As we know, ESG in business is a roadmap made up of numerous obligations arising from different regulatory frameworks. That is why the right question is not “how do I meet all the requirements?” but rather “which of them apply to my business?”. This is a crucial distinction. We explain how to correctly diagnose your regulatory profile and build an effective ESG strategy – one that actually works and gives you a competitive edge.
ESG does not apply equally to everyone
The scope of ESG obligations is not universal, and their proper identification depends on the profile and regulatory status of the organisation or institution in question.
By way of example, an international fund managing a global investment portfolio will face different obligations from a cooperative bank with just a few branches.
This means that before producing any report or policy, it is worth knowing which regulatory category you fall into. Identifying the applicable obligations requires precisely determining the institution’s regulatory profile.
Three questions that determine your regulatory profile
Question 1: Are you a small and non-complex institution (SNCI)?
SNCI (Small and Non-Complex Institution) status – i.e. denoting institutions whose total assets do not exceed EUR 5 billion – determines the scope and timeline of many ESG obligations.
Why does this matter?
- SNCIs are subject to different implementation deadlines and simplified requirements;
- For SNCIs, the applicable requirements include, among others, the EBA/GL/2025/01 guidelines (from 11 January 2027), simplified Sustainability Reporting (from 2028) and a biennial ESG materiality assessment;
- Loss of SNCI status has a knock-on effect: accelerated Pillar III disclosures, earlier application of the EBA GL guidelines and a transition to full Sustainability Reporting under the ESRS.
Why losing SNCI status is more than just a change in the calendar
Losing SNCI status does not simply mean a single deadline shift. It triggers a knock-on effect that activates several independent regulatory regimes simultaneously, yet this is the risk most commonly overlooked when planning an institution’s growth.
An institution loses its SNCI status when it ceases to meet any of the nine cumulative conditions set out in Article 4(1)(145) of the CRR. In practice, this most commonly occurs when total assets exceed the EUR 5 billion threshold, calculated as an average over a four-year reporting period. Loss of status may also result from a discretionary decision of the KNF (Polish Financial Supervision Authority), based on an assessment of the institution’s size, interconnectedness, complexity or risk profile.
What happens upon loss of status:
- Pillar III disclosures (Article 449a CRR) shift from annual to quarterly reporting, and the GAR materiality threshold ceases to apply: the institution loses the 10% threshold that previously allowed certain exposures to be excluded from the taxonomy eligibility assessment
- The EBA/GL/2025/01 guidelines become applicable one year earlier than under the SNCI timeline – from 11 January 2026 instead of 11 January 2027, with no transitional period
- The ESG risk materiality assessment changes from biennial to annual
- Sustainability reporting transitions from simplified (ESRS LSME) to full reporting under ESRS standards, provided the institution also meets the ‘large undertaking’ thresholds under Article 3 of the Polish Accounting Act
- The transition plan, which for SNCIs could form part of the existing risk management strategy, must be separated out and expanded in line with the full regulatory framework
None of these consequences comes with a separate transition period – they are triggered from the date of loss of status. For this reason, the recommended practice is to verify and document compliance with all nine SNCI criteria on a quarterly basis, rather than carrying out a one-off assessment at the outset of implementation.
Question 2: Do you manage portfolios or provide investment advice?
Banks are not automatically subject to the SFDR (Sustainable Finance Disclosure Regulation). These regulations apply only in specific circumstances, which must be determined on the basis of an audit of the services actually provided.
What are the implications?
- Portfolio management within the meaning of MiFID II confers the status of a financial market participant under the SFDR and triggers the full scope of obligations under Articles 3, 4 and 5, as well as product-level obligations under Articles 6, 8 and 9
- Providing investment advice confers the status of a financial adviser, limiting obligations to the entity level only, with no product-level requirements
- Where neither of these services is provided, no SFDR status arises; however, the outcome of the audit must be documented
Question 3: How large is your organisation?
A ‘large undertaking’ is an entity meeting at least one of the following thresholds: total assets exceeding PLN 110 million, revenue exceeding PLN 220 million, or 250 or more employees.
- Large undertakings: full reporting from 2027
- SNCIs not classified as large undertakings: simplified reporting from 2028 pursuant to Article 63s of the Polish Accounting Act
Double materiality assessment: the starting point for any ESG strategy
Once you have identified your regulatory profile, the next step is a double materiality assessment of ESG risks. This is the starting point for any ESG strategy, since without it the requirements cannot be implemented in a proportionate and compliant manner.
The entire process can be broken down into five steps:
- Identification of the ESG factors material to your business model – analyse climate, social factors and governance through the lens of your operations
- Financial materiality assessment – identify the ESG risks and opportunities that affect your revenue, costs, assets or liabilities. Identify the most specific factors capable of improving or worsening your financial position
- Impact materiality assessment – analyse the impact your organisation has on the environment and on people, both actual and potential, positive and negative
- Assessment of the likelihood and scale of impacts across three time horizons – short-term is less than 1 year, medium-term – less than 5 years, and long-term – at least 10 years. The starting point is always climate
- Materiality determination – material risks require management policies, concentration limits, stress scenarios and a transition plan. Non-material risks require documented justification and ongoing monitoring. Remember that the scope of tools is determined by actual materiality, not by minimum formal requirements
What should an ESG strategy contain?
The ESG strategy is developed by the management board once the materiality assessment results have been adopted, and is integrated into the organisation’s overall business and risk strategies.
A sound ESG strategy should include:
- A vision and long-term objectives – specific, measurable and time-bound
- Alignment with the business strategy – ESG cannot operate in isolation from the business model
- ESG risk appetite – clearly defined and approved by the management board
- Reference to global standards – UN SDGs, OECD guidelines and UNGPs
- A transition plan with measurable targets and interim milestones
How often should it be updated?
- Large institutions (other than SNCIs): annually
- SNCIs: biennially (from 11 January 2027)
- In both cases: an earlier update is always required in the event of any significant change to the business model or the regulatory environment
Bear in mind: the ESG strategy does not constitute a standalone document. It must be aligned with the overall business strategy and risk strategy. For SNCIs, the transition plan may be incorporated into the existing risk management strategy.
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