CSRD Spotlight: ESRS G1

As part of the Corporate Sustainability Reporting Directive (CSRD), reporting requirements are broken down into 3 main categories: Environmental, Social, and Governance (for an overview of the CSRD and who is affected, see corresponding blog post: CSRD NetSuite Reporting Best Practices). Here we will specifically look at the Governance Reporting Standards. This section provides specific information on how a company integrates sustainability into its governance structure. The Governance Standards make up 1 subcategory focusing on the governance structures and practices related to sustainability within a company.  This category is defined as ESRS G1. Here we will explore ESRS G1  in detail.

This section addresses the governance structures and practices related to sustainability within a company. 

Structure of the Board of Directors

• Companies must disclose the structure of their board of directors in order to oversee sustainability matters
  • Roles and responsibilities of the board
  • Whether sustainability is a part of decision-making processes
  •  Frequency of discussion on sustainability topics

Sustainability Framework

• Policies and procedures related to governance, risk management, and internal controls concerning ESG matters
• How sustainability governance is integrated into the company’s broader corporate governance structure, for example:
  • Alignment with business strategy
  • Risk management processes
  • Compliance frameworks

Accountability and Transparency

• How a company ensures accountability for its sustainability objectives at all levels of the organization
  • Clear lines of responsibility for sustainability performance and reporting
  • Transparency in decision-making processes, including how decisions are made on sustainability-related issues (i.e. how investments in sustainability are prioritized)

Risk Management System:

• A company’s approach to managing sustainability-related risks across their operations
  • Identification, assessment, and mitigation of risks that may have significant environmental, social, or governance implications (i.e. climate-related risks, human rights violations, regulatory compliance risks)
  • The integration of sustainability risks into the overall corporate risk management system, ensuring that these risks are considered alongside traditional financial or operational risks
  • How risks are communicated within the organization, particularly between departments (i.e. between sustainability, finance, and operations teams)

Internal Control Systems

• How a company’s internal control systems address risks related to sustainability
  • Processes for monitoring and controlling ESG-related risks and ensuring compliance with relevant laws and regulations
  • The effectiveness of internal controls in preventing misconduct, such as fraud, bribery, or corruption, related to sustainability issues
  • Any third-party audits or assessments of the internal control systems, and how these audits address sustainability risks

Sustainability Integration in Corporate Strategy

• How sustainability affects a company’s business strategy and decision-making processes
  • How long-term sustainability goals are integrated into corporate strategy, and the role of the board in approving or overseeing these strategies
  • Whether sustainability performance is a key factor in determining executive compensation or incentives
  • Any sustainability reporting frameworks the company adheres to (i.e. GRI, SASB, TCFD), and how governance processes ensure the accuracy and reliability of these reports

Sustainability Reporting and Accountability

• How a company manages reporting risks and ensures the accuracy and completeness of their sustainability disclosures
  • How internal audits assist in verifying sustainability-related data
  • Any involvement of the external auditor in reviewing the sustainability information disclosed in the company’s annual report
  • The processes in place for reporting and addressing sustainability-related controversies or issues

Governance Mechanisms and Best Practices 

• Any specific governance mechanisms a company uses to foster a culture of sustainability
  • Sustainability committees or task forces within the board or executive teams
  • Training and awareness programs on sustainability topics for relevant governance personnel
  • Use of industry best practices, such as adopting codes of conduct, ethical guidelines, or international standards for corporate governance in sustainability

Stakeholder Engagement and Dialogue:

• How a company engages with external stakeholders (i.e. investors, customers, NGOs, regulators) to understand and manage sustainability risks and opportunities
  • How stakeholder concerns affect governance and decision-making, as well as how the company addresses these concerns
  • Specific stakeholder engagement mechanisms, such as shareholder meetings, consultations, or public disclosures, and how these mechanisms help shape the company’s sustainability strategy

For information on Environmental and Social Standards, see corresponding blog posts: ESRS E1-E5 and ESRS S1-S4.

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