Harmonization of Ukrainian Legislation on sustainable development with EU Standards

As part of the Association Agreement with the EU, Ukraine is aligning its national legislation with European standards in areas such as accounting and auditing. On 18 October 2024 the Cabinet of Ministers of Ukraine has approved The Strategy for implementing sustainability reporting by enterprises.

This harmonization is crucial, particularly as Ukraine advances toward EU membership. Please see below our brief legal update consisting of three sections: (1) overview of European regulation; (2) implementation in Ukraine – strategic goals, and (3) timeline.

European regulation: Focus on Sustainability Reporting

The European Union has introduced robust sustainability reporting requirements through Directive (EU) 2022/2464 (CSRD Directive) and Commission Delegated Regulation (EU) 2023/2772. These regulations mandate the use of the European Sustainability Reporting Standards (ESRS) for reporting on sustainability factors.

Key Obligations for Enterprises

Under these EU directives, large companies, SMEs, and parent entities of large groups are required to disclose:

• The impact of their activities on sustainability factors.
• How sustainability issues influence their business performance and outlook.

This information must be presented as a dedicated section in management reports, adhering to the ESRS framework

European Sustainability Reporting Standards (ESRS): Key Framework

The ESRS outlines what enterprises must disclose regarding their significant impact on environmental and social factors, governance sustainability, and how these factors influence business risks and opportunities.

Purpose of ESRS

These standards aim to:

• Highlight the impact of enterprises on people and the environment.
• Demonstrate how sustainability factors affect the company’s development, efficiency, and position.

Disclosure Areas Under ESRS

The ESRS organizes sustainability reporting into three main categories:

Environmental

• Climate change mitigation and adaptation.
• Water and marine resources.
• Resource use and circular economy.
• Pollution, biodiversity, and ecosystems.

Social

• Equal opportunities for all.
• Working conditions.
• Respect for human rights.

Governance

• Role of management and oversight bodies.
• Business ethics and corporate culture.
• Relations with business partners.
• Internal control and risk management systems.

Implementation in Ukraine

Strategic Goal #1: Implementing Sustainability Reporting in Ukraine

Ukraine aims to adopt the European Sustainability Reporting Standards (ESRS) to align with EU principles. This includes mandating enterprises to prepare, submit, and publish sustainability reports.

Key Outcomes

• Establishment of a legal framework for sustainability reporting.
• Enhanced risk assessment for business partners, investors, and clients.
• Improved public authority access to sustainability data for monitoring.
• Increased investment products for 100 enterprises of public interest.
• A 50% rise in Ukrainian enterprises participating in international capital markets by 2030.

Planned Actions

• Implement EU legislation on sustainability reporting.
• Adopt a standardized electronic reporting format.
• Develop procedures for report submission and publication.
• Facilitate communication between authorities and enterprises for guidance.

Strategic Goal #2: Establishing Sustainability Reporting Audits in Ukraine

Ukraine seeks to implement procedures for auditing sustainability reports and ensure the quality of audit services.

Key Outcomes

• Train at least 100 auditors for sustainability reporting audits.
• Approve 20 audit entities to provide these services.
• Ensure 100% of enterprises submitting sustainability reports undergo audits by 2030.

Implementation Stages: Sustainability Reporting Strategy

Stage 1 (2024-2025)

• Establish an interdepartmental working group to coordinate sustainability reporting efforts.
• Develop and approve the regulation framework for the working group.
• Create a legal framework for:
  • Sustainability reporting (aligned with ESRS).
  • Auditing and monitoring the quality of audit services.
• Begin the implementation of ESRS-compliant reporting, submission, and publication.

Stage 2 (2026-2030): Expanding Sustainability Reporting in Ukraine

• Develop methodological guidelines for applying ESRS in Ukraine.
• Continue implementing ESRS-compliant reporting, submission, and publication processes.
• Launch an electronic platform for submitting and publishing sustainability reports.
• Initiate audits of sustainability reports and establish a quality monitoring mechanism for audit services.
• Introduce a national training program for ESRS, ensuring its recognition both nationally and internationally.