“Multi-level benchmark system for sustainability reporting: EU experience for Ukraine”

The paper analyzes the key European benchmarks in the field of compiling and sub-mitting sustainability reports. The analysis concerns the disclosure of their features in the context of considering the introduction in Ukraine to increase transparency, accountability and investment attractiveness of Ukrainian enterprises. Based on content and comparative analyses, a comparison was made of the key provisions of sustainability reporting issued by various standards-setters (ISSB (International Sustainability Standards Board), EFRAG (European Financial Reporting Advisory Group), SEC (The United States Securities and Exchange Commission), GRI (Global Reporting Initiative), and IIRC (International Integrated Reporting Council)) as a methodological level of the system of such benchmarks. The global impact of the specified benchmarks is complemented by an analysis of the impact of Directive 2014/95/EU (Non-Financial Reporting Directive – NFRD) and the new Directive 2022/2464/EU (Corporate Sustainability Reporting Directive – CSRD) on the introduction of the sustainability reporting. It is proved that in the context of the formation of the Ukrainian accounting system on the way to European integration, the transposition of the requirements of these Directives is the first step towards streamlining the regulatory framework for companies’ sustainability reporting. A two-level sustainability reporting benchmark system is presented, which at the operational level is based on the EU directives on disclosure of non-financial information and sustainability reporting, and at the methodological level – on the European Sustainability Reporting Standards and other generally accepted standards.


INTRODUCTION
Today, the achievement of the Sustainable Development Goals has become the basis for solving the global problems of mankind.These goals require financial and informational support, as well as sustainability reporting practices.This practice is important not only for the financial performance of companies, but also for conducting investment analysis when investing in these companies responsibly.Recent studies show a positive relationship between companies' compliance with the Sustainable Development Goals and criteria disclosed in sustainability reporting and their investment attractiveness for responsible investors.The evolutionary nature of the development of sustainability reporting practices under the influence of sustainable development criteria, embodied in new approaches to responsible investing, is also an important aspect of research into this relationship.
Sustainability reporting of participants in financial markets and the corporate sector should be a transparent and reliable basis for creating benchmarks in the field of sustainable development of indices, ratings and rankings.Benchmarks such as ratings (RepRisk Rating, Vigeo Eiris Sustainability Rating), rankings (Corporate Human Rights Benchmark, CR's 100 Best Corporate Citizens), sustainability indices (DJSI, S&P 500 ESG Index, MSCI ESG Indexes), and many others use sustainability reports of participating companies for their screening.
The International Organization of Securities Commissions (IOSCO) recognizes the growing importance of ESG ratings and data products in financing sustainable development.There are currently 160 ESG ratings and data products and 150 providers of such data, working with different approaches (IOSCO, 2021).Europe's largest market for responsible investments has identified 40 providers of ratings, data and research products in the field of responsible investing.In addition, global revenues in this area are expected to double by 2025 (MSCI ESG, 2022).
In turn, sustainability reporting has its own exemplary practices and standards that are benchmarks.It is important for Ukraine to create a more sustainable and competitive business environment, attract investment, improve economic growth and promote sustainable development towards greater integration with the EU.Therefore, the harmonization of legislation and the implementation of the best European rules, directives, standards and taxonomies in the field of sustainable development is the most difficult and important stage for Ukraine, as it requires significant changes in the country's legal framework.
In the context of increasing transparency and introducing sustainability reporting practices with Ukraine becoming an EU candidate, the experience of the community in this context is key.Using the Global Reporting Initiative's assessment framework and disclosure themes, they created their own framework for assessing the quality of information in sustainability reports for each Sustainable Development Goal.

