EU adopts new Sustainability Reporting Standards

The European Commission has announced the adoption of the European Sustainability Reporting Standards (ESRS), a comprehensive framework to guide large companies and listed entities, excluding micro-enterprises, in reporting their social and environmental impacts and risks. The Commission's initiative is an important step towards improved transparency and reliability in sustainability reporting, and will play a vital role in the European green deal.

The ESRS, mandated by the Accounting Directive and the Corporate Sustainability Reporting Directive (CSRD), is aimed at addressing the limitations in the current reporting system, which often lacks sufficient, comparable, and trustworthy information. The new standards will pave the way for a better understanding of sustainability-related risks and enable more informed green investment decisions.

12 areas

The ESRS requires companies to report on 12 specific areas of sustainability:

• Cross-cutting: ESRS 1 (General Requirements) and ESRS 2 (General Disclosures)
• Environment: ESRS E1 (Climate), ESRS E2 (Pollution), ESRS E3 (Water and Marine Resources), ESRS E4 (Biodiversity and Ecosystems), ESRS E5 (Resource Use and Circular Economy)
• Social: ESRS S1 (Own Workforce), ESRS S2 (Workers in the Value Chain), ESRS S3 (Affected Communities), ESRS S4 (Consumers and End Users)
• Governance: ESRS G1 (Business Conduct)

While ESRS 2 is mandatory for all companies, the remaining standards are subject to a materiality assessment, allowing companies to report only the information that is relevant or "material" to their business model and activity.

Furthermore, the ESRS align with the information requirements of financial market participants, benchmark administrators, and financial institutions under the Sustainable Finance Disclosure Regulation (SFDR), the Benchmark Regulation (BMR), and the Capital Requirements Regulation (CRR), thus facilitating their compliance with these obligations.

Small enterprises

Small and medium enterprises (SMEs), except listed SMEs, will not face any new reporting requirements under the CSRD. EFRAG is currently developing simpler, voluntary standards for non-listed SMEs and separate, less demanding standards for listed SMEs.

The ESRS are aligned with the standards of the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI). This alignment ensures that companies required to report in accordance with ESRS can also comply with ISSB standards without additional reporting.

Companies will begin reporting under ESRS from financial year 2024, with the first sustainability statements due in 2025. However, this timeline will vary for different types of companies and extends until the financial year 2028 for certain non-EU entities.

Ec.europa.eu

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