Find out how Sustainability Reporting can boost the competitiveness of organizations and what the role of certified accountants is in ensuring legal compliance and the success of your business.
In recent years, the concept of Sustainability Reporting has gained increasing weight in the business world. The reason is simple: consumers, investors, regulators and employees are increasingly aware of companies' environmental, social and governance practices, known by the acronym ESG (Environmental, Social, Governance).
It's no different in Portugal. The market demands transparency and alignment with best practices, at the risk of losing investment opportunities , reputation and competitiveness.
According to data from the World Economic Forum, around 90% of investors consider ESG performance before making investment decisions. This shows that sustainability is no longer just a concept of social responsibility, but a crucial factor for the strength and future of organizations.
In this article, we'll explain:
- What is the ESG?
- How Sustainability Reporting works;
- What are the legal obligations in Portugal?
- How companies can produce effective reports.
Ready?
What is ESG and what is its relevance for Portuguese companies?
The acronym ESG groups together three major dimensions of corporate performance:
- Environmental (E): how the company manages its impact on the environment, including carbon emissions, resource consumption, waste management and the adoption of renewable energies.
- Social (S): involves relations with employees, suppliers, local communities and society in general, including diversity policies, working conditions, health and safety.
- Governance (G): refers to the leadership structure, auditing practices, transparency and business ethics, as well as anti-corruption and compliance with the law.
The importance of ESG for Portuguese companies is clear from several aspects:
- Market demands: consumers and investors prefer products and services from companies committed to sustainability;
- Access to financing: many banks and investment funds have special credit lines for organizations that demonstrate sound ESG practices;
- Global competitiveness: meeting sustainability standards is a differentiator that can open doors in international markets;
- Risk mitigation: anticipating possible legal sanctions and preserving reputation in environmental or social crisis scenarios.
What is Sustainability Reporting?
The Sustainability Report is a document that presents, in a structured and transparent way, an organization's performance on environmental, social and governance issues.
It is also often called "Sustainability Reporting" or "ESG Reporting". Let's take a closer look at its fundamentals:
Main objectives
- Transparency: offering stakeholders (employees, customers, investors, the community, suppliers) a clear vision of the practices adopted;
- Accountability: demonstrating how the company meets its legal obligations and the targets it has set in the area of sustainability;
- Decision-making: the indicators in the report help management to identify risks and opportunities, guiding short- and long-term strategies.
International reference frameworks
To ensure credibility and consistency, companies can follow globally recognized standards, such as:
- GRI (Global Reporting Initiative)
- SASB (Sustainability Accounting Standards Board)
- IIRC (International Integrated Reporting Council)
- TCFD (Task Force on Climate-related Financial Disclosures)
These frameworks provide guidance on which metrics and indicators should be reported, as well as the principles of content and quality (comparability, clarity, balance and reliability).
This article doesn't go into detail about each of them, but we have hyperlinked the official websites in front of each one, in case you want to know more about them or perhaps learn how to comply with any of the international reference frameworks.
Legislation and Standards in Portugal
Sustainability reporting is no longer merely voluntary for many companies, especially after the advance of regulations in the European Union. Read on to find out what obligations now exist.
Non-Financial Reporting Directive (NFRD) and CSRD
The Non-Financial Reporting Directive (NFRD) obliges large European companies to disclose information on their non-financial performance, including environmental, social and governance issues.
However, the new Corporate Sustainability Reporting Directive (CSRD) has extended the scope of application to more companies - including some SMEs - as well as making the reporting requirements more detailed.
Transposition into Portuguese law
Portugal, as a member state of the European Union, is responsible for transposing these standards into national law.
As a result, more and more companies will be obliged to publish an annual Sustainability Report that includes:
- Environmental indicators (CO₂ emissions, water and energy consumption, waste management, etc.)
- Social issues (gender equality, inclusion, health and safety at work, community involvement)
- Governance and ethics (anti-corruption policies, management structure, human rights, transparency)
Penalties and deadlines
And yes, it's true: failure to comply with legal obligations can result in financial penalties and damage to the company's reputation.
