Is your business legally obligated to do sustainability reporting in Estonia? This blog article will give you an overview of the requirements for sustainability reporting in Estonia, inform you about the most popular standards for sustainability reporting in Estonia, and help you recognize the benefits of working with certified sustainability reporting professionals in the Baltic market.
First things first. Estonia is a small language area. Starting from the basics, we’ll begin with some local terminology. In Estonian, a sustainability report is called “jätkusuutlikkuse aruanne”, and the term for a non-financial report is “Mittefinantsaruanne”.
Is sustainability reporting legally mandatory in Estonia?
Yes, sustainability reporting is legally mandatory in Estonia if you are a company with more than 500 employees, you are a bank or an insurance company, a publicly-traded company, or if you have a legal requirement to have your annual accounts audited.
The legal requirement for mandatory sustainability reporting in Estonia stems from the EU non-financial reporting directive, NFRD which was enforced in 2014, and then implemented into the Estonian Accounting Act, applicable to Estonian businesses starting June 2021. The enforcement of the Directive in Estonia in 2021, means, that many large Estonian companies face a legal requirement for sustainability reporting for the first time in 2022 when they start drafting their annual report for the year 2021.
What are the sustainability reporting requirements in Estonia?
EU sustainability reporting directive as a basis for Estonian sustainability reporting requirement
The EU non-financial reporting directive has been implemented in Estonia as part of the Accounting Act. Based on §14(1) of the Act, an accounting entity is required to prepare an annual report which includes a management report, in addition to preparing annual accounts.
Based on §24 paragraph 3, section 3 of the Estonian Accounting Act, a business whose annual report is audited either voluntarily or out of legal requirement, is obliged in its management report to report on significant environmental and social impacts resulting from its activities.
The directive provides a lot of freedom on the way of executing the reporting, however, the report must handle the topics of the environmental and social impact of the business, the company’s efforts in fighting corruption, as well as a full description of the business leadership.
What should a sustainability report include?
On the 1st of June 2021, §24 subsections 6 and 61 entered into force in Estonia. §24(6) of the Accounting Act requires large companies, defined as having more than 500 employees, to provide information on the environmental and social impacts resulting from its activities and to report about the issues concerning its human resource management, to provide an observation of human rights in the business’s activities, as well as describe anticorruption efforts made to a necessary extent. Additionally, add relevant explanations to the annual report, in order to provide an overview of the performance, development, position, and impacts of the company and its activities.
The management report should include a description of the company’s business model and the policy it has implemented with regard to the impact on the environment and people described above, and the results of the policy. When reporting the results of the policy, the results should include clearly communicated information about the performance of the due diligence standards that the company has implemented in order to avoid negative impacts.
Risks and risk management in the reporting organization
Additionally, the management report should contain information about the main risks and risk management implemented by the company, in regard to the above-discussed issues.
The risk management overview should include information about business relationships, goods offered and sold, services offered and provided, and the nature and extent of them, which renders it probable that the given business activities will have a negative environmental or social impact, or any other negative impact on issues listed in subsection (6).
The requirement to provide an explanation in case of not conducting sustainability reporting
If the company does not have any social or environmental impacts or human resources management that would result from its activities or the company hasn’t published a human rights observation or an anti-corruption efforts policy, or if it has developed a policy, but it hasn’t been implemented, it must be explained in the management report as to why these principles haven’t been developed or why the entity isn’t implementing the developed policy.
Who is required to publish a sustainability report in Estonia?
- All companies with 500+ employees
- Publicly listed companies
- Insurance companies
- All businesses with a requirement to audit their annual reports
What about voluntary sustainability reporting?
Sustainability reporting used to be completely voluntary in Estonia up until 2018 when even the largest businesses operating in the country were not required to publish information about their environmental or social impacts. Nowadays, however, sustainability reporting is mandatory for large corporations, and for the time being voluntary for smaller businesses.
Smaller entities are allowed and even encouraged to publish their own sustainability reports annually, even if they are not yet legally required to do so. However, getting into the habit of publishing an annual sustainability report is good practice for the upcoming CSRD, Corporate Sustainability Reporting Directive, which will impose a reporting requirement for most large and midsized companies in the EU, which are not yet legally required to submit a report.
Setting up a system for data collection, and getting used to performing continuous materiality assessment for the company’s sustainability report takes time, and most companies would agree, that the process runs smoother, if there has been a test run of the process in advance of the function becoming legally mandatory.
GRI certified sustainability reporting in Estonia
The most popular sustainability reporting guidelines in Estonia followed by companies are the GRI standards. As GRI standards are internationally recognized, they allow companies to be at ease, with the comfort, that their sustainability report, when in accordance with the standards, provides the necessary information required by the regulatory demands.
Most companies resort to the GRI standards because the EU directive allows for quite a lot of freedom for the execution of the report. Most of us appreciate freedom, but it also makes it challenging to ensure that the report is comprehensive and contains the required data in the required detail. That is why GRI is the unofficial industry standard for sustainability reporting for companies operating in Estonia.
GRI provides sustainability reporting tools and guidance that easily covers all fields of industry. Additionally, GRI provides industry-specific standards, in order to give specific and exact tools for reporting for the oil and gas industry, coal industry, mining sector as well as for agriculture, aquaculture, and fishing industry.
Why use a GRI-certified sustainability professional for drafting a sustainability report?
A certified sustainability professional is able to cooperate with your in-house team, allowing your in-house team to focus on their daily tasks both at the sustainability and accounting departments. Using the services of a certified professional also ensures that, in addition to compliance, the reporting will be done correctly, and that the most up-to-date reporting requirements will always be complied with.
Most Estonian businesses, looking for sustainability reporting in Tallinn have only a few options to choose from. Askel Sustainability prides itself, as being the only Estonian sustainability reporting agency having its main operations in sustainability reporting, thus enabling the companies to rest assured that the reports drafted by our certified personnel will be crafted with the utmost precision and care, and will comply with the most up to date regulatory requirements and industry standards.