European Commission Adopts ESRS
The EU Commission has adopted the ESRS (‘European Sustainability Reporting Standards’), after receiving feedback from the public and building on the preparatory draft standards formulated by EFRAG (‘European Financial and Reporting Advisory Group’).
The delegated act was published within the framework of the CSRD (‘Corporate Sustainability Reporting Directive’). This directive forms part of the EU Green Deal and was approved at the end of 2022. It requires companies to disclose the impact of their activities on people and the planet with the purpose to help parties, such as investors and consumers, to understand and evaluate the sustainability performance of companies on the EU market.
The ESRS specify how reporting entities shall comply with the obligations stipulated in the CSRD. They contain the 12 sets of non-financial reporting standards which companies will have to adhere to when reporting on different sustainability matters. The Commission described these standards as ambitious and a powerful support for the EU’s sustainable agenda.
Changes vis-à-vis the EFRAG Draft Standards
Compared to the EFRAG draft standards, the EU Commission:
- Provided a phase-in for more challenging requirements, especially for companies with less than 750 employees, e.g. policies related to workers in the value chain or scope 3 greenhouse gas emissions;
- Made reporting on climate (ESRS E1 Climate Change) and the own workforce (ESRS S1 Own Workforce) only required if considered material and, therefore, no longer mandatory by default; and,
- Made some particularly challenging requirements voluntary, e.g. the biodiversity transition plan or actions taken to support vulnerable suppliers.
With this set of standards, the EU commission aims to strike a balance between limiting the burden on reporting companies while also demanding them to concretely show the efforts they are making to meet the Green Deal objectives.
Another important objective was achieving a very high degree of alignment between the ESRS and the IFRS S standards. This to prevent that companies required to report in accordance with ESRS and that also wish to comply with IFRS, would have to report separately under both sets of standards.
This delegated act will be submitted to the European Parliament and Council for review and approval in the first half of August. If they make no objections to this text, the standards will enter into force on 1 January 2024, as per the CSRD’s provisions.