The European Union (EU) has taken significant strides towards enhancing transparency with the introduction of the EU Sustainability Reporting Standards (ESRS).
The Main Goal of the ESRS
The primary objective of the ESRS is to elevate sustainability reporting across the EU. ESRS is part of a broader initiative to enhance corporate sustainability reporting, building upon the foundation laid by the Corporate Sustainability Reporting Directive (CSRD).
Although the CSRD and ESRS are intertwined, they each fulfill unique roles. The CSRD establishes the legal structure and responsibilities for reporting, whereas the ESRS outlines the steps to achieve compliance. Businesses under CSRD jurisdiction must carefully manage these distinctions to guarantee precise and punctual reporting.
The ESRS aligns with international standards, such as the GRI and TCFD, reinforcing the EU's commitment to international sustainability initiatives.
Whom Does It Affect?
The CSRD applies to a wide range of entities operating within the EU. While the specific criteria may vary, the directive primarily affects:
- Companies publicly traded on European regulated markets, including those listed as SMEs (with the exception of micro-enterprises identified by the Accounting Directive).
- Other substantial European enterprises, whether they are publicly listed or not, that surpass at least two out of the three specified criteria: having more than 250 employees, generating revenue in excess of 40 million euros, and/or possessing total assets valued at over 20 million euros.
- Non-European corporations whose subsidiary companies or branches operating within the European Union report revenues exceeding 150 million euros.
What Are the Disclosure Requirements?
ESRS places a strong emphasis on comprehensive sustainability disclosures. Companies subject to ESRS must report on a range of sustainability-related topics, including:
- Environmental Impact: Reporting on environmental performance, emissions, resource consumption, and biodiversity impact.
- Social Responsibility: Disclosing information on labor practices, human rights, diversity, and community engagement.
- Governance and Ethics: Reporting on corporate governance, ethics, anti-corruption measures, and board composition.
- Climate-Related Disclosures: Complying with TCFD-aligned climate-related reporting standards to address climate risks and opportunities.
What Is the Timeline for the Implementation of the ESRS?
1st January 2024: Companies that are currently obliged to report under the EU’s Non-Financial Reporting Directive (NFRD), i.e large-listed companies with more than 500 employees, will be required to start reporting under the ESRSs for the financial year 2024 (i.e reports issued 2025).
1st January 2025: Large companies covered by the CSRD need to report under the ESRS from the financial year 2025 (i.e reports issued 2026).
1st January 2026: SMEs and other small and non-complex institutions must implement the CSRD and align to the ESRS from the financial year 2026. However, they will have the option to opt out of the reporting rules until 1st January 2028.
As ESRS progresses through the regulatory pipeline, businesses operating within the EU must prepare for the changes that will reshape the landscape of corporate sustainability reporting in the region.
How can ESGgo software help you with the ESRS?
ESGgo software is your indispensable tool for navigating the intricacies of the European Sustainability Reporting Standard (ESRS). We provide organizations with a thorough gap analysis, ensuring seamless alignment with any sustainability framework. Our platform is designed to identify and address disparities between your current reporting practices and the ESRS demands, thereby simplifying compliance efforts and enhancing transparency.