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Sustainability reporting will impose new business models on companies and affect access to finance

TPA Romania: “…in the coming period we expect banks to begin offering differential interest rates on ‘green’ loans.”

BUCHAREST, 21 November 2024: Over 5,000 companies in Romania will need to prepare sustainability reports for 2025 following the extension of reporting requirements to include medium and large enterprises.

According to TPA Romania, a leading central and eastern European company specialised in accounting, audit, mergers and acquisitions, and tax and legal consultancy, the integration of ESG (Environmental, Social and Governance) standards into a company’s general strategy may require a major change in business practices and decision-making processes, involve significant implementation costs and affect a company’s access to funds and financing.

“Over the last year, an increasing number of businesses have begun to recognise the importance of being ready to meet sustainability reporting requirements. Internal auditing is mandatory in Romania for statutory audited companies and we have observed an increase in demand for ESG-focused internal auditing, which involves an assessment of a company’s readiness to meet the new European Sustainability Reporting Standards (ESRS), as well as specialised support in transitioning to the new standards and meeting future requirements ,” says Claudia Bratu, Audit Partner and Head of ESG Services at TPA Romania.

The application of the EU’s Corporate Sustainability Reporting Directive (CSRD) encourages companies to adopt innovative and efficient methods with respect to how they use their resources, reducing costs through streamlining energy consumption, more efficient waste management and optimising supply chains. “Compliance with ESRS may facilitate access to finance and cheaper funds, as in the coming period we expect banks to begin offering differential interest rates on ‘green’ loans as opposed to other types of loans. What’s more, companies that adopt ESRS and demonstrate an interest in the environment and social responsibility will be able to attract highly skilled professionals and increase the loyalty of current employees,” explains Claudia Bratu.

Sustainability reporting covers environmental, social and governance aspects, analysing not only the direct activities of a company, but also the entire value chain.

It is expected that an increasing number of businesses will be required to prepare sustainability reports in the near future. “EFRAG, the European Financial Reporting Advisory Group, is currently working to develop standards for SMEs. The directive also includes a reporting requirement for the entire value chain, meaning other SMEs in the value chain will be required to apply ESG principles and be able to provide information of this kind to their partners who are covered in the sustainability report. As reporting requirements are extended, SMEs will become increasingly involved in the reporting process,” adds Claudia Bratu.

At the start of 2024, Romania took an important step by becoming one of the first countries to transpose the CSRD to national legislation through the adoption of Ministry of Finance Order no. 85/2024. Sustainability reporting covers environmental, social and governance aspects, analysing not only the direct activities of a company, but also the entire value chain. This report should be included in the management report and filed together with the annual financial statements. The first wave, which began on 1 January 2024, envisaged listed companies with an average of 500 employees over the financial year. In the second wave, for the year beginning on 1 January 2025, the reporting obligation is extended significantly to include medium and large enterprises, more precisely those which for two consecutive years meet at least two of the following three criteria: yearly turnover of more than RON 50 million; total assets worth over RON 25 million; average of 50 employees.

Companies with a financial year different from the calendar year will prepare their first sustainability report for the financial year beginning after 1 January 2024 or 1 January 2025, depending on what category they belong to: “For example, a listed company with an average number of employees greater than 500 and whose financial year ends on 30 September will prepare its first sustainability report for the year beginning on 1 October 2024, while a company from the medium and large enterprise category and with the same financial year will prepare its first sustainability report for the year beginning on 1 October 2025,” explains Claudia Bratu.

The reporting process is not simple and can sometimes last more than nine months […] and may differ significantly from one industry to another

The head of ESG Services at TPA Romania says that under certain circumstances branch offices will be exempted from individual reporting if the mother company already includes their data in a consolidated management report that has been translated into Romanian. However, it is essential that the branch office’s management report includes the name and registered address of the mother company performing the reporting at group level, links to the consolidated management report of the mother company and to the associated limited assurance opinion, and, last but not least, the mention that the branch office is exempt from reporting obligations.

“The reporting process is not simple and can sometimes last more than nine months, during which time companies will need to identify the impact, risks and opportunities relating to ESG, to involve stakeholders, to set their ESG goals, to integrate their ESG strategy into the general strategy and to establish performance indicators. Moreover, it is essential to create multidisciplinary teams and to collaborate with specialist consultants with a good understanding of the new ESRS. In the first three years of application of these reporting requirements, if not all of the required information about a company’s value chain is available, the company will describe the effort it made to obtain the required information about its value chain, the reasons it was not possible to obtain all of the required information and its plans for obtaining the required information in the future,” says Claudia Bratu.

Under Romanian law, companies with an obligation to submit a sustainability report but which fail to do so are also subject to fines – currently ranging between 5,000 and RON 40,000  – that may be applied from as early as the first year in which a reporting obligation exists.

The implementation of sustainable practices may differ considerably from one industry to another, depending on the nature of the activity and regulatory and consumer pressure.

“Take, for example, the financial sector, which plays an essential role in financing the green economy. Banks and financial institutions have begun to work on integrating ESG criteria into their risk assessment processes. It is expected that banks will offer preferential financing to companies that demonstrate a strong commitment to sustainable practices. Similarly, the renewable energy sector is one of the more advanced sectors when it comes to adopting ESG principles, because its main goal is to reduce greenhouse gas emissions. Companies in the software and IT services sector have also been somewhat quicker to adopt ESG policies as a result of pressure from investors and customers, especially those in the automotive industry. Consumer goods producers are also looking to invest in environmentally-friendly packaging and sustainable supply chains in response to consumer pressure,” Claudia Bratu says.

At the other extreme, extractive industries, the oil industry and heavy industry (e.g. steel and cement producers) still have a lot of catching up to do and face various difficulties in terms of high emissions and the high cost of the technology required for decarbonisation. Agriculture and transport also fall into the category of industries that are lagging behind and face challenges in terms of high consumption of resources and high greenhouse gas emissions.

“So, while advanced sectors are adapting somewhat more quickly to the ESG criteria, traditional industries need significant investment and structural change to make the transition to sustainability. There is a marked contrast between companies integrated into international value chains that are forced to adopt high sustainability standards and firms focusing exclusively on the domestic market, where the pressure to implement ESG is significantly lower. Experts in the field point out that this discrepancy between sectors could lead to uneven economic development over the coming years as ESG criteria become increasingly important in investment decisions and commercial relationships,” adds Claudia Bratu.

The cost of sustainability reporting can be high and may include staff and IT system costs, data collection costs and costs relating to consultancy and external auditing. For example, it may be necessary to purchase new platforms or specialised software to collect and analyse environmental data. Similarly, companies may need to invest in equipment to measure emissions and the consumption of energy, water and other resources that need to be monitored for the purposes of reporting.


About TPA Romania:

TPA Romania, a top-10 professional services company in Romania, reported a turnover in 2023 of 7.6 million euros, representing an increase on the previous year. The company has two offices in Romania, one in Bucharest and one Cluj-Napoca, and over 150 employees. Its main clients are international companies working in the fields of real estate, construction, production, services, technology, retail and distribution, agriculture and renewable energy. TPA Romania is part of the Austrian group TPA, which is present in 12 countries in the region and has a total of over 2,000 employees. TPA is an independent member of the Baker Tilly Europe Alliance international network, which means its clients have access to a worldwide network of accountants, tax advisers, lawyers and auditors.

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