The European Commission has taken a significant step towards the implementation of the Corporate Sustainable Reporting Directive (CSRD) by adopting the European Sustainability Reporting Standards (ESRS).
This new set of rules and requirements for companies to report on sustainability-related impacts, opportunities, and risks is set to begin for some companies as early as the 2024 financial year.
However, the adoption of the ESRS has not been without controversy. While the new rules mark a major milestone in the EU’s sustainability journey, concerns have been raised about the Commission’s recent decision to ease several aspects of the new rules.
In particular, the removal of the mandatory nature of many of the CSRD’s sustainability disclosures, which remained in the adopted ESRS, has been a point of contention.
The CSRD, which is expected to come into effect at the beginning of 2024, is a significant update to the 2014 Non-Financial Reporting Directive (NFRD), the current EU sustainability reporting framework.
The new rules will expand the number of companies required to provide sustainability disclosures from around 12,000 to over 50,000. They will also introduce more detailed reporting requirements on company impacts on the environment, human rights, social standards, and sustainability-related risk.
The European Financial Reporting Advisory Group (EFRAG) was tasked by the European Commission in June 2020 to prepare the new EU sustainability reporting standards. In November 2022, EFRAG submitted its final ESRS draft, which had been modified to ease the administrative burden on companies and reduce the number of reporting requirements by half.
In June 2023, the European Commission released a proposed version of the final ESRS, with a series of its own changes. Most notably, all disclosure requirements, with the exception of a set of general disclosures, were proposed to be subject to materiality assessments.
This would effectively allow companies to focus reporting on sustainability factors that they consider material to their businesses. Additional changes included phasing in certain reporting requirements such as Scope 3 emissions and biodiversity-related topics and “own workforce” disclosures for companies with fewer than 750 employees in the first year that they apply the standards.
Investment and finance groups have expressed concerns with the EU Commissions’ amendments, stating that they would impact their ability to obtain sustainability-related information required for investment decisions, in addition to reducing their ability to meet their own reporting requirements including those under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
In response to these concerns, the Commission published a Q&A following the adoption of the ESRS, which pointed out that “disclosure requirements subject to materiality are not voluntary,” adding that information must be disclosed if it is material, and that the materiality assessment process itself is subject to external assurance.
The Commission also highlighted the high level of interoperability between the ESRS and other sustainability reporting standards of the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI), noting in particular that “companies that are required to report in accordance with ESRS on climate change will to a very large extent report the same information as companies that will use the ISSB standard on climate-related disclosures.”
The adoption of the new sustainability reporting rules marks a significant step towards the EU’s sustainability goals. However, the implementation of these rules will require businesses to adapt and evolve their reporting practices.
At ClearVUE.Business, we offer a comprehensive energy management and carbon accounting system that can help businesses meet these new reporting requirements.
Our platform provides real-time monitoring of energy consumption and costs, helping businesses identify areas for improvement and track their progress towards sustainability goals. With ClearVUE.Business, businesses can not only comply with the new ESRS requirements but also drive their sustainability efforts forward.
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