LITERATURE REVIEW
However, these works are primarily related to the study of the implementation of these non-financial provisions in the practice of reporting in the EU, including before the advent of Directive (EU) 2022/2464 on corporate sustainability reporting.
There are a lot of benchmarks in the world in the field of reporting.Sustainability benchmarks are tools used to evaluate a company's sustainability performance.They can provide companies with guidance on how to prepare a sustainability report and what to do with the information disclosed in the report.
The market of responsible investment has several key benchmarks, including ratings: RepRisk Rating, Vigeo Eiris Sustainability Rating; rankings: Corporate Human Rights Benchmark, CR's 100 Best Corporate Citizens; indices: DJSI Emerging Markets, and other indices of the DJSI group, Ethibel Sustainability Index (ESI) Excellence Global, S&P 500 ESG Index MSCI ESG Indexes.These benchmarks focus on certain indicators, metrics and compliance of the assessed entities with ESGE/SDG criteria.In addition, they provide investors with an objective view of the compliance of investment objects with the ESGE/ SDG criteria system and are designed to eliminate information asymmetries in financial markets, especially in the absence of a standardized responsible investment market landscape and multiple approaches to benchmarking.In addition to basic ratings, rankings and indices of sustainable development, many regulatory instruments contain guidelines for the formation of investment portfolios and the verification of investment projects, which further contributes to the diversity of approaches to investing in sustainability projects.Thus, in 2021, the Principles for Responsible Investment (UN PRI) observed an increase of 88 policies and standards for the regulation of responsible investment markets among its signatories.The total number of such policies and regulations among these participants reached 750 (UN PRI, 2016).
The benchmarks (ratings, rankings and indices) of sustainable development mentioned above can be useful for Ukraine for several reasons.Firstly, if Ukrainian companies that will cooperate with the listed indices, ratings and rankings can be more attractive to investors, which can attract even more investment to Ukraine.Second, using these benchmarks, companies in Ukraine can identify areas where they need to improve their sustainability practices and increase transparency, which can lead to more sustainable business practices.Third, but not least, with these benchmarks, domestic companies can demonstrate compliance with global sustainability standards, which in turn will help them compete globally and be perceived as a responsible and sustainable business.Fourthly, the formation of these benchmarks is based on companies' sustainability reporting, including non-financial aspects, and therefore benchmarks should also include the standards on which the reporting of these companies is based.Compliance with these standards by companies and ensuring transparency and reliability of reporting is a guarantee of the quality of sustainability ratings, rankings and indices.
Therefore, the subject of the study is to analyze key European benchmarks in the field of compiling and submitting reports on sustainable development, revealing the specifics of their application in the context of their implementation in Ukraine after the adoption of Directive (EU) 2022/2464.

DATA AND METHODOLOGY
The study is based on the methods of content analysis and comparative analysis of key benchmarks in the field of sustainable development at the global level, namely standards and their drafts issued by ISSB, EFRAG, SEC, GRI and IIRC.

RESULTS AND DISCUSSION
Formation of a transparent business environment is becoming an important basis for moving companies towards the UN Sustainable Development Goals by 2030.One of the methods of such formation is to promote the responsibility of companies to society in general and to key stakeholder groups in particular.The tool is corporate non-financial reporting (sustainability reporting, reporting on corporate social and environmental responsibility, governance reports).The disclosure of additional environmental, social or governance criteria due to non-financial reporting can significantly increase the satisfaction of the information requests of these stakeholders and the accountability of companies to them.
Table 1 analyzes the key benchmarks in the field of sustainability reporting at the global level, in particular the standards and their projects issued by the ISSB, EFRAG, SEC, GRI and IIRC.In general, they are created to promote transparency, accountability and sustainability of companies and organizations through reporting and standardization.
All standards fully include information on target type, reporting year and value, use of carbon offsets and intermediate targets.In addition, reporting guidelines are fully included in the ISSB, EFRAG and GRI, but not included in the SEC and IIRC.In general, each has its advantages and limitations, and the choice of standard depends on an organization's needs.In the context of Ukraine's integration intentions, the draft EFRAG standards are exemplary.
In general, the EU has a positive experience in the formation of benchmarks in the field of sustainability reporting, which can be used in Ukraine.
There are many European regulations, directives and other corporate reporting documents that set specific reporting requirements, provide guidance on how to measure and report environmental, social and governance (ESG) performance, and provide guidance on best sustainability reporting practices.Adopting these standards and guidelines can help companies improve ESG performance, build stakeholder trust, and demonstrate their commitment to sustainability and social responsibility.
EU law requires all large companies and all listed companies (except listed micro-enterprises) to disclose information about risks and opportuni- ties related to social and environmental issues, as well as the impact of their activities on people and the environment.In the field of European legislation, there are two main Directives that act as a kind of benchmark for corporate sustainability reporting -NFRD and CSRD.
The NFRD is an EU directive that was adopted in 2014 and requires some large companies to disclose non-financial information in their annual reports covering companies with more than 500 employees listed on a regulated market in the EU and requires them to report on ESG such as their impact on the environment, their human rights policies and their efforts to prevent corruption and bribery.The Directive aims to provide investors and other stakeholders with more information about a company's sustainability practices, which can help them make more informed decisions about the company's operations and future prospects.
addition, already on January 5, 2023, the EU published the CSDR, which will essentially replace the existing NFRD, expanding the scope of sustainability reporting requirements for companies in the EU.The new rules will provide investors and other stakeholders with access to the information they need to assess investment risks related to climate change and other sustainability issues.They will also create a culture of transparency about companies' impact on people and the environment.
Companies subject to CSRD will be required to report in accordance with the aforementioned European Sustainability Reporting Standards (ESRS).The draft standards were developed by the EFRAG, formerly known as the European Financial Reporting Advisory Group, an independent body that brings together various stakeholders.The standards will be adapted to EU policies, building on and contributing to internationstandardization initiatives.The Commission should adopt the first set of standards by mid-2023 based on analyzed draft standards published by the EFRAG in November 2022 (European Commission, 2022).
The CSRD also requires companies to audit the sustainability information they report.In addition, it provides for the digitization of information on sustainable development.The rules introduced by the NFRD remain in force until companies have to apply the new CSRD rules.
The comparative characteristics of the Directives are presented in Table 2. Thus, the purpose of the above Directives is to help achieve harmonization of sustainability reporting, taking into account the EU Taxonomy Regulation, the Sustainable Finance Disclosures Regulation (SFDR), as well as existing international structures such as the Task Force on Climate-related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB), and the Global Reporting Initiative (GRI).
In addition, the EFRAG submitted the draft European Sustainability Reporting Standards (ESRS) to the European Commission (EC).These have been reduced to twelve, two cross-cutting draft standards, five thematic draft standards on the environment, four topical draft standards on social aspects, and one current draft on governance (EFRAG, 2022).
On June 23, 2022, the leaders of the 27 EU member states decided to grant Ukraine the status of an EU candidate.This means that the EU recognizes and legally secures the European future of Ukraine.In addition to the fact that preparations for EU membership involve bringing the standard of living, welfare and legal protection of Ukrainians closer to the level of EU countries, financial assistance in the form of grants, investments and other technical assistance will continue to be available to Ukraine.Ukraine will become increasingly attractive to investors, as well as become a participant in EU programs and initiatives, which can bring many benefits to the country, including that Ukrainian companies will have access to new markets, technologies and best practices that can help improve their competitiveness and sustainability.

