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ESG

ESG reporting. What does the Amendment to the Companies Act (ZGD-1M) bring?

The ZGD-1M amendment introduces mandatory ESG reporting, covering environmental, social, and governance factors. What does it mean for businesses?

As of 18 December 2024, the amendment to ZGD-1M came into force, which transposes the CSRD into Slovenian law and thus the mandatory ESG reporting under the CSRD. In addition to financial reports, companies will also be required to disclose information on environmental, social and governance (ESG) factors. This obligation represents a new step towards greater transparency and accountability in business and creates opportunities for sustainable transformation of companies. In this article, we outline what the amendment brings, who will be obliged to report, the key challenges and opportunities, and how companies can prepare for the new requirements.

Implementation of the CSRD in Slovenia
Amendment to the Companies Act (ZGD-1M)[1] , which entered into force on 18 December 2024, implements the Corporate Sustainability Reporting Directive (CSRD)[2]  into the Slovenian legal order.

What is the CSRD?

The CSRD, which is an upgrade of the Non-Financial Reporting Directive (NFRD), introduces more comprehensive and structured reporting requirements for companies on ESG factors. The main objectives of the Directive are to improve access to reliable and comparable sustainability information, to reduce the risk of greenwashing and to promote the sustainable transformation of companies.

 

Who will be obliged to report and when?

Companies will be obliged to report in several stages, depending on their size and status:

  • In 2025 for 2024: Large public companies with more than 500 employees (already obliged under the NFRD).
  • In 2026 for 2025: All large companies meeting two of the three conditions (more than 250 employees, €40 million in revenue or €20 million in assets).
  • In 2027 for 2026: Medium and small listed companies (excluding micro companies). These companies have the possibility to opt-out until 2028, which means that they can temporarily exempt themselves from the reporting obligation if they state the reasons for doing so in their business report.
  • In 2029 for 2028: Third country companies with substantial operations in the EU (more than €150 million in EU revenue) and a branch or subsidiary in the EU. Reports will be prepared for the 2028 financial year and published in 2029.

What does ESG reporting involve?
Sustainability reports should include information on:

  • the company’s business model and strategy,
  • sustainability objectives and policies,
  • the company’s sustainability risks and impacts,
  • indicators related to environmental, social and governance factors.

In addition, companies should identify how they collect and process data and how they are used to monitor progress and achieve their objectives.

The European Sustainability Reporting Standards (ESRS)[3] will be used to ensure comparability and reliability of data.

Challenges and opportunities for companies
The introduction of ESG reporting under the ESRB brings a number of challenges for companies. The ESRS foresee more than 130 disclosures and over 1000 data points, which means extensive data collection and analysis on a company’s sustainability practices and the entire value chain. Setting up effective systems to collect, process and verify this data can be challenging and burdensome.

However, ESG reporting offers opportunities for companies to review their performance, identify weaknesses and improve processes and strategies. Well-designed reports can be a tool for sustainable transformation, enabling companies to increase their competitiveness, access sustainable finance and increase transparency for investors and other stakeholders. It is important that companies do not see reporting as an administrative burden, but as a stepping stone to long-term performance and sustainable development.

Where to start preparing for reporting?

Companies are recommended to first collect and analyze existing data and review their current practices. This will help them to set clear objectives and strategies and plan appropriate actions to achieve them. The key is not to be intimidated by the data – they are what they are and they provide a starting point for improvement. The bigger challenge will arise years down the line if it turns out that the data remain unchanged, actions have not been implemented and targets have not been met.

It is also important to understand the basis, purpose and requirements of sustainability disclosures. The disclosures required are often based on complex sectoral legislation, ranging from environmental regulation, human rights, labour standards, consumer law, corporate law issues, to the complexities of contractual relationships with value chain partners. By understanding regulatory obligations, legal principles and the purpose of reporting, companies can target their reporting strategically.

Taking timely action with a clear vision of objectives and monitoring progress is the key to long-term success.

Conclusion
The amended ZGD-1M which transposes the CSRD into Slovenian law, introduces mandatory ESG reporting and thus a new step towards greater transparency and sustainable business. While it requires adjustments and accurate data collection, it also brings opportunities to improve companies’ processes and increase competitiveness. Businesses that respond in time, set clear objectives and monitor their progress will be better prepared to meet the challenges of the future and lay the foundations for long-term success in a sustainable economy.

[1]              Amendment to the Companies Act (ZGD-1M), Official Gazette of the Republic of Slovenia, No. 102/2024.

[2]               Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting.

[3]              Mandatory standards for large companies have already been adopted by the European Commission through Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards. Directive (EU) 2024/1306 of the European Parliament and of the Council of 29 April 2024 amending Directive 2013/34/EU as regards the time limits for the adoption of sustainability reporting standards for certain sectors and for certain third-country undertakings extended the deadlines for the medium and small companies reporting standards (ESRS LSME), for certain sectors and for third country companies and for the voluntary reporting standards (ESRS VSME).

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