The role of the LEI in preparing for the new 2024 ESG reporting standards

19 August 2024

In 2024, the business world will experience significant change, especially for European companies. The new ESG reporting standards introduced by the European Union’s Corporate Sustainability Reporting Directive (CSRD) will force companies to disclose their sustainability practices in more detail than ever before. The Legal Entity Identifier (LEI) plays a crucial role in this transformation and allows companies to manage and communicate the necessary data effectively.

Why are the new ESG reporting standards relevant?

The new ESG reporting standards, which come into force in 2024, aim to make companies’ sustainability and social responsibility more transparent. These regulations will particularly affect companies in the European Union, but companies outside the EU that are involved in this market will also be affected.

Companies with significant business activities in the EU or are part of global supply chains must also fulfil the ESG requirements. This is particularly relevant for companies with an annual turnover of over 150 million euros in the EU or those with subsidiaries in the EU. Compliance with these new requirements is crucial for companies to minimise regulatory risks and gain the trust of investors and stakeholders.

The importance of the LEI in ESG reporting

The Legal Entity Identifier makes complying with the new ESG reporting standards much more accessible. By using a LEI, companies can prove their identity in global markets, which increases reporting transparency. This is particularly important as the new ESG requirements call for detailed disclosure of corporate data, including reporting on the activities of subsidiaries and other related entities.

An LEI enables companies to manage these complex data structures efficiently and ensure accurate and consistent reporting. In addition, the LEI facilitates the comparability of data between different companies, which helps investors and other stakeholders to make informed decisions.

Why the LEI is also essential for companies outside the EU

Even though the new ESG reporting standards primarily apply to European companies, companies outside the EU are strongly affected if they have business activities in Europe or collaborate with European companies. As many investors, financial institutions and international business partners are increasingly looking for compliance with ESG standards, the LEI is becoming an indispensable tool to legitimise global business transactions and gain the trust of stakeholders worldwide.

Companies involved in global supply chains also benefit from using an LEI, as it increases transparency across the entire value chain. This is particularly relevant as companies are often required to demonstrate the sustainability of their suppliers to comply with ESG requirements.

Similar ESG regulations are also expected to soon follow in other regions, such as the USA or Asia. Companies that prepare for these standards early and integrate the LEI into their reporting will be better prepared for future regulatory requirements and can position themselves as pioneers in the global business world.

LEI registration: a must for companies

In light of the upcoming changes, companies that do not yet have an LEI should urgently consider registering one. Registration is a simple process but an essential foundation for compliance with the new ESG reporting standards. By registering an LEI, companies can fulfil regulatory requirements and strengthen their position in the global market.

LEI registration is essential not only for large companies but also for small companies. Smaller companies operating in global markets or preparing for a stock exchange listing should also consider the benefits of an LEI. An LEI’s increased transparency and credibility can be critical to gaining investor confidence and ensuring long-term success.

Conclusion

The new ESG reporting standards pose significant challenges for companies but also offer the opportunity to score points through improved transparency and accountability. The Legal Entity Identifier (LEI) is an indispensable tool to help companies fulfil these requirements and achieve sustainability goals. Companies that do not yet have an LEI should register their LEI as soon as possible to prepare for the upcoming changes and ensure optimal competitiveness.

By integrating the LEI into their reporting, companies can not only comply with the new regulatory requirements but also strengthen their position on the global market and gain the trust of investors and stakeholders.