In addition, the CSRD provides for different implementation phases depending on the size and structure of the organizations, imposing deadlines that require managers to prepare in advance:
- From January 1, 2024: large public utility companies (with more than 500 employees) that are already subject to the non-financial information disclosure directive. Applies to reports to be submitted in 2025;
- From January 1, 2025: large companies (more than 250 employees and/or 40 million euros in turnover and/or total assets of 20 million euros) not yet covered by the non-financial reporting directive. For reports to be submitted in 2026;
- From January 1, 2026: listed SMEs and other companies. Small and medium-sized companies can opt out until 2028.
How to write an effective Sustainability Report
Drawing up a Sustainability Report goes far beyond complying with a formality. It is a strategic process which, when carried out well, can generate value and guide the future of the business.
Shall we learn how to create one?
Definition of indicators and targets
- Identify relevant KPIs: start by choosing metrics that are consistent with your company's activity. For example, an industry might focus on carbon emissions and the use of natural resources, while a service company might put more emphasis on people management and employee training;
- Set clear targets: as well as presenting past data, it is essential to set future targets for continuous improvement.
But where am I going to collect the data that will allow me to create this report?
Let's get to know the most typical ones.
Data collection and analysis
- Internal sources: ERP systems, time sheets, HR reports, energy and water consumption meters, etc.
- External sources: public databases, sector studies, feedback from stakeholders and partnerships with NGOs or other institutions;
- Guaranteeing reliability: ensuring the accuracy and consistency of the data is essential for the credibility of the report.
Report structure
Following a recognized framework (e.g. GRI) can make it easier to organize the document into environmental, social and governance topics. Download an example of a Sustainability Report created using the GRI here.
External validation
Having independent audits or external verifications adds legitimacy to Sustainability Reporting. This strengthens the confidence of investors and stakeholders in general.
Effective communication
Finally, it is important to publicize the Sustainability Report on the appropriate channels (official website, social networks, newsletter) and make it easy for all interested parties to access .
The role of certified accountants in the ESG process
Certified accountants play a central role in implementing ESG practices and drawing up the Sustainability Report. Why?
- Data reliability: these professionals specialize in the analysis and validation of financial and non-financial data, guaranteeing the reliability of the information presented;
- Legal compliance: they are constantly up-to-date on tax laws and regulations and can advise companies on how to comply with new non-financial reporting requirements;
- Analysis of risks and opportunities: by dealing with the financial flow on a daily basis, accountants are able to identify critical points and potential opportunities to improve processes;
- Integrity and transparency: ethics and a commitment to the truth are part of the profession's code of conduct, which reinforces the credibility of the Sustainability Report.
Benefits of adopting ESG practices and having a good Sustainability Report
Before I say goodbye, allow me to "defend" the adoption of good ESG practices with arguments that go beyond legal obligations. I'm very quick!
Competitive advantages
Companies that invest in ESG stand out in an increasingly saturated market. Demand for sustainably sourced products and services is growing, both from conscious consumers and from large global value chains.
Better reputation and brand image
A solid Sustainability Report sends the message to stakeholders that the company is transparent, responsible and committed to good practices. This increasestrust and strengthens the company's reputation with customers, suppliers, partners and employees.
Ease of attracting investment
Many investment funds are focused on sustainable assets (green bonds, social bonds, etc.). Thus, presenting a robust and proven ESG performance opens doors to new sources of funding.
Reducing risks and costs
Measures related to energy efficiency, waste management and social responsibility can reduce operating costs in the long term, as well as reducing exposure to the risk of litigation or legal sanctions.
Attracting and retaining talent
In a competitive job market, more and more professionals are opting for organizations that align themselves with values of sustainability and inclusion. In this way, the company is more likely to retain its best talent.
Conclusion
Sustainability is not just a passing trend; it is a reality that directly affects the competitiveness, reputation and future of companies.
In Portugal, the adoption of ESG practices and the preparation of a consistent Sustainability Report have become essential in order to comply with legal requirements, attract investment and win the trust of stakeholders.
If you want to ensure that your company is on the cutting edge, compliant with legal obligations and prepared for the challenges ahead, BTOCNET can help! Our network of certified accountants has the experience and knowledge to support the entire process: from collecting ESG data to writing, validating and disclosing your Sustainability Report.
Get in touch with us and find out how BTOCNET can turn a commitment to sustainability into a solid and lasting competitive advantage!
