The European Green Deal's Corporate Sustainability Reporting Directive (CSRD) mandates over 50,000 companies, including large, listed, and third-country companies with EU undertakings, to report sustainability information under the European Sustainability Reporting Standards (ESRS). Reporting starts on or after 1 January 2024 for large public-interest companies, banks, and insurance companies already under the Non-Financial Reporting Directive (NFRD); 1 January 2025 for other large companies; and 1 January 2026 for small or medium-sized entities and other undertakings. The CSRD and ESRS incorporate double materiality, prospective information, information about the upstream and downstream value chain, and sustainability due diligence into their reporting requirements. All sustainability information in the management report must be verified by a third party. The first set of ESRS were approved in November 2022 and emphasizes the importance of tackling climate change. The ESRS aim to harmonize with various other standards like ISSB, TCFD, and GRI to avoid repeated disclosure efforts by companies.
On April 21, 2021, the European Commission (EC) proposed the Corporate Sustainability Reporting Directive (CSRD) requiring companies to report according to European Sustainability Reporting Standards (ESRS), with the European Financial Reporting Advisory Group (EFRAG) serving as the technical advisor. The first draft of ESRS was released for public consultation by EFRAG on April 29, 2022, with the process concluding in August 2022. After reviewing all feedback, the EFRAG Sustainability Reporting Board and Technical Expert Group approved a first set of ESRS on November 15, 2022, to be submitted to the EC, which is expected to adopt these standards by June 2023. This first set of ESRS consists of 12 standards covering environmental, social, and governance matters and includes both general and specific standards. Future plans include the publication of sector-specific standards and standards for small and medium-sized enterprises (SMEs) not covered in the public consultation. The Council approved the proposal on November 28.
When do companies have the obligation to report sustainability information according to the ESRS?
The proposed CSRD shall apply for financial years starting on or after 1 January 2023, but based on the latest communication of the Council of the European Union, deadlines for implementation by companies (EU refers to undertakings) are proposed to change to:
- 1 January 2024 for undertakings already subject to the Non-Financial Reporting Directive (reporting in 2025 on 2024 data)
- 1 January 2025 for large undertakings not currently subject to the Non-Financial Reporting Directive (reporting 2026 on 2025 data)
- 1 January 2026 for listed small and medium-sized enterprises, as well as for small and noncomplex credit institutions and for captive insurance undertakings (reporting in 2027 on 2026 data)
Is assurance mandatory?
Assurance of the sustainability reporting is proposed to be mandatory at the limited level, planning a transition to reasonable assurance in the upcoming years.
What is the period covered by the sustainability reporting?
The sustainability reporting period should be aligned to the reporting period used for the financial statements.
When will it be enforced on the NCS?
Scope 1, 2 & 3 to be enforced on the NCS as from 01.01.2024
Overview of the initial steps
The first set of European Sustainability Reporting Standards (ESRS) establishes a structure for reporting sustainability information in a comprehensive manner. It includes four main reporting areas as set out in ESRS 2. These areas are:
- Governance: This pertains to the processes, controls, and procedures used for monitoring and managing impacts, risks, and opportunities.
- Strategy: This considers how a company's strategy and business models interact with material impacts, risks, and opportunities, and the approach to addressing them.
- Impact, Risk, and Opportunity Management: This involves the processes by which impacts, risks, and opportunities are identified, assessed, and managed through policies and actions.
- Metrics and Targets: This describes how a company measures its performance, including progress towards the targets it has set.
The first set of draft standards under the European Sustainability Reporting Standards (ESRS) includes only cross-cutting and sector-agnostic standards. Sector-specific standards and those proportionate for Small and Medium Enterprises (SMEs) are still under development and will be presented for separate public consultation in the near future. Companies are required to include the sustainability information mandated by the ESRS in their management reports.