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Companies | Article | Accountability & Transparency
31 Jul 2023

European sustainability reporting standards adopted by the European Commission

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European sustainability reporting standards adopted by the European Commission
The European Commission adopted on 31 July the first set of European Sustainability Reporting Standards (ESRS), under the Corporate Sustainable Reporting Directive (CSRD), for large companies and listed companies.

These standards require all large companies and listed companies to disclose information on what they perceive as risks and opportunities arising from social and environmental issues, as well as information on the impact of their activities on people and the environment, the so-called dual materiality (there are 12 standards imposed).

In this way, investors, but also civil society organisations, consumers and other stakeholders can assess the performance of companies, as part of the European Green Deal.

There is evidence that the sustainability information that companies currently report is not sufficient and/or comparable and/or reliable.

For investors, this required information is also relevant in order to fulfil the reporting requirements they themselves have to meet (SFDR - Sustainable Finance Disclosure Regulation).

It is expected that these standards will, in the medium and long term, not only reduce the costs for companies in realising the reports they often produce based on different standards, but also improve the quality of information.

Small and medium-sized listed companies will also have a reporting regime, but proportional to their size and still being produced by EFRAG. However, they will not have to report until 2026, with two additional possible years of extension.

Unlisted small and medium-sized enterprises, meanwhile, may receive requests for sustainability information from customers, banks, investors and other stakeholders, so EFRAG is also preparing a set of voluntary standards to enable them to participate in the transition to a sustainable economy.

The ESRS have been developed to ensure a high level of compatibility with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI), the latter having been an important reference and inspiration for the ESRS.

It was announced that EFRAG will soon provide a portal for technical questions that companies may have on the application of the ESRS. In the meantime, a FAQ document is available here and useful documents here.