1.

Sustainable Development Goals (SDGs)

1. No poverty 9. Industry, innovation and 14. Life below water

2. Zero hunger infrastructure 15. Life on land
3.Quality education 10. Reduced inequalities 16. Peace, justice and strong
4. Good health and well-being 11. Sustainable cities and institutions
5. Gender equality communities 17. Partnerships for the goals
6. Clean water and sanitation 12. Responsible consumption and
7. Affordable and clean energy production
8. Decent work and economic growth 13. Climate action

2. TBL Concept

TBL – Tripple Bottom Line -> (Finance, Social and environment)

Idea of TBL was to encourage businesses to track and manage economic, social and environmental impacts affecting the value of
the company. It intended to make companies aware that their activities not only may generate value, but they can also contribute to
its devastation as a result of negative consequences of corporate irresponsibility.

3. ESG approach

ESG issues were first mentioned in the 2006 United Nation’s Principles for Responsible Investment (PRI) report. Investors who had
signed the Principle Committed to their adoption declared to search for appropriate disclosure on ESG issues in business reports
and its use in investment analysis, decision-making processes, ownership policies and practices.

4. GRI – Global Reporting Initiative

GRI is the oldest body (1997) and the first to develop global standards for ESG reporting. Those standards are broader in scope
than some of the other frameworks and are designed to support entities in the voluntary preparation of sustainability reports,
generally published separately from annual reports.

Structure of GRI standards: universal standards, sector standards and topic standards.

Key concepts of GRI standards: impact, material topics, due diligence, stakeholder.

Principles of reporting of GRI standards: accuracy, balance, clarity, comparability, completeness, sustainability context,
timelineness, verifiability

5. SASB – The Sustainability Accounting Standards Board

The SASB was formed in 2011 by Jean Rogers under patronage of Michael Bloomberg. In 2018 it published 77 standards
addressed to different industries. The SASB is more specific than some other frameworks, because it focuses on financially
material issues for specific industries. The SASB standards aim to help companies and investors analyse the material ESG issues
likely to affect a company’s financial performance. As of 2020, 175 companies had prepared SASB-compliant sustainability reports.
SASB standards are voluntary used by public companies in making disclosures on material sustainability factors in forms 10-K, 20-
F and 40-F as required by existing US regulation. SASB standards may also be applicable to the disclosure of material
sustainability information by other types of organizations, including privately held corporations publicly listed in other jurisdictions.

Fundamental tenets:
 Evidence-based approach – SASB makes evidence of interest to investors, financial impact (influence of sustainability
issues on company’s financial performance)
 Industry-specific approach – SASB develops sustainability accounting standards at the industry level, focusing on issues
that are closely tied to resource use, business models, and other factors at play in the industry
 Market-informed approach – SASB uses feedback from participants in the capital markets i.e., corporate issuers and
mainstream investors while conducting standards-setting process.

SASB sustainability dimensions:

 Environment – air quality, energy/fuel management, water and wastewater management, biodiversity impacts
 Leadership and governance – systemic risk management, accident and safety management, business ethics and
transparency of payments, competitive behaviour, regulatory capture and political influence, materials sourcing
 Business model and innovation – lifecycle impacts of products and services, environmental and social impacts on assets
and operations, product packaging, product quality and safety
 Social capital – human rights and community relations, access and affordability, customer welfare, data security and
customer privacy, fair disclosure and labelling, fair marketing and advertising
 Human capital – labor relations, fair labor practices, diversity and inclusion, employee health, safety and wellbeing,
compensation and benefits

Beneficiaries of SASB standards:

  Investors – sasb standards are designed to support investors in their efforts to integrate sustainability information into core
activities, such as: fundamental analysis, comparison and benchmarking, portfolio management, active engagement
 Companies – metrics can enhance or be incorporated into companies’ performance evaluation systems
 Policymakers – can better understand of the sustainability factors that are most likely to have material impacts on
companies in each industry

Criteria for accounting metrics used in the report:

