Non-Financial Reporting: A New Obligation for Entrepreneurs

On December 14, 2022, the European Parliament and Council Directive (EU) 2022/2464 was adopted, expanding the scope of entities required to submit non-financial information. The overall goal of this directive is to ensure that businesses contribute to sustainable development and the transformation of economies and societies by identifying companies that negatively affect human rights and the environment.

ESG (Environmental, Social, and Corporate Governance) reporting is a form of non-financial reporting related to sustainability, covering categories such as environmental issues, social concerns, and corporate governance.

Previously, the ESG reporting obligation only applied to public interest entities (e.g., banks and insurance companies) that met specific criteria.

Under Directive 2022/2464, starting January 1, 2024, large public interest entities that meet at least two of the following conditions as of the balance sheet date will be required to report:

• A balance sheet total exceeding EUR 20,000,000,

• Net sales revenue exceeding EUR 40,000,000,

• Employment of at least 500 full-time equivalents.

The first ESG reports resulting from this directive will pertain to the 2024 financial year, meaning they will be prepared in 2025. In subsequent years, the scope of entities subject to the reporting obligation will gradually expand, with the goal of including all large companies and small and medium-sized publicly traded entities by 2029.

These reports are expected to primarily cover information on:

• The business model and strategy of the entity,

• Sustainable development goals,

• The role of management bodies in sustainability matters,

• The entity’s policy regarding sustainability,

• The existence of incentive systems related to sustainability for management members,

• The due diligence process implemented by the entity concerning sustainability issues,

• The impacts related to the entity’s own operations and its value chain,

• Actions taken to prevent negative outcomes,

• The main sustainability-related risks.

Additionally, entities obligated to submit non-financial information will be subject to Regulation 2020/852 of June 18, 2020, establishing frameworks to facilitate sustainable investments (the “Taxonomy”). As such, their non-financial reports must also disclose information, including:

• The percentage of turnover derived from products or services related to environmentally sustainable economic activities,

• The percentage of investments and operational expenditures corresponding to assets or processes linked to environmentally sustainable economic activities.

It is important to note that the directives must be implemented into national legislation in order to become binding. Poland has until July 6, 2024, to incorporate these regulations into its legal framework, but as of now, the relevant regulations have yet to be prepared.