What is the future of ESG reporting in Europe?


Greenomy recently took the opportunity to discuss in detail European sustainability reporting standards and its final revisions.

The Corporate Sustainability Reporting Directive (CSRD) came into effect on January 5th, 2023, revolutionising the landscape of financial reporting in Europe.

A significant stride towards transparency, the CSRD mandates companies to publicly share their environmental and societal impacts, and these disclosures must be subjected to an assurance process.

To ensure homogeneity in Environmental, Social, and Governance (ESG) reporting, the EU Commission engaged the European Financial Reporting Advisory Group (EFRAG) to formulate a set of mandatory disclosure standards. Termed the European Sustainability Reporting Standards (ESRS), they were crafted with an aim to promote consistent reporting practices across Europe.

These standards encompass specific disclosure requirements that span across 12 ESG topics, categorised into four groups. The Cross-cutting standards, for instance, dictate general requirements applicable across all matters delineated by the CSRD. Moreover, there exists the ESG standards, sometimes referred to as sector-agnostic or topical standards. These concern environmental, social, and governance aspects. Interestingly, these combined standards encapsulate approximately 1200 data points for reporting. An official comprehensive list is, however, still anticipated.

On July 31st, 2023, the sector-agnostic ESRS underwent an official update. While retaining its foundational structure, the revised standards introduced notable amendments, some of which took the industry by surprise. Specifically, the areas of materiality, phase-ins, and voluntary disclosures observed transformative modifications.

A monumental alteration occurred within the realm of materiality. As of the June draft, all ESRS, with the lone exceptions of ESRS 1 and 2, were now exposed to materiality evaluations, which included indicators tied to other EU legislations. ESRS 1 and 2, being fundamental, stood exempted from materiality evaluations. Companies were not mandated to justify the non-materiality of an ESRS, but they held the option to elucidate their reasons.

The latest ESRS witnessed similar alterations. If, for instance, Climate is determined as non-material, the company must furnish a detailed rationale. If an indicator related to other EU legislations is deemed non-material, the company is required to explicitly label that data point as “not material”.

The ESRS’s phase-in requirements also experienced significant changes, especially when delineating between all companies and those with a workforce less than 750. Key distinctions and phase-ins from the June draft have been maintained in the latest version, with minor augmentations ensuring clearer financial reporting.

Lastly, to alleviate the intricacies of reporting, the latest ESRS introduced a surge in voluntary data points. Many mandatory disclosure requirements were transformed into voluntary ones, marking a significant shift from the June draft.

Read the full post here.

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