The most common definition of sustainability in use is the definition by the United Nations (UN): “Sustainability is an approach that ensures meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

Notable aspects of sustainability include the concept that sustainability is a global, eternal and never-ending process and involves a moral responsibility for equity and justice.

Businesses and financial institutions are drivers in tackling climate change, resource scarcity, social inequalities and the effects caused by discrimination and making a positive contribution to society. Please refer to the information summarised by the Ministry of Finance “First 7 Steps in Sustainability Reporting” for useful information on the elements of corporate sustainability reporting.

Sustainability information of a company enables the assessment of the progress your company is making towards achieving sustainability goals in the environmental, social and governance sectors, thus helping to attract investor interest.

Three aspects of business sustainability

Business sustainability is characterised by three dimensions or aspects of sustainability – ESG (Environment, Social, Governance). In business, they are also referred to as ESG activities. These dimensions are designed to help companies better understand sustainability within their business, to better define and measure their corporate responsibilities towards the environment, employees, customers, suppliers, investors and a wider role of the company in society as a whole.

• E – Environmental dimension. Environmental sustainability focuses on the efficient use of resources and the sustainable conservation of natural resources. It includes measures to reduce pollution, waste and resource depletion.
• S – Social dimension. Social sustainability promotes the elimination of inequality by providing equal rights and opportunities, which include social justice and inclusion. This dimension includes fighting against discrimination and inequality by ensuring safety and well-being at the workplace, promoting the health and well-being of employees, as well as growth and development.
• G – Governance dimension. Sustainable management refers to corporate management and decision-making processes. Good governance contributes to the sustainability of a company by ensuring transparency, as well as responsible and reasonable decision-making. Good governance practices include the prevention of corruption and bribery, corporate risk management, transparency of information and other aspects.

Corporate sustainability reporting

Climate-related challenges are becoming increasingly binding for businesses of different sectors of the economy and have significant implications for public authorities. Given the impact of companies on sustainability aspects, including the society and the environment, corporate sustainability reporting has become an important part of business practices. It aims to ensure transparency and accountability in the way companies operate by contributing to sustainable development. Sustainability reporting is a tool for companies to communicate their performance and impact on the environment, people and society.

Since the Paris Agreement entered into force in 2015, the European Union (EU) has been actively developing its regulatory framework that governs climate change-related issues. Sustainability reporting is regulated by the Corporate Sustainability Reporting Directive or CSRD of the European Union, which was adopted in January 2023. This Directive replaces the 2014 Non-Financial Reporting Directive by introducing more detailed reporting requirements, obliging large companies, and progressively others, to disclose information on different aspects of sustainability in a separate section of their public annual report.

The Corporate Sustainability Reporting Directive (CSRD) provides for:

• the introduction of more detailed reporting requirements by ensuring that certain companies are obliged to provide sustainability reports on issues such as the environment, social sector, human rights and governance factors;
• the expansion of the scope of entities subject to CSRD requirements to include: large companies, small and medium-sized listed companies and subsidiaries and branches of third-country companies that are subject to certain criteria;
• the ruling that the sustainability report is part of the annual report of the company and should be included in the management report in a separate section (without the possibility of preparing it separately);
• the requirement that the sustainability report shall be drawn up in a common European electronic format (xHTML, iXBRL);
• the requirement that the sustainability report shall be prepared in accordance with the European Sustainability Reporting Standards;
• the duty of a statutory auditor or an independent provider of an assurance service to express an opinion on the compliance of the sustainability report with the requirements of CSRD, including compliance with the European sustainability reporting standards.

What entities are subject to the Corporate Sustainability Reporting Directive?

In total, approximately 50,000 companies in the EU will be subject to the reporting requirements of the Directive. The Directive will be applied progressively and will cover a wider range of companies each year.

Key requirements / principles of the Corporate Sustainability Reporting Directive:

• Dual relevance – companies will have to analyse two dimensions: how the business implemented by them affects the planet and people and how climate change and sustainability affect the company.
• Independent auditor or third-party opinion – the sustainability report is due to be assessed by an independent auditor, who checks the data included in the report to ensure its accuracy and reliability.
• Accessibility – The sustainability report will be a part of the annual public report of the company and needs to be published in digital format.
• A standardised approach – companies need to comply with the European sustainability reporting standards (ESRS) on environmental, social and governance issues, when drafting their sustainability reports.

European Union Sustainability Reporting Standards (ESRS)

In July 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS) to be used by all companies covered by the Corporate Sustainability Reporting Directive (CSRD). This marks another step forward in the transition to a sustainable economy in the European Union.

The standards cover all environmental, social and governance (ESG) issues, including climate change, biodiversity and human rights. Under the CSRD, the sustainability reports of companies prepared on the basis of these standards will be used to inform investors. The standards also set out clear disclosure requirements to ensure that companies provide information on how their activities have impacted society and the environment, as well as how ESG aspects have affected their financial performance.

The reporting requirements will be introduced gradually, starting with large financial institutions and companies, the transferable securities of which are listed on a regulated market in a Member State of the European Union.

* Applies to all companies that are obliged to implement sustainability reporting

Guidelines and support tools developed by the Business Sustainability Council

The Business Sustainability Council, which currently unites 14 Latvian companies – Swedbank, Latvijas Finieris, Latvijas dzelzceļš, LMT, ARS, Madara Cosmetics, Valmiermuižas Alus, Dobeles dzirnavnieks, Latvian Grain Growers Cooperative VAKS, Laflora, AJ Power, Augstsprieguma tīkls, SCHWENK Latvija and Neste Latvija, has developed a practical guide, which brings together practical solutions and insights on best practices in sustainability management. Furthermore, companies and experts from Cobalt, Labs of Latvia, Latvenergo, Institute of Corporate Sustainability and Responsibility, KPMG, WWF Latvia, PwC, RIMI Baltic, Orients Audit & Finance and Riga International Airport were also involved in the development of the Guide.

Due diligence rules for European Union companies in the area of human rights and the environment

In July 2024, the EU directive on corporate sustainability due diligence or Corporate Sustainability Due Diligence Directive (CSDDD) entered into force. The Directive obliges large companies and their partners in the supply, production and distribution chain to cease or mitigate their negative impacts on human rights and the environment. To ensure compliance with the requirements, these companies will need to exercise due diligence in their operational process, make appropriate investments, request contractual guarantees from partners, improve their business plan or support their partners that are small and medium-sized enterprises. They will also have to adopt a transition plan to ensure that their business model takes the 1.5 °C global warming limit provided for by the Paris Agreement into account.

The new rules (except for reporting obligations) will apply gradually to EU and non-EU companies:

• from 2027 – to companies with at least 5,000 employees and a global turnover of at least EUR 1,500 million,
• from 2028 – to companies with at least 3,000 employees and a global turnover of at least EUR 900 million,
• from 2029 for all other companies covered by the Directive (with at least 1,000 employees and a global turnover of EUR 450 million).

Further steps: After the entry into force of the Directive, the Member States will have two years to ensure the transposition thereof into national law.