The European Union is strongly directing economic development towards sustainability, and ESG criteria are becoming an indispensable part of business, especially for companies that rely on co-financing from EU funds. The new CSRD (Corporate Sustainability Reporting Directive) introduces far-reaching changes in the way sustainability reporting is done, which will also affect the availability of funds in future calls.
ESG is an acronym for environmental, social and governance. Until now, sustainability reports have been mandatory mainly for large companies, but the new CSRD Directive extends this obligation to a wider range of companies, including many medium-sized ones. The aim is to ensure transparent and standardized reporting on the impact of business on the environment, society and governance. The Directive replaces the previous NFRD and prescribes reporting according to the new European Sustainability Standards (ESRS), mandatory independent audit of reports and digital publication of reports in machine-readable format. Application begins on 1 January 2024 for large companies, and in 2026 it will also apply to companies with more than 250 employees, a turnover exceeding 40 million euros and/or total assets exceeding 20 million euros.
In almost all current and future calls from EU funds, especially those within the NPOO, ESF+ and ERDF, ESG elements are no longer just a recommendation but an obligation or a significant evaluation factor. The principle of "do no significant harm" (DNSH) has become mandatory for investments co-financed from NPOO. Calls like IRI S3 and the smart specialization program seek a clear contribution to sustainable development, equality and green transition. Applicants are required to sign declarations of compliance with horizontal principles, and additional ESG activities often bring additional points in the quality assessment. If the project does not demonstrate an ESG component, or does not refer to the applicant's CSRD obligations at all, it seriously risks exclusion or a lower score.
In Croatia, a relatively small number of companies are still systematically preparing for CSRD obligations. However, precisely because of this, those who adopt ESG standards early gain a strategic advantage in EU projects. Ministries and implementing bodies are increasingly demanding sustainability and gender equality statements, indicators of greenhouse gas emission reduction, elaboration of activities that include vulnerable groups, and documentation that proves inclusiveness and social responsibility. Projects that can quantify and document this, especially through existing ESG reports and strategic documents, have a clear advantage.
This directive does not only concern large corporations. Small and medium-sized enterprises that participate as partners in EU projects, act as suppliers to large systems or plan to grow also need to be prepared for ESG obligations. Preparation includes analyzing the ESG impact of their business, defining internal indicators such as energy efficiency or employee diversity, and drawing up ESG reports and strategies, even if there is no legal obligation for them yet. Companies that start preparing in a timely manner will be in a better position to apply for tenders in 2025 and 2026.
The CSRD Directive is not only an administrative obligation, but also a strategic factor for all those who want to participate in European projects. ESG criteria are increasingly present in the assessment of the quality of applications, and companies that ignore them may be left without funding. On the other hand, those who prepare early will have a clear competitive advantage.
