The European Commission has adopted the first set of 12 European Sustainability Reporting Standards (ESRS), and large and listed EU companies will be required to use these standards from January 2024, as part of the Corporate Sustainability Reporting Directive (CSRD). The European Commission together with the European Financial Reporting Advisory Group (EFRAG) have been working to ensure that the ESRS take into account discussions with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) to improve alignment between EU and global sustainability reporting standards and prevent unnecessary double reporting by companies, particularly in the area of climate-related disclosures.
The Corporate Sustainability Reporting Directive (CSRD) is one of the latest EU Regulations regarding Environmental, Social and Governance (ESG) and non-financial reporting, aiming to speed up EU progress on reaching Net-Zero. It is a step up from the current EU Regulation the Non-Financial Reporting Directive (NFRD), expanding the number of mandatory reporting companies from 11,600 to 49,000. The CSRD requires mandatory reporting and therefore holds companies accountable for their ESG actions and policies, encouraging a push for sustainability. The legislation works in harmony with the GRI Standards and expands on the current EU Sustainable Finance Taxonomy.
All information necessary to understand how climate change will affect the business, as well as the impact the business has on people and the planet must be reported. The CSRD will focus on the concept of double materiality between economic and ESG performance and introduces 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.”
The ESRS outline 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 organisations, consumers, and other stakeholders with more comprehensive and comparable sustainability information 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) and 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, requiring companies to report on their impacts on people and the environment, as well as how social and environmental issues create financial risks and opportunities for the company.