 Fair representation – a metric adequately and accurately describes performance related to the aspect of the disclosure
topic it is intended to address, or is a proxy for performance on that aspect of the disclosure topic,
 Useful – a metric will provide useful information to companies in managing operational performance on the associated
topic and to investors in performing financial analysis,
 Applicable – metrics are based on definitions, principles and methodologies that are applicable to most companies in the
industry based on their typical operating context,
 Comparable – metrics will yield primarily quantitive data that allow for peer-to-peer benchmarking within the industry and
year-on-year benchmarking for an issuer, but also qualitative information that facilitates comparison of disclosure,
 Complete – individually, or as a set, the metrics provide enough data and information to understand and interpret
performance associated with all aspects of the sustainability topic,
 Verifiable – metrics can support effective internal controls for the purposes of data verification and assurance,
 Aligned – methrics are based on those already in use by issuers or are derived from standards, definitions and concepts
already in use by issuers, governments, industry associations and others,
 Neutral – methtics are free from bias and value judgement on behalf of the SASB, so that they yield an objective
disclosure of performance that investors can use regardless of their worldview or outlook,
 Distributive – metrics are designed to yield a discernable range of data for companies within an industry or across
industries allowing users to differentiate performance on the topic or an aspect of the topic.

6. AccountAbility AA1000 Series of Standard

Principle-based frameworks used by global businesses, private enterprises, governments, and other public and private
organizations to demonstrate leadership and performance in accountability, responsibility and sustainability. The AA1000 Series of
Standards include simple, practical, and easy-to-use frameworks for: developing, analyzing and implementing sustainability
initiatives, creating and conducting inclusive sustainability-related stakeholder engagement practices, assuring credibility in
reporting on progress toward sustainability goals.

7. TCFD – Task Force on Climate-Related Financial Disclosures

The TCFD chaired by Michael Bloomberg, was set up in 2015. It aimed at developing voluntary guidelines for companies, banks
and investors. 11 recommendations issued in 2017 by TCFD, encourage companies to disclose information on climate-related risks
and opportunities. TCFD-based reporting became mandatory in 2020 for all asset owners and managers signed on to the UN
Principles for Responsible Investment.

8. IIRC – International Integrated Reporting Council

The IIRC was formed in 2010 by the Prince of Wales’s Accounting for Sustainability Project, the Global Reporting Initiative and the
International Federation of Accountants. The IIRC had an objective objective to create a globally accepted framework for a process
that results in communications by an organisation about value creation over time. The IIRC released its International Framework on
December 9,2013. In February, the IIRC launched a revision process and identified three key themes of the revision: business
model considerations, responsibility for an integrated report and charting a path forward. In January 2021, the IIRC published
revisions of the Framework that docused on a simplification of the required statement of responsibility for the integrated report,
improved insight into quality and integrity of the underlying reporting process, a clearer distinction between outputs and outcomes,
and a greater emphasis on the balanced reporting of outcomes and value presentation and erosion scenarios. In June 2021, the
IIRC merged with the Sustainability Accounting Standards Board (SASB) to from the Value Reporting Foundation (VRF). The
objective of the merger was to provide investors and corporates with a comprehensive corporate erporting framework across the
full range of enterprise value drivers and standards to drive global sustainability performance.

9. Differences between International <IR> Framework and SASB Standards

International Framework – Industry-agnostic, Principles- SASB Standards – Industry-specific, Metrics-based,

based, Preparation and presentation, High-level content Standards Application Guidance, Disclosure topics and
elements and guiding principles, drives connectivity of metrics, Enables comparability of information. Content:
information. Content: Natural capital, social and relationship Environment, social capital, leadership and governance,
capital, financial capital, manufactured capital, intellectual business model and innovation, human capital.
capital, human capital.
10. Stakeholder capitalism

Advocates that organisations should focus on creating long-term value for all key stakeholders rather that maximising short-term
profits for shareholders.

11. Paris agreement (2015)

Six key points of the Paris Climate Agreement. The 31-page document that details a landmark agreement reached in Paris on 12
December 2015 could be a turning point in the struggle to contain global warming. The historic pact, approved by 195 countries,
will take effect from 2020.

