ESG Reporting - What you need to know and how to implement it

ESG - Environment, Social and Governance - is a term we have been hearing more and more in recent years at a political, corporate and social level. But what does it mean to create an ESG report? What frameworks are there? What criteria must be used for reporting? And where do I even start with reporting? We will provide you with the answers:

Why is ESG reporting important?

With increasing social pressure on sustainability and society's growing concern about climate change, the world is increasingly focused on sustainable practices, making ESG criteria important for investors and companies alike.

Governments and regulators are tightening regulations to oblige companies to be more transparent, sustainable and responsible in terms of climate protection as well as social and governance issues.

The European Union adopted the European Green Deal back in 2019, which aims to achieve climate neutrality by 2050. On this basis, directives such as the EU Taxonomy and the CSRD were created, which define a regulatory basis for mandatory and stricter ESG reporting.

Investors welcome these changes to reporting requirements and ESG reporting measures, as they increasingly value sustainable business models. The simple reason for this is long-term stability and timely identification of climate-related risks. Consumers also prefer companies that assume social responsibility and take environmentally friendly measures. For companies, this means that ESG is not only an ethical contribution, but is also crucial for competitiveness. Companies that consistently implement ESG standards and pursue sustainability goals benefit from a better image, a stronger market position and long-term growth.

Who needs to prepare an ESG report?

ESG reporting is not a new topic and large corporations have been reporting on certain KPIs and providing context on sustainability measures for many years. In the EU, the obligation to report was introduced in 2014 with the EU Non-Financial Reporting Directive (NFRD). According to this directive, sustainability data should either be included in the management report or published as a separate sustainability report.

Building on the NFRD, the EU CSRD (Corporate Sustainability Reporting Directive) came into force in 2024, which significantly expands both the requirements and the scope of application.

The requirements for the sustainability report and the date from which the reporting obligation applies depend on the size of the company.

From 2025: For all large companies that meet at least two of the following three criteria

A balance sheet total of more than 20 million euros

Net sales of more than 40 million euros and/or

A workforce of at least 250 employees.

From 2026: For all capital market-oriented SMEs. However, it should be mentioned here that these companies can obtain a deferral until 2028 if the requirements are too onerous for the company.

The fourth user group will be added in the 2028 reporting year and concerns companies from third countries with a turnover of more than EUR 150 million that have a subsidiary or branch in the EU.

In summary, it can be said that the number of companies that are obliged to submit a sustainability report will increase significantly in the coming years. It is currently estimated that around 500 companies in Germany are subject to this reporting obligation, while this figure is expected to rise to around 15,000 in the future. Across the EU, around 50,000 companies are affected by this obligation.

The ESG criteria in detail

The three ESG criteria form the main areas of sustainability and help to evaluate them systematically. They serve as a benchmark for sustainable action in many ESG reports.

Environmental

The environmental area covers all of a company's ecological impact. Important key figures here include CO2 emissions (divided into scopes 1, 2 and 3), energy consumption, the proportion of renewable energies and the consumption of water and resources.

Waste management and measures to reduce environmental impact also play a key role. Companies that rely on renewable energy or sustainable products, for example, score particularly well in this dimension. In the reports for these criteria, companies must transparently explain how emissions can be reduced and sustainable processes established in the future.

Social

The social area relates to dealings with employees, suppliers, customers and society. This includes sustainability goals such as fair working conditions, equal rights, diversity and health and safety in the workplace.

Equally relevant are social impacts along the supply chain, for example through fair wages or measures against child labor. Many companies also use this section to present their social commitment and their initiatives to support local communities.

Governance (corporate management)

The governance section is about transparent, sustainable and ethical corporate management. This includes aspects of corporate management that deal with ethical business decisions, compliance and risk management.

This includes, for example, measures to combat corruption, data protection guidelines, board structures and remuneration systems. Transparent corporate governance creates trust among investors and stakeholders and can contribute to the stability and reputation of the company in the long term.

How is ESG reporting audited?

When the new CSRD Directive comes into force, the sustainability report will be subject to an audit and published as an integral part of a company's digital management report. The CSRD Directive initially provides for a mandatory limited assurance engagement. In the medium term, reasonable assurance will be introduced.

An audit with reasonable assurance requires an extended scope and possibly more extensive preparations. This will simultaneously increase the reliability of sustainability information for users and place the importance of non-financial reporting on the same level as financial reporting.

Step 2: Define relevant content and key figures

ESG reporting should cover all key sustainability aspects of a company and be based on established standards such as the European Sustainability Reporting Standards. Environmental, social and governance factors are considered in order to transparently present ecological impacts, social responsibility and corporate governance.

Important key figures in sustainability reporting include the CO2 footprint, energy consumption, working conditions, diversity and ethical and regulatory compliance. A materiality analysis helps to identify the most relevant topics for the company and its stakeholders. The decisive factor is a clear, target group-oriented presentation that not only provides current data findings, but also highlights progress and future goals in the area of sustainability. In this way, ESG reporting becomes a valuable management tool and not just pure documentation.

Step 3: Structure and design

A clear structure and an appealing design make the report easier to understand and increase its informative value. As a rule, the document begins with an introduction to the sustainability strategy and a materiality analysis that defines the most important ESG topics. The presentation of the key figures should be comprehensible by making current values as well as progress and future targets transparent.

