With the EU's new Directive, CSRD comes the need for detailed reporting requirements so that companies know what, how, and when to report. The requirements are being finalized and consist of a set of sustainability standards known simply as the European Sustainability Reporting Standards (ESRS).
As mentioned, the ESRS is still in the development phase. The requirements are being developed by EFRAG, which has been established as a technical advisor to the European Commission.
What is ESRS – What do the standards contain?
ESRS is the name of the new EU standards for sustainability reporting, the final format submitted to the European Commission on the 31st of October, 2022, last year. After that, the ESRSs are expected to be
adopted in spring 2023.
EFRAG has prepared a proposal for the forthcoming standards. The proposal includes 13 environmental, social, and corporate governance standards. In addition, the cross-cutting areas include requirements for describing strategy, objectives, performance, and value chains, as well as defining materiality and setting requirements for the reporting structure.
Overall, the 13 ESRSs cover the following:
- General principles for sustainability reporting
- General disclosure requirements
- Specific disclosure requirements focussing on 11 ESG topics
The proposals require companies to publish separate sustainability statements with sector and company-specific information in their management reports.
Which areas should be reported on?
The CSRD defines what to report on, while the ESRS clarifies how to report.
Overall, there are three main areas of focus for reporting - namely:
- Environmental factors - including climate change adaptation and mitigation, resource use, circular economy, pollution, biodiversity, etc.
- Social factors - including equal opportunities and rights, good labor conditions, human rights, etc.
- Governance - including management and supervisory bodies, business ethics, corporate culture, political commitment, internal controls, risk management systems, etc.
The whole purpose of increasing the focus on companies' sustainability initiatives is to increase transparency in this area transparency in this area so that investors, suppliers, and customers can more easily decipher a company's sustainability performance.
What does ESRS mean for your company?
The 13 sustainability standards will officially impact all companies covered by the CSRD. Initially, this means companies with more than 250 employees. However, far more people will be affected by the new sustainability reporting requirements, as large companies will be forced to tighten reporting requirements for their subcontractors.
As an organization, consider the impact the standards will have on processes and systems of internal controls to ensure that sustainability information is of the same quality as financial information.