Nov 10, 2022
4 things you need to know about the ESRS
Are you a sustainability manager or a sustainability professional who’s still not crystal clear on what the ESRS (EU Sustainability Reporting Standards) is all about?
We know, the landscape of sustainability regulations in the EU is ever-changing – so trust us when we say you’ll want to familiarize yourself with the ESRS asap.
In this blog post, we answer 4 key questions you might have about the ESRS:
What is the ESRS?
Whom does it affect?
What are the disclosure requirements?
What are the upcoming important dates for ESRS?
1. What is the ESRS?
The EU Sustainability Reporting Standards (ESRS) are a set of standards that outlines the mandatory concepts and principles to which companies reporting under the Corporate Sustainability Reporting Directive (CSRD) must align their sustainability statements with.
On 21 April 2021, the European Commission adopted a legislative proposal for a Corporate Sustainability Reporting Directive (CSRD). One of the key provisions of the CSRD is that companies in scope would have to report in compliance with European sustainability reporting standards (ESRS) adopted by the European Commission as delegated acts, on the basis of technical advice provided by EFRAG.
Developed by the European Financial Reporting Advisory Group (EFRAG), the ESRS is intended to improve corporate sustainability and environmental social governance (ESG) reporting within the EU in terms of accuracy, consistency, comparability, and standardization. The ESRSs have also been designed to support the European Green Deal, and in alignment with existing sustainability frameworks, standards, and regulations in the EU such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy.
The ESRS also introduces the concept of double materiality, expands a company’s reporting boundary to its entire value chain, and also significantly impacts the scope, volume, and granularity of information required to be disclosed by companies.
Currently, the 13 proposed ERSRs include:
1 standard on general principles for sustainability reporting (ESRS 1)
1 standard on overarching disclosure requirements (ESRS 2)
11 topical ESG standards, each with specific disclosure requirements (E1-E5, S1-S4, G1-G2)
Tl;dr – the ESRS is a key element of the CSRD and supplements it by providing more exhaustive, standardized, and comparable guidelines.
2. Whom does it affect?
According to the ESRS, all companies covered by the CSRD will be required to align their sustainability and ESG reports according to the ESRS. The estimated number of affected companies is 49,000.
Therefore, the ESRS will ultimately apply to:
Large EU companies, defined by having met at least two of the three criteria: 1) more than 250 employees, 2) more than EUR 40 million net revenue, or 3) more than EUR 20 million total assets
Listed EU companies, including listed SMEs* (except micro-undertakings**)
Non-EU parent companies (companies not established in the EU) but with securities listed on the EU-regulated markets, and a combined group turnover in the EU of more than EUR 150 million
*SMEs are expected to be given three more years to comply**Micro-takings are companies that meet two of the following three criteria: 1) less than 10 employees, less than EUR 700,000 net revenue, or 3) less than EUR 350,000 total assets.
3. What are the disclosure requirements?
The EFRAG has developed the ESRS in a way that ensures sustainability information is reported in a structured manner, based on a 3x3 framework: the ESRS outlines 3 reporting layers, 3 broad reporting areas, and 3 reporting topics (covering the 11 topical ESG standards).
Three reporting layers:
It is important to note that the current 13 ESRSs only consider sector-agnostic standards . At the time of writing, sector-specific and SME-proportionate standards are still being developed and are expected to be submitted for a separate public consultation soon.
Three reporting areas:
Strategy, governance, and materiality assessment
Implementation measures (covering policies, targets, actions and action plans, and allocation of resources)
Performance measurement (specific sets of metrics for all material topics)
Under each of the three reporting areas, companies need to report according to the three ESG topics:
Three topics (with 11 topical standards):
Environmental (5 topical standards, E1-E5)
E1: Climate change
E3: Water and marine sources
E4: Biodiversity and ecosystems
E5: Resource and circular economy
Social (4 topical standards, S1-S4)
S1: Own workforce
S2: Workers in the value chain
S3: Affected communities
S4: Consumers and end users
Governance (2 topical standards, G1-G2)
G1: Governance, risk management, and internal control
G2: Business Conduct
What are the upcoming important dates for ESRS?
The proposed CSRD shall apply for financial years starting on or after 1 January 2023, but based on the latest communication of the Council of the European Union, here are the proposed deadlines for implementation by companies:
June 2023: The ESRSs are due for finalization.
January 2024: companies that are already obliged to report under the Non-Financial Reporting Directive (NFRD) will be required to start reporting under the ESRSs on data from Financial Year 2024 (i.e. reporting in 2025 based on data from 2024)
January 2025: large companies that are currently not obliged to report under the NFRD (covered by the CSRD) will be required to start reporting under the ESRSs on data from Financial Year 2025 (i.e. reporting in 2026 based on data from 2025)
January 2026: listed small and medium-sized enterprises (SMEs) as well as small and non-complex credit institutions and captive insurance undertakings will be required to start reporting under the ESRSs on data from Financial Year 2026 (i.e. reporting in 2027 based on data from 2026)
It will take a lot of time and many steps in between before you are able to present an ESRS-compliant report, so don’t just sit back and wait for 2024! To ensure you report in accordance with the ESRS in due time, the real work should start now: get started by setting up your data collection processes, and start collecting data now. And if you haven’t already, you should probably use a digital tool or sustainability management software to help with that.
Tl;dr – The ESRSs are due for finalization by June 2023, and they will start to apply for certain companies in years beginning on or after January 2024. But if we were you we’d start preparing now.
What can you expect in the future?
So, now we have answered your top four burning questions about the ESRS. What are some next steps you can take?
Of course, you can make yourself more familiar with the requirements under the ESRS, identify what you would be required to report, and prepare for it, but this shouldn’t be a siloed task for the lonely sustainability manager or sustainability team: educate your organization and engage with process owners across the organization to better understand and improve data collection processes that will set you up for reporting compliance (and success!)
But success isn’t going to land on your doorstep, you need to first put in the hard work. If you need to report your 2024 data, you should start collecting data in 2024, and for that you already need to decide what type of data to collect, how you want to collect it, and what sustainability software you need to use to help you.
Let us help you prepare for the ESRS
With so many reporting standards and regulations to track, let us help you make sure you’re on the right track. SustainLab is your one-stop sustainability management platform where you can have an overview of all sustainability reporting frameworks and standards in one place. We know the ins and outs of these sustainability standards so you don’t have to!
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