Ewa Rutkowska

By Ewa Rutkowska-Subocz, partner and Europe head of Public Law & Regulatory, Dentons


Although the term ESG (Environmental, Social, and Governance) has been around for years, its full application is still quite daunting. Companies face the challenge of integrating ESG values into their strategy, operations, and decision-making processes to respond to the increasingly influential voice of stakeholders: citizens, consumers, NGOs, governments, and investors.

ESG is not a one-size-fits-all solution that can be applied uniformly to any company. It must be a tailored risk-management strategy that considers the global outlook, industry sector, and company specifics. Country matters, too: the war in Ukraine and around 1.6 million Ukrainian refugees are at the top of Polish minds, with the energy transition and women’s rights galloping behind.

The common element of any ESG programme is a non-financial report, which outlines the company’s long-term sustainability goals as well as achievements to date. Investors have a great interest in the public disclosure of ESG data, which they analyse when making financial investment decisions. The impact ESG rankings and reports have on investors’ perception of company value and investment potential is rapidly increasing. In Poland, almost 90% of investors have reported that ESG factors are becoming increasingly significant in their decision-making process.

While transparency is at the core of the ESG concept, there are yet no universal standards of sustainable reporting. This makes it difficult to create reliable ratings and comparisons, which investors need to assess the sustainability of their investment.

The European Commission is taking steps to remedy the situation. It has set out the ambitious EU Sustainable Finance Strategy, composed of the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy Regulation (EUT), and the proposed Corporate Sustainability Reporting Directive (CSRD), which will replace the Non-Financial Reporting Directive (NFRD).

A chain is created: the NFRD (to be replaced by CSRD) compels large companies and listed companies to disclose (in sustainability reports) the current and future percentage of their revenues derived from activities aligned with the EUT. The EUT is a classification system of activities that make a significant contribution to environmental objectives, according to science-based criteria. Once published, the sustainability reports are made available to the public and to financial market participants (including financial advisors, insurers, investment funds, etc.). From the perspective of investors, EUT-aligned activities constitute sustainable investments that contribute to environmental or social objectives, while doing no significant harm.

To measure this positive contribution (or lack of harm), companies disclose key resource efficiency indicators on factors such as the use of renewable energy and raw materials, greenhouse gas emissions, and labour relations – to name just a few. Obviously, data varies depending on the sector in which the company operates – for example, while chemical manufacturers may provide data on land and water contamination or industrial accidents, such data is not relevant to gaming companies. If a financial product includes shares in sustainable investments, the issuing financial institution should provide taxonomy key performance indicators of the investee companies in its own disclosures. Moreover, market participants must inform how their investments may impact the environment and society by considering the principal adverse impact of sustainability risks in their due diligence process. In other words, they must report on what percentage of their investment portfolio aligns with the EUT.

This chain is being gradually implemented in Poland, but the legislation is in no way harmonized and coherent. Progress is slow, as the government is rather reluctant to introduce any ESG-aligned legal changes, even with the business community rambling on sustainability. Optimism sparked in 2019, with the introduction of the WIG-ESG stock market index of the 40 largest companies on the Warsaw Stock Exchange, weighed against the reports prepared by Sustainalytics. Today, roughly 300 listed companies are required to publish non-financial data under the NFRD and, with the introduction of the SFRD, this number will increase tenfold. There are, however, no unified reporting criteria: the Warsaw Stock Exchange has issued an ESG-reporting guideline just in May 2021, in which adherence to standards made by the Global Reporting Initiative or Value Reporting Foundation was advised. Still, the sustainability reports of the biggest Polish players vary in their approach – some are diligent, while others barely touch on the topic. Most place greater focus on ESG challenges in day-to-day management than on reporting.

Poland is at a turning point, in which a better balance between profit and socio-ecological goals must be struck. Companies must shift towards more EUT-aligned activities and implement ESG strategies to stay attractive to Polish investors, staying ahead of the government’s actions.