European Commission adopts European Sustainability Reporting Standards

Written by Adam Cadle

01/08/2023

The European Commission (EC) has adopted the first delegated act of the European Sustainability Reporting Standards (ESRS), which set out cross-cutting standards and standards for the disclosure of ESG information.

This act supplements the Accounting Directive as amended by the Corporate Sustainability Reporting Directive (CSRD), requiring large companies and listed companies to publish regular reports on the social and environmental risks they face, and how their activities impact people and the environment.

All companies subject to the CSRD will be required to use the ESRS, which cover the full range of ESG issues, including climate change, biodiversity and human rights.

They provide information for investors, including pension funds, to understand the sustainability impact of the companies they invest in.

The reporting requirements will be phased in over time for different companies.

The standards, which were developed by the European Financial Reporting Advisory Group (EFRAG), also take account of discussions with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI), with the aim of ensuring a high degree of interoperability between EU and global standards, and to prevent unnecessary double reporting by companies.

To assist those who will apply both ESRS and ISSB Standards, the EC, EFRAG and ISSB will work on interoperability guidance that will aim to assist entities in navigating between the standards.

“The standards we have adopted today are ambitious and are an important tool underpinning the EU’s sustainable finance agenda,” commented European Commissioner for financial stability, financial services and the Capital Markets Union, Mairead McGuinness.

“They strike the right balance between limiting the burden on reporting companies while at the same time enabling companies to show the efforts they are making to meet the green deal agenda, and accordingly have access to sustainable finance.”

ISSB chair, Emmanuel Faber, stated: “I congratulate my European colleagues on the publication of the ESRS. Furthermore, I thank them for the positive collaboration to achieve the very high degree of alignment between climate requirements in the ISSB Standards and ESRS.

“Much progress has been achieved. We have substantially advanced the reduction of the duplicative disclosure burden, and those applying ISSB Standards as well as ESRS will be able to use our navigation tool, reflecting our respective mandates.

“We welcome the publication by EFRAG of a proposed table for their own work, which we have yet to review. We will complete our own analysis of the final ESRS and continue to work closely with the European Commission and EFRAG to develop suitable interoperability guidance material, providing clarity to the market as soon as practicable.”

Principles for Responsible Investment (PRI) EU policy head, Elise Attal, added: “PRI welcomes the publication of the first ESRS delegated act. This is an important stepping stone towards investors having access to the data they need to assess sustainability risks, opportunities and impacts.

“The requirements on companies to explain why they have deemed climate change to be non-material, and hence not worth disclosing, and to explicitly state which data points deriving from the SFDR are non-material, are important to improve transparency of materiality assessments.

“Investors will be able to keep a watchful eye on investee reporting and will expect comprehensive disclosures based on accurate and science-based materiality assessments.

“The European Commission should commit to making key climate disclosure indicators and environmental and social indicators relevant to SFDR mandatory to disclose in the first review of this delegated act in 2026.

"In the meantime, it should provide clear, comprehensive and robust guidance on materiality assessments, so that material sustainability information is not omitted by companies.”

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