ESRS and CSRD: The future of sustainability reporting - Is your company ready?

ESRS are the new reporting standards included in the EU's new Sustainability Reporting Directive (CSRD). Developed by the European Financial Reporting Advisory Group (EFRAG), they aim to create a uniform standard for corporate sustainability reporting. By building on already established EU policies and international standards, such as the Sustainable Finance Disclosure Regulation (SFDR) and the Global Reporting Initiative (GRI), the ESRS provide greater comparability and quality assurance for sustainability reporting.

Upcoming changes with ESRS and CSRD
As we previously reported , the CSRD will apply from the financial year 2024, replacing the previous Non-Financial Reporting Directive (NFRD). This means extending sustainability reporting to a wider group of companies.

CSRD and ESRS are complementary - CSRD sets out the requirements and obligations for sustainability reporting, while ESRS provides a framework and methodology for meeting these requirements. Both are mandatory and part of the EU legal framework for corporate sustainability transparency.

Who is affected by ESRS?
All companies covered by the CSRD will have to align their sustainability reports with the ESRS. This includes all companies listed on regulated markets in the EU, as well as large companies that meet certain economic criteria. The ESRS will also apply to non-European companies that have significant operations in the EU.

• In 2025, listed companies with more than 500 employees, as well as companies already covered by the NFRD, must report for the financial year 2024.

• In 2026, companies that meet two of three requirements: over 250 employees, EUR 40 million in turnover and EUR 20 million in assets, must report for the financial year 2025.

• In 2027, small and medium-sized listed companies must report for the financial year 2026.

• In 2029, non-European companies with a net turnover of more than EUR 150 million in the EU and with at least one subsidiary or branch in the EU exceeding certain thresholds will have to report for the financial year 2028.

What does ESRS mean for you?
The draft ESRS, expected to be adopted by the EU in August 2023, introduces cross-sectoral standards that will consolidate and clarify the reporting requirements already specified by the CSRD.

The ESRS is structured around four main categories:

• Overall requirements, which aim to define how to report and what to include;

• Environmental issues, including climate change, pollution, biodiversity, circular economy, and impacts on water and oceans.

• Social issues, covering working conditions for employees, both within the company and its suppliers, and the company's impact on society at large.

• Corporate governance, which focuses on the design of sustainability reporting, including metrics and targets, with a particular focus on impacts, risks and opportunities.
  
  

Each category should cover a range of aspects, from climate change and pollution to the company's impact on society and the working conditions of their employees.

Prepare for ESRS
To successfully implement ESRS in your business, start by carefully analyzing EFRAG's new sustainability reporting proposal and understanding its potential impact on your company. Given the more extensive and detailed requirements of the new directive, it is crucial to prepare your organization in advance. Identify the relevant areas for you and what you need to report. It may be beneficial to set up a working group to identify potential risks and opportunities, as the new Directive may affect all or part of your business. Engage key people in your organization to structure your information gathering and reporting, with a particular focus on identifying any gaps in data collection or information gathering;

Preparing for ESRS may seem overwhelming, but with the right planning and support, the transition will be much smoother. Remember that the goal of the ESRS and CSRD is to improve corporate sustainability reporting and increase transparency, which in turn contributes to more sustainable companies and a more sustainable world. Contact us today to hear more about ESRS!