EUROPEAN UNION
The European Sustainability Reporting Standards (ESRS) under
the Corporate Sustainability Reporting Directive (CSRD)
In November 2022, the EU passed the
Corporate Sustainability Reporting
Directive (CSRD), which will make
comprehensive sustainability reporting a
requirement for around 50,000
companies by 2026. The CSRD replaces
the Non-Financial Reporting Directive,
adopted in 2014 by the EU, which
required companies to provide
nonfinancial disclosure documents —
known to most of us as "sustainability
reports."
The new EU Sustainability Reporting
Standards (ESRS, the policy framework
under the CSRD) combines financial
data, ESG information, and assurance for
the first time. The ESRS standards will
require companies to provide
comprehensive and robust information
about social and environmental impacts,
risks, and opportunities to a broad group
of stakeholders. ESRS will support the
European Green Deal by making
available relevant, consistent, and
comparable data, and overall
standardizing and improving the quality
of corporate environmental reporting.
ESRS establishes guidelines on the topics and indicators
companies should include in their sustainability reports,
including on climate change, water and resource
management, biodiversity, human rights, labor practices,
diversity, and anti-corruption measures.
The final version of the first set of
European Sustainability Reporting
Standards (ESRS) was approved by the
European Commission on July 31, 2023.
Now, the final rules will include a double
materiality assessment and entities who
elect not to disclose certain topics
(topics that at one point were going to
be mandatory) can do so if they prove
the topics are not material to them.
The ESRS is a delegated act adopted by the European
Commission and will be directly applicable in all EU member
states for entities meeting the designated criteria, including
certain companies located outside of the EU, but with
operations extending to member states.
The ESRS will now be transmitted to the European
Parliament and to the Council for scrutiny, for the next two to
four months. The European Parliament or the Council may
reject the delegated act, but they may not amend it.
However, the probability of rejection is widely seen as slim to
none. Subject to final adoption by the European Parliament,
the text will enable the CSRD directive to be applied from the
1st of January 2024. The EU also plans to release sector-
specific standards in 2024.
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