring indicators ; ensure reliability of sustainability reporting that meets market needs and regulatory expectations and communicate it to all stakeholders.
