Overview of the European Sustainability Reporting Standards (ESRS)
The European Financial Reporting Advisory Group (EFRAG) has devised a set of regulations known as the European Sustainability Reporting Standards (ESRS). These standards seek to contribute to international standardization initiatives and are tailored to align with EU policies. The ESRS standardizes the way businesses disclose their social and environmental impacts, making their reports more accessible and simpler to analyse.
Introduction to the Corporate Sustainability Reporting Directive (CSRD)
In January 2023, the European Union will implement the Corporate Sustainability Reporting Directive (CSRD), a transformative initiative. The CSRD modernizes and reinforces the reporting requirements for social and environmental information. The purpose of CSRD is to provide investors and other stakeholders with comprehensive information for evaluating investment risks related to climate change and other sustainability issues.
Applicability and Timelines for ESRS/CSRD Compliance
The CSRD applies to a broader range of significant companies, including listed small and medium-sized enterprises, bringing the total number of covered companies to approximately 50,000. In the 2024 fiscal year, these companies will be required to comply with the ESRS and CSRD for the first time, with reports being published in 2025.
The Commission is anticipated to adopt the first set of ESRS standards by the middle of 2023, following the publication of the draught standards by EFRAG in November 2022.
Key Reporting Areas and Requirements under CSRD
Companies subject to the CSRD will be required to submit detailed reports on their environmental and social implications. This includes information regarding their business model, policies, principal risks, and outcomes pertaining to environmental aspects, social and employee matters, respect for human rights, anti-corruption, and anti-bribery issues.
The CSRD establishes a general EU sustainability reporting standard as well as more specific standards for certain industries or types of businesses. In addition, it requires businesses to conduct audits of the sustainability data they report.
Getting Started with ESRS/CSRD Reporting
Several stages are required to get started with ESRS/CSRD reporting:
- Understand the requirements: Companies are required to become acquainted with the ESRS and CSRD requirements. Compliance begins with an understanding of what information must be collected and reported.
- Create a dedicated team: Establish a cross-functional team comprised of representatives from finance, operations, human resources, and sustainability to supervise compliance efforts.
- Identify data sources:Businesses should determine where the necessary data resides within their organization and devise efficient means of collecting it.
- Using technology to expedite data collection, validation, and reporting can be extremely advantageous. These processes can be automated to save time and reduce errors.
- Stay up to date: Companies must remain current with evolving regulations and standards to ensure ongoing compliance.
ESRS and CSRD represent significant milestones in the European Union's voyage toward corporate sustainability reporting. By increasing transparency and fostering uniform reporting, these initiatives not only help businesses better manage their environmental and social impacts, but also empower stakeholders to make more informed decisions.