CONCLUSIONS
The formation of a competitive business environment and an increase in the level of investor confidence in Ukraine require the harmonization of national legislation and the introduction of the best European practices, taking into account integration processes.The transposition and implementation of European sustainability rules, directives, standards, and taxonomies in Ukraine is the most difficult and important stage, as it requires significant changes in the country's legal framework and increased awareness of companies regarding transparency and accountability.Therefore, the focus of the study is to analyze key European benchmarks in the field of compiling and submitting sustainability reports, revealing the specifics of their application in the context of their implementation in Ukraine after the adoption of Directive (EU) 2022/2464.
Content analysis and comparative analysis of the key sustainability reporting standards issued by organizations such as ISSB, SEC, GRI, IIRC, and EFRAG show their overlap in scope, reporting principles and methodologies, as well as the fact that these standards can be used as a methodological level of the benchmark system of reporting in the field of sustainable development in Ukraine.Particular emphasis is placed on the need to take into account the draft EFRAG standards for the formation of such a system in Ukraine, which can fundamentally change approaches to sustainability disclosures by Ukrainian companies.
At the operational level of the proposed system, the main EU directives, NFRD and CSRD, which establish specific rules for the preparation, presentation, format and features of sustainability reporting, are recognized as benchmarks.Some of them, provided for by the NFRD, are partially taken into account in Ukrainian accounting legislation, but their implementation at the company level is not up to the mark and requires significant rethinking, especially taking into account the introduction of the СSRD.
Muserra et al. (2019) determined whether Directive 2014/95/EC can improve corporate transparency and sustainable development.They organized their findings based on 17 interviews with the persons who prepared the reports and the auditors who provided information about the content and methods of the reports.Pizzi et al. (2021) focused on Directive 2014/95/EU and the voluntary disclosure of the Sustainable Development Goals in statutory non-financial reporting based on a sample of 873 public interest organizations.Tsalis et al. (2020) considered new challenges faced by corporate sustainability reporting.The scientists have developed a methodology to assess the extent to which corporate reporting practices meet the UN's Sustainable Development Goals.
Particular attention was paid to the European directives in the field of sustainability reporting such as Directive 2014/95/EU (Non-Financial Reporting Directive -NFRD) and the new Directive 2022/2464/EU (Corporate Sustainability Reporting Directive -CSRD).
Germany, France and Italy, and Dumitru et al. (2017) for Poland and Romania.

Table 1 .
Comparative characteristics of disclosure and reporting standards in the field of sustainable development Source: Updated based on KPMG (2021) and EFRAG (2021).