The European Commission has adopted the first set of 12 European Sustainability Reporting Standards (ESRS). Large and listed EU companies will be required to use these standards from January 2024, as part of the Corporate Sustainability Reporting Directive (CSRD).
Collaboration and Alignment
The European Commission together with the European Financial Reporting Advisory Group (EFRAG) has been working to ensure that the ESRS takes into account discussions with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI). The aim is to improve alignment between the EU and global sustainability reporting standards. In addition, they aim to prevent unnecessary double reporting by companies, particularly in the area of climate-related disclosures.
Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD) is one of the latest EU Regulations regarding Environmental, Social, and Governance (ESG) and non-financial reporting. The aim is to speed up the EU’s progress on reaching Net Zero. It is a step up from the current EU Regulation the Non-Financial Reporting Directive (NFRD). CSRD is expanding the number of mandatory reporting companies from 11,600 to 49,000. The CSRD requires mandatory reporting. Therefore it holds companies accountable for their ESG actions and policies, encouraging a push for sustainability. Also, he legislation works in harmony with the GRI Standards and expands on the current EU Sustainable Finance Taxonomy.
Companies need to report on all information necessary to understand how climate change will affect the business. In addition, they need to report on the impact the business has on people and the planet. The CSRD will focus on the concept of double materiality between economic and ESG performance and introduce the EU Sustainability Reporting Standards (ESRS).
Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union, said:
“The standards we have adopted today are ambitious and are an important tool underpinning the EU’s sustainable finance agenda. They strike the right balance between limiting the burden on reporting companies while at the same time enabling companies to show the efforts they are making to meet the Green Deal agenda, and accordingly have access to sustainable finance.”
Development and Scope of ESRS
The ESRS outlines the mandatory concepts and principles with which companies reporting under the CSRD must align their sustainability statements. The goal is to provide investors, civil society organizations, consumers, and other stakeholders with more comprehensive and comparable sustainability information. Aiming to evaluate companies’ sustainability performance as part of the European Green Deal. The ESRS are based on technical advice from the European Financial Reporting Advisory Group (EFRAG). They have been developed with input from various stakeholders. The standards cover a wide range of environmental, social, and governance issues. Including climate change, biodiversity, and human rights, and take a “double materiality” perspective. They require companies to report on their impacts on people and the environment. Companies need to also report on how social and environmental issues create financial risks and opportunities for the company.
Sources
https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043
Further reading
ISSB Releases Global Sustainability Disclosure Standards
IFRS Foundation to Monitor Climate-Related Disclosures Over TCFD
