ESRS – Navigating the New European Sustainability Reporting Standards
🔎 The European Commission has just adopted the European Sustainability Reporting Standards (ESRS), a game-changing framework under the Corporate Sustainability Reporting Directive (CSRD). Let’s dive into the key updates and what they mean for your business in three questions.
🔑 What is the current status of ESRS?
The ESRS is officially adopted by the European Commission and is now headed for scrutiny by the European Parliament and Council. While they can’t amend the standards, they can potentially reject the Delegated Act. Industry-independent standards are introduced, with sector-specific and SME-focused standards set to roll out gradually. Non-EU companies and SMEs will also have their own standards in due course.
🔄 What’s changed?
In the version of the standards that is adopted by the commission, some changes have been made in comparison to the earlier version published by the EFRAG. The basic principles have been retained. However, some requirements have been simplified, removed or made voluntary compared to earlier versions. Most notably:
1️⃣ No mandatory topical standards, all topical standards (including ESRS E1 Climate Change and ESRS S1 Own Workforce) are now subject to a materiality assessment.
However, when companies conclude that ESRS E1 is not material, they will provide a detailed explanation of their conclusion. In reality, we do not expect this to happen in many cases. ESRS 2 General disclosures is still mandatory
2️⃣Phase-in provisions, allowing more time before reporting becomes mandatory for some specific data points. Most notably, anticipated financial effects from environment-related impacts, risks and opportunities may be omitted in the first year of reporting, and in the first three years companies are allowed to limit anticipated financial effects to qualitative disclosures. Also, there are selected disclosure requirements and data points about social protection, employees with disabilities, health and safety, and work-life balance, can be omitted in the first reporting year.
For companies with less than 750 there are even more phase-in provisions, including more flexibility in the first year of reporting on own employees and scope 3 emissions.
3️⃣Some disclosures that were mandatory in previous version, are now voluntary. Examples include the Transition Plan for Biodiversity and Ecosystems and information on non-employees in ESRS S1 (e.g. regarding adequate wages, social protection and safety and health). An explanation of why certain sustainability topics are classified as immaterial is now also a voluntary disclosure.
📊 What’s next?
While compliance is crucial, don’t stop there! Improved non-financial reporting can and should be used to go beyond compliance. They provide a blueprint for companies to enhance transparency, accountability, and overall sustainability. It’s not just about ticking boxes; it’s about driving meaningful change.