The role of sustainability is growing undeniably. It has long been not just a "buzzword" but a fundamental value that stakeholders and legislators look at in the context of how companies and institutions operate. The European CSRD (Corporate Sustainability Reporting Directive) organizes how businesses - including financial institutions like banks and insurance companies - will report on their activities in the environmental, social and corporate governance areas at the European level.
In doing so, it focuses on, expands, and clarifies disclosures, the reporting of which until now has been scattered across various standards (e.g., GRI, IIRC, SASB). The directive also extends - albeit gradually - the ESG reporting obligation to more entities: not only the largest companies but also, later on, smaller companies and financial institutions, and eventually even small and medium-sized enterprises.
The first key element that banks and insurance companies will have to include in their reports is the environmental impact of their operations. The directive requires detailed reporting on greenhouse gas emissions and natural resource consumption. Institutions will not only have to identify activities that have a negative impact on the environment, but they will also have to present a plan for corrective action and make changes to minimize that impact. They are also expected to present targets for reducing their climate impact and climate change adaptation strategies.
Another area highlighted by the need for CSRD reporting is social practices. Banks and insurance companies must include issues related to employment, customer relations, and the community in their reports. In practice, financial institutions must provide information on employee policies - including those related to diversity and equal opportunities - and community involvement, such as charitable initiatives or social programs. The CSRD thus emphasizes the non-commercial impact that, among other things, financial institutions have on society and social structures, encouraging them to undertake activities with a positive social impact.
Last but not least, the next area of reporting is corporate governance. The directive requires financial institutions to present information on their governance structures, sustainability policies, and the tools that monitor and control their activities. Thus, banks and insurance companies must be transparent about their structure, business ethics, and how they integrate sustainability issues into their daily operations.
Faced with these new ESG reporting requirements, financial institutions face the challenge of adjusting their reporting and governance processes to meet the expectations of the CSRD. However, the long-term benefits of increased transparency, customer and investor confidence, and positive social and environmental impact will undoubtedly make this initial effort worthwhile.