1. To keep global temperature increase below 2C and to purse efforts to limit it to 1,5C
2. 186 countries submitted plans detailing how they reduce their greenhouse gas pollution through 2025 or 2030.
3. Overall assessment of how countries are doing in cutting their emissions compared to their national plans – starting in 2023,
every five years.
4. $100 billion a year in climate finance for developing countries by 2020, with a commitment to further finance in the future
5. Rich countries to engage in absolute reductions in emissions developing ones to continue enhancing their mitigation efforts
6. Countries should reach global peaking of greenhouse gas emissions as soon as possible

12. European Green Deal (2019)

Was launched by the European Commission (EC) in December 2019. It is a package of policy initiatives to direct the EU towards a
green transition. The objective set by EU leaders assumes reaching climate neutrality in the EU by 2050, which is in line with the
Paris Agreement.

In March 2020, the EC adopted a proposal for European Climate Law (a vital part of the European Green Deal). The Law was
enacted in July 2021 and established a legally binding target for the EU of reducing GHG emissions by at least 55% by 2030 and to
a net zero level by 2050, indicating necessary steps to reach it. The Law also referred to measures for keeping track of climate-
neutrality progress and adjusting actions accordingly.

The next action was aimed at creating a coherent and balanced framework for reaching the EU’s climate objectives. The “Fit for 55”
package presented by the EC in July 2021 included policy proposals and amendments to the existing legislation to enable the
European Green Deal.

Components of the Fit for 55 package:

1. Buildings energy performance, 8. Social climate fund

2. energy efficiency, 9. Carbon border adjustment mechanism
3. renewable energy, 10. Alternative fuels infrastructure
4. Energy taxation 11. Land use and forestry
5. CO2 emission of cars and vans 12. Efforts sharing regulation
6. methane emissions 13. EU emissions trading system
7. REfuelEU aviation and FuelEU maritime

13. CSRD – Corporate Sustainability Reporting Directive

The new directive, proposed by the European Commission on 21 April 2021, will amend the existing NON-Financial Reporting
Directive (NFRD). It aims to increase transparency on corporate performance in terms of sustainability. Companies not previously
required to report under NFRD will now be expected to comply with a broad range of reporting requirements. The changes will
affect 2024 reporting period. The draft standards will be developed by the European Financial Reporting Advisory Group (EFRAG).

All companies listed o the EU regulated markets and insurance undertakings and credit institutions regardless of their legal form
are expected to report under CSRD. Large undertaking that is rither EU company ot an EU subsidiary of a non-EU company are
expected to report under CSRD. A large undertaging means an entity that meets two of the following three criteria: net turnover of
more than 40 million eur, balance sheet assets greater than 20 million eur, more than 250 employees.

When do the provisions of the CSRD apply?

Apply to fiscal years starting on or after 1 January 2024 for large public-interest companies (with over 500 employees) as well as
banks and insurance companies, already subject to the Non Financial Reporting Directive NFRD) (reporting in 2025 on 2024 data).
1 January 2025 for large companies that are not presently subject to the NFRD (with more than 250 employees and/or 40 million
eur in turnover and/or 20 million eur in total assets (reporting in 2026 on 2025 data). Listed SMEs will fall within the scope but they
will have until 1 January 2016 to comply with the reporting requirements (reporting in 2017 on 2026 data). ! January 2028 for non-
EU companies with significant undertakings in the EU (reporting in 2029 on 2028 data).
14. Differences between CSRD and NFRD

15. ESRS – European Sustainability Reporting Standards

As part of the European Green Deal, the CSRD includes the mandate to report sustainability information under the reporting
framework of the ESRS. Sustainability information mandatorily to be reported in the management report must be verified by a third
party with limited assurance. Main components brought by CSRD and ESRS include double materiality, inclusion of prospective
information, information about the upstream and downstream value chain, and the concept of sustainability due diligence.
Sustainability information can influence stakeholder decisions. Two main groups of stakeholders are considered in the ESRS:
affected stakeholders and users of sustainability reporting.

In 2021, the European Financial Reporting Advisory Group (EFRAG) has been appointed as technical advisor to the EC,
responsible for providing the ESRS. In April 2022, EFRAG released the exposure drafts on the first set of ESRS and launched a
public consultation process involving several groups of stakeholders that ended by August 2022. The EFRAG considered all
comments received during the public consultation and, on 15 November 2022, agreed on a first set of ESRS to be submitted to the
EC, which is expected to be adopted by the Commission by June 2023.

