The final version of the European Sustainability Reporting Standards (ESRS) has been approved by The European Financial Reporting Advisory Group (EFRAG). The report sets out the rules for companies to report on regarding sustainability-related impacts, opportunities and risks as part of the EU’s upcoming Corporate Sustainable Reporting Directive (CSRD).
The approval represents another crucial step in the attempt to establish a modern sustainability reporting system in Europe. This follows the adoption of the CSRD by the European Parliament, and the anticipated adoption by the EU Council. Companies implemented by the rules would be obliged to supply sustainability reporting on their strategies/business models, governance and organisation, materiality assessments of sustainability impacts, opportunities and risks, as well as policies, targets, action plans and performance.
From the anticipated launch in early 2024, the CSRD is on track to begin being applied with large companies first, aimed as a fundamental update to the 2014 Non-Financial Reporting Directive (NFRD), the current EU sustainability reporting framework. Currently, around 12,000 companies are required to provide sustainability disclosures, however, the new rules will significantly expand the number to over 50,000. Additionally, a more detailed reporting requirements will be introduced to report on company impacts on the environment, human rights and social standards and sustainability-related risk.
In June 2020, EFRAG, a private association majority financed by the EU, was mandated by the European Commission to prepare for new EU sustainability reporting standards, while in May 2021, they were requested to develop reporting standards for the CSRD. One of the fundamental amendments to the approved ESRS reflects feedback received about the assessment of materiality, omitting the “rebuttable presumption,” which was seen by most respondents as damaging materiality judgements and resulting in unnecessary costs. Respondents asked the ESRS to instead provide extra guidance on how to execute materiality judgements, through analysis of responses posted on the EFRAG website.
Click here to access the approved ESRS.