All larger companies in Denmark must report on their social responsibility work in connection with the annual report. On 8 February 2022, the Danish Business Authority published updated guidelines on ESG reporting. The updated guidelines are intended to help companies report their ESG ratios easily and quickly.
The demand and interest in companies' social work and responsibilities have never been greater. The requirement comes not just from consumers, but from all stakeholders including business partners and investors. According to Section 99a of the Danish Financial Statements Act, large companies accounting class C and accounting class D must account for their social responsibility work in connection with their annual report. To help facilitate this, the Danish Business Authority has published updated guidelines on ESG reporting this month.
The social responsibility statement includes information on the ESG ratios relevant to specific business activities. However, companies are not required to use specific ESG ratios, but the ESG ratios that the company in question uses must be disclosed in the statement.
As of 1 January 2021, the digital reporting of annual reports has been supplemented by a number of voluntary specific input fields for reporting a company's work with social responsibility, including ESG ratios. The purpose hereof is to ensure that the data of a company's efforts within social responsibility are easily accessible to business partners, investors, suppliers and customers alike.
Why ESG Ratios?
Corporate social responsibility and sustainability being "soft issues" have traditionally been reported on in a descriptive form. However, qualitative reporting makes it difficult for stakeholders to compare the level of sustainability across different companies.
ESG ratios are a solution to this problem because they offer quantitative reporting of non-financial data. This method of reporting improves the data of companies on their work with sustainability and enables investors and other stakeholders to compare data on the sustainability of companies.
Furthermore, companies can use ESG ratios to illustrate a more nuanced picture of the valuation of their business. This is of great interest to investors, business partners, and costumers in their process of deciding whether they want to invest in, collaborate with or purchase from a specific company.
Content of the updated guidelines
Due to the complex – and sometimes even undefinable - size of ESG, companies are often left with questions when reporting on ESG ratios. The updated guidelines published by the Danish Business Authority are intended to remedy this, thus making reporting more manageable and reliable data more accessible.
Among other things, the updated guidelines provide a general introduction to the work of companies on social responsibility and sustainability. In addition, the guidelines' note describes which conditions companies covered by section 99a of the Danish Financial Statements Act must report on.
Furthermore, the updated guidelines contain information, amongst others, on:
- Definitions and methods of calculation for each ESG ratio.
- How to set up target figures for ESG ratios.
- The new ESG KPI fields in the XBRL taxonomy and a step-by-step guide on how to use the voluntary fields in the XBRL taxonomy.
- Policy and due diligence process statement.
- Task Force on Climate-Related Financial Disclosure - also known as TCFD.
- Voluntary fields and ESG ratios.
The Danish Business Authority's updated guidelines on ESG reporting can be found here: Årsrapportens ESG taksonomi (only available in Danish).