In addition to precise content preparation, visual presentation plays a decisive role. Graphics, tables and infographics make it easier to understand complex relationships. While many companies rely on PDF reports, digital formats such as interactive web reports or dashboards offer additional opportunities for targeted information transfer. It is important that the chosen format takes into account the different information needs of investors, customers and other stakeholders.

Step 4: Data sources & collection systems

For sound ESG reporting, the relevant sustainability data must be systematically recorded. This can be done by internal systems, suppliers or external service providers.

The most important internal sources include the energy management system, HR departments or compliance reports. External information can be provided by certifications, partner companies or ESG rating agencies. Many companies use special sustainability software solutions to simplify data collection and enable consistent reporting. A central ESG data management system is particularly helpful here to ensure data quality and minimize the reporting effort.

Step 5: Addressees & communication channels

Sustainability reports are aimed at various stakeholders, including investors, customers, employees and regulatory authorities. Each of these groups has different information needs and questions about different areas, which is why the content should be prepared in an understandable and targeted manner. While investors analyze detailed ESG key figures and risks, employees and the public expect a clear presentation of the sustainability strategy and progress.

The choice of communication format also plays an important role. In addition to traditional PDF reports, companies are increasingly relying on digital formats such as interactive web reports or ESG dashboards to improve accessibility and user-friendliness. Consistent and transparent communication strengthens trust in sustainability efforts and increases the company's credibility.

Step 6: Publication cycle & auditing

Sustainability reports are usually published annually and combined with the annual report. Some companies provide quarterly updates to regularly inform investors and stakeholders about progress.

To increase credibility, many companies rely on an external audit by auditors or ESG rating agencies. This may also be mandatory as part of a legal requirement, e.g. the CSRD. An independent audit increases the reliability of the data and can help to improve ESG ratings.

Which software and tools help with ESG reporting?

The market offers numerous software solutions and tools that support ESG reporting. Start-ups in particular often promise to generate a complete report with just one click or to provide all disclosure KPIs with the help of AI and minimal effort. However, such promises should be viewed with caution.

As explained in the previous chapters, sustainability reporting involves a wide range of data from different areas and at different levels. Important factors such as the granularity of the data, its availability and quality cannot be guaranteed or ensured by any software alone. It is therefore essential to first take a close look at the area of sustainability in your own company.

The exchange with stakeholders helps to gain a clear picture: What information do I need? What information is already available? Which questions do I want to answer? What expectations do I have of a tool? And what internal requirements need to be met before implementation makes sense?

We at drjve AG recommend our customers the CCH Tagetik ESG & Sustainability Performance Management solution from Wolters Kluwer, which has been recognized by BARC as Market Leader in the BARC Score Financial Performance Management. The ESG solution is based on a proven, consolidated and market-leading technology. It provides an end-to-end, fully auditable and consistent platform that saves time by capturing and processing data from multiple source systems. But the real strength is not just in the reporting - it also shows how ESG initiatives and financial performance are linked.

Conclusion: Software and tools can make ESG reporting considerably easier. However, before making a decision, it is crucial to take a close look at the topic and the individual solutions. You should choose software that is tailored precisely to the requirements of your own company. Don't be blinded by flashy advertising promises such as “One click to an ESG report” - a well-founded strategy and a solid data basis are essential.

Challenges and common mistakes in ESG reporting

The biggest challenge in ESG reporting is data availability and quality. Many companies find it difficult to record ESG key figures consistently and reliably. Especially with regard to Scope 3 emissions or social aspects along the supply chain.

In addition, regulatory requirements such as the CSRD or Taxonomy Regulation make reporting more difficult, especially because companies have to adapt to various frameworks such as GRI or SASB.

A common mistake is an inadequate materiality analysis, which means that either irrelevant or too few ESG topics are covered. An inadequate link to the corporate strategy can also result in ESG reporting remaining mere documentation rather than a management tool. Inconsistent or out-of-context data also reduces the informative value and can confuse stakeholders rather than providing valuable insights.

There is also a risk of greenwashing if sustainability measures are exaggerated or not supported by reliable information. Finally, many companies underestimate technological implementation and rely on manual data collection, which increases sources of error. A structured strategy, transparent communication and digital ESG systems help to avoid these errors and make reporting credible and effective.

Frequently asked questions about ESG reporting

Who has to prepare an ESG report?

Companies that fall under the EU's Corporate Sustainability Reporting Directive (CSRD) are obliged to prepare sustainability reports. In addition to large listed companies, this also includes small and medium-sized listed companies (SMEs) and other large companies.

What does ESG stand for?

Environmental, Social and Governance (ESG) means environmental, social and corporate governance.

Which companies are subject to ESG reporting?

ESG reporting obligations under the CSRD will apply from 2024 for listed companies, banks and insurance companies with 500 or more employees. From 2025 for large companies that meet at least two of the following criteria

More than 250 employees

A balance sheet total of more than 20 million euros

A net turnover of more than 40 million euros

In addition, from 2026, all listed SMEs and some non-European companies will be subject to reporting requirements if they operate within the EU.