16. SMEs

Characteristics:

- Values are built on founder-manager beliefs skills and initiatives

- SMEs are contingent on market conditions and clients
- They are locally oriented and connected
- Their simple structure enables fast, agile and flexible decision-making
- SMEs have direct and personal relationship with key stakeholders
- They have a limited pool of resources available
- They represent the backbone of the economic system in Europe
- They are important players regarding the well-being of local and regional communities
- The united nations acknowledges the significant role SME’s play in achieving the Sustainable Development Goals SDGs
as globally they account for over 90% of all businesses and significantly impact on environmental footprint and
employment initiatives

Enterprise Headcount Annual Annual

category annual work balance sheet
 unit AWU turnover total

Medium sized <250 <=50 mln eur <=43 mln eur

Small <50 <= 10 mln eur <= 10 mln eur

Micro <10 <= 2mln euro <= 2 mln eur

17. Integrated Reporting

The international integrated reporting council a global coalition of regulators, investors, companies, standard setters, the accounting
profession and NGOs. Together this coalition shares the view that communication about value creation should be the next step in
the evolution of corporate reporting.

Integrated reporting promotes a more cohesive and efficient approach to corporate reporting and aims to improve the quality of
information available to providers of financial capital to enable a more efficient and productive allocation of capital.

Why IIRC noticed a need for single integrated report for organisations?

- A business has become more complex and traditional financial reporting has not met the expectations any longer
- New reporting requirements have been introduced through patchwork of regulations, standards, codes, guidance
- May started to perceive a reporting landscape as confused, cluttered and fragmented area. They complained that
information delivered was inconsistent (or disconnect) and disclosure gaps appeared.

Explored benefits related with integrated reports

- Positive benefit in relations with institutional investors and analysts

- Improved data quality, resulting in better management information and decision-making
- Common understanding of value creation process, including short, medium and long term value
- Breaking down the silos through integrated thinking, fostering internal buy-in to strategic objectives
- Enhanced quality of corporate communications
- Opportunity to review and align operational processes
- Embedding corporate responsibility and sustainability into business as usual
- A new lens for thinking about your business, particularly identifying non-financial value drivers

Key concepts of integrated reporting: integrated thinking, value creation process, six capitals

18. Integrated thinking concept

VUCA environment – Volatile, Uncertain Complex and Ambiguous

Integrated thinking is defined as the active consideration by an organisation, of the relationships between its various operating and
functional units, and the capitals that the organisation uses for affects which leads to integrated decision-making and actions that
consider the creation of value over the short, medium and long term.

Integrated thinking considers the connectivity and interdependencies between the range of factiors that affect an organization’s
ability to create value over time, including:

- The capitals that the organization uses or affects, and the critical interdependencies including trade-offs, between them
- The capacity of the organization to respond to key stakeholders’ legitimate needs and interests
- How the organization tailors its business model and strategy to respond to its environment and the risks and opportunities
it faces
- The organization’s activities, performance (financial and other) and outcomes in terms of the capitals – past, present and
future

Benefits of integrated thinking

Internal External

- Improvement in internal communications leading to - Improved financial performance and firm value
employee loyalty - Attraction of longer-term investors
- Greater pro-activity - Increased trust, legitimacy and understanding with
- Break-down of organizational silos stakeholders
- Integration of a broader set of ideas and - Increased awareness of medium/long term risks
encouragement of SMEs to think longer-term - Enhanced brand value and reputation
- Better strategic decision-making through improved - Greater trust from lenders resulting in a lower cost
understanding of risks and opportunities of capital
19. Value creation concept

Financial value created – strong profits that build strong cash position, returns to shareholders, taxes to government, increased
investment opportunities, employee rewards

Non-financial value created – maintained and improved reputation with consumers, better trained and fully committed employees,
stronger relationships with suppliers and communities, culture where innovation and agility thrive

Strategic value created – growth in sales, product range and presence, supply chain efficiency, increased customer base with
broadening appeal, a more dynamic, flexible and agile business

Value creation enablers – understanding stakeholders needs, strategic approach, digitalisation, integrated thinking, wffective
communication

Value creation inhibitors – market risk, operational risk, legal compliance risk, economic-financial risk, reputational risk,
environmental risk

20. Six capital concept

Financial capital – reveals the pool of funds that is available to an organization for use in the production of goods or the provision of
services, obtained through financing, such as debt, equity or grants, or generated through operations or investments.

