The European Commission explains the European Sustainability Reporting standards are for use by all companies that are subject to the Corporate Sustainability Reporting Directive (CSRD).
The standards cover an array of issues, from environmental, social, and governance (ESG) issues to climate change, biodiversity and human rights.
It also provides information for investors to understand the sustainability impact of the companies in which they choose to invest.
The Commission explains the Reporting Directive also takes into account the discussions with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) to ensure a very high degree of interoperability between EU and global standards.
It says this will prevent unnecessary double reporting by companies.
What are the European Sustainability Reporting Standards (ESRS)?
A number of fashion non-profit organisations (NGOs) sent an open letter to the EU Commission two years ago (October 2021), requesting open data principles in the proposed Corporate Sustainability Reporting Directive and supporting reporting frameworks.
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Following the industry’s push, European Sustainability Reporting Standards (ESRS) were developed by the EFRAG, previously known as the European Financial Reporting Advisory Group, an independent body bringing together various different stakeholders.
Explaining the rationale behind Corporate sustainability reporting, the Commission points out that EU rules require large companies and listed companies to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment.
Thereby strengthening the rules concerning the social and environmental information that companies have to report. This means, a broader set of large companies, as well as listed small to medium-sized enterprises (SMEs), will now be required to report on sustainability.
In addition to this, the new rules ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.
Finally, the European Commission says the reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided.
Mairead McGuinness, who is the commissioner for financial services, financial stability and capital markets union, says: “The standards we have adopted 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.”
When will European Sustainability Reporting Standards (ESRS) begin?
The European Commission says companies will have to start reporting under ESRS according to the following timetable:
- Companies previously subject to the Non-Financial Reporting Directive (NFRD) (large listed companies, large banks and large insurance undertakings – all if they have more than 500 employees), as well as large non-EU listed companies with more than 500 employees: financial year 2024, with first sustainability statement published in 2025.
- Other large companies, including other large non-EU listed companies: financial year 2025, with first sustainability statement published in 2026.
- Listed SMEs, including non-EU listed SMEs: financial year 2026, with first sustainability statements published in 2027. However, listed SMEs may decide to opt out of the reporting requirements for a further two years. The last possible date for a listed SME to start reporting is financial year 2028, with first sustainability statement published in 2029.
In June last year, the Council and European Parliament reached a provisional political agreement on the corporate sustainability reporting directive (CSRD), which it said was aimed at reducing greenwashing.