Types of financial capital:

Equity Capital refers to funds put up and owned by the shareholders (owners). Typically, equity capital consist of:

- Contributed capital, which is the money that was originally invested in the business in exchange for shares or stock of
ownership;
- Retained earnings, represent profits from the past years that have been kept by the company and used to strengthen the
balance sheet or fund growth, acquisitions, or expansion

Debt Capital refers to borrowed money that is at work in the business. The safest type is generally considered long-term bonds
because the company has years, if not decades, to return the principal, while paying interest only in the meantime.

Measures:
- Stock of value – cash on hands, short-term and long-term financial investment at their maturity, available funds from
loans, grants, equity paid
- Flows of value – net cashflows from business operations, new loans, grants, equity obtained, interest and dividend paid

KPI (Key Performance Indicators)

- Lagging indicators – liquidity ratio, cash ratio, quick ratio, average collection period, average payment period, sales
revenues, trade receivables, cash conversion cycle, return on invested capital (ROIC)
- Leading indicators – financial standing (credibility), weighted average cost of capital (WACC), net debt to equity (%), net
debt to cash (%), CAPEX, market share

Manufactured capital reflects tangible assets available in SMEs. They cover all human-created physical objects used in the
production of goods or the provision of services and thereby contributing to value creation. Physical objects include buildings,
equipment, and infrastructure owned, leased or controlled by the company.

Examples: buildings, production sites, warehouses, distribution center, retail stores, access to shared infrastructure, machines and
tools, vehicles, network, systems

Measures: production lines, stores, distribution centers, warehouse capacity, production lines, network flow

Natural capital is the stock that yelds the sustainable flow (natural income). Natural capital is another term for the stock of
renewable and non-renewable resources (plants, animals, air, water, soils, mineral) that combine to yield a flow of benefits to
people.

Renevable resources – solar energy, wind energy, geothermal energy, biomass energy, hydropower, tidal energy, biofuel, ocean
thermal energy, biogas, hydrogen

Non-renewable resources – fossil fuels (crude oil, coal, natural gas), nuclear energy

Measure: stocks of value – area used (land, forest, water), water access rights, mining permits, emission rights, biodiversity and
ecosystem health; performance measures – lagging indicators (electricity consumption, water consumption, carbon footprint,
percentage of recycled material used, noise emissions), leading indicators (energy form renewable sources used, reportable cases
of environmental incidents), impacts (regulation of climate, air, water and oceans, provision of material goods such as energy, food,
medicines, and raw materials, non-material contributions such as opportunities for learning and inspiration, spiritual, cultural and
recreational experiences)

Human capital covers competencies, capabilities, and talent of the staff employed in SMEs. It may reflect employees’ ability to
understand and implement an organizational strategy, and motivation for improving processes, goods and services, including
employees’ willingness to be a part of the processes that contribute to value creation.
Examples: Human resources (managers, employees, freelance contractors, trainees), competencies (technical and managerial
skills, creative thinking, performance or customer orientation), work conditions (occupational safety and health, employee wellness,
strong ethical culture, organizational behaviours)

Human capital and its drivers – physical and mental health, wellness, education and experience, motivation, working skills,
personal development and growth

Measurement: stocks of value (FTE employment, number of freelance contractors, number of trainees), flows of value (professional
certificates obtained by employees, number of job promotions, retirement rate)

KPI: lagging indicators (employment structure, employee turnover rate, absenteeism rate, work accident rate, zero-accident period,
overtime rate), leading indicators (training time per employee, training costs per employee, employee satisfaction rate, retention of
trainees)

Intellectual capital – knowledge-based capabilities of a company that provide a competitive advantage, including intellectual
property, such as patents, copyrights, software and organisational systems, procedures and protocols, as well as the intangibles
that are associated with the brand and reputation that company has developed.

Examples: intellectual property (trademarks, designs, copyrights, brands, patents), technologies and licenses (software, network
resources, proprietary and licensed technologies, resale rights license), procedures and protocols (know-how, recipes, algorithms,
policies and manuals, operational management systems, tacit knowledge).

Measurement: stock of value (number of patents, number of licenses available, registered trademarks, copyrights, quality
certifications, on-going R&D projects, types and functional scope of software licenses), flows of value (new licences, extended
licences, new certificates, renewed certificates, new production standards implemented, developing IC via enhanced technologies
and techniques)

KPI: lagging indicators (R&D as a percentage of revenues, success rate of R&D grant application, brand value), leading indicators
(number of innovation initiatives per employee, annual workload on R&D projects, investment in acquiring innovations)

Social & relationship capital – ability to secure or obtain assets or resources, knowledge, and information by an individual, group,
organisation or community for its benefit through social networks, trust, shared norms, and license to operate.

Elements of social and relationship capital: shared norms, and common values and behaviours, key relationships, and the trust and
willingness to engage that an organization has developed and strives to build and protect with external stakeholders; an
organization’s social licence to operate; intangibles associated with brand and reputation that an organization has developed.

Measurement: stock of value (number of social programs supported, number of company social events, number of business
partners, value of sponsoring contracts), performance measures (number of loyal customers, rankings, awards, customer reviews,
social media likes and followers, number of incoming CVs to the company, company experts in industry panels)

How to measure relations with clients:

Client satisfaction and loyalty Strategic customer database

- Number of loyal clients - Key customers in terms of revenues generated

- Number of satisfied clients - Duration of the existing customer relationships
- Customer satisfaction index - Percentage of clients, who would recommend the
- Loyalty satisfaction index company in the media
- Number of complaints - Expenditures on relational marketing
- Frequency of purchases
Customer base renewal
Operational quality of relationships
- Number of new clients
- Existing norms and good practices of cooperation - Cost of acquiring a new client
- Number of contracts signed per year - Number of new followers on social media
- Total number of transactions with clients - Number of new subscriptions
- Number of transations with clients to whom the
company has been recommended

How to measure relations with suppliers:

Cooperative satisfaction: Operational quality of relationships

- Quality level of materials, goods and services, - Lead time

- Cost of poor quality (number of complaints, number - Delivery volume
of returns, cost of warranties and claims) - Delivery speed
- Number of improvements or innovations made by - Number of deliveries consistent with the order
suppliers - Number of delayed orders
- Order backlog
Supplier base Supplier base renovation

- Number of new suppliers - Number of new suppliers

- Number of suppliers with whom cooperation was - Cost of searching for a new supplier
terminated - Effectiveness in searching for new suppliers
- Duration of cooperation in years - Degree of suppliers’ substitution
- Suppliers’ loyalty level (discounts received by the - Potential of new suppliers’ base
company, number of tailored-made services,
differentiation of bonuses)

How to measure relations with local authorities?

- Number of social of professional events with local authorities

- Satisfaction level of local authorities from collaboration with an enterprise
- Number of completed projects
- Level of co-financing from the municipal authorities

21. Seven IR guiding principles

Strategic focus and future orientation – an integrated report should provide an insight into the organization’s strategy, and how it
relates to the organization’s ability to create value in the short, medium and long term, and to its use of and effects on the capitals.

Adopting a strategic focus and future orientation principle means clearly articuling how the continued availability, quality and
affordability of significant capitals contribute to the organization’s ability to achieve its strategic objectives in the future and create
value.

Connectivity of information – an integrated report should show a holistic picture of the combination, interrelatedness and
dependencies between factors that affect the organization’s ability to create value over time.

Key forms of information connectivity:

Connectivity between:

- The content elements

- The past, present and future
- The capitals
- Financial information and other information
- Quantitative and qualitative information
- Management information, board information and information reported externally

Stakeholder relationships – an integrated report should provide insight into the nature and quality of the organization’s relationships
with its key stakeholders, including how and to what extent the organization understands, takes into account and responds to their
legitimate needs and interests.

Stakeholders are individuals, groups or organizations who provide your company with critical resources wnd expect their interests
to be satisfied. Examples: customers, employees, shareholders, suppliers, communities, governments, media

Materiality – an integrated report should disclose information about matters that substantively affect the organization’s ability to
create value over the short, medium and long term.

Conciseness – an integrated report should embrace sufficient context to understand the organization’s strategy, governance,
performance and prospects without being burdened with less relevant information.

Reliability and completeness – an integrated report should include all material matters both positive and negative in a balanced way
and without material error.

Consistency and compatibility – the information in an integrated report should be presented: on a basis that is consistend overtime;
in a way that enables comparison with other organizations to the extent it is material to the organization’s own ability yo create
value over time.