The Significance of European Sustainability Reporting Standards (ESRS)

As of the beginning of 2024, the European Commission has officially implemented the European Sustainability Reporting Standards (ESRS). These standards lay out detailed reporting requirements for companies under the scope of the Corporate Sustainability Reporting Directive (CSRD) and serve the purpose of assisting various stakeholders in evaluating companies’ sustainability performance, responding to the increasing global emphasis on sustainable business practices. 

Challenges in Sustainability Reporting:

Despite the growing recognition of the importance of sustainability reporting, businesses face challenges in implementing and reporting their initiatives effectively. These challenges include varying reporting standards, inconsistent data collection methodologies, and the absence of a unified global reporting language. ESRS addresses these issues by offering a standardized framework aligned with international best practices, facilitating more accurate and comparable reporting.

ESRS in Action:

ESRS introduces a unified approach to sustainability reporting, emphasizing “double materiality.” This means that companies are required to report not only on their effects on people and the environment but also on how social and environmental matters can lead to financial risks and opportunities for the company. In other words, ESRS considers both the impact of the company on the world and how the world’s social and environmental conditions can affect the company financially.

Here are the 12 topics covered by ESRS:  

Adoption of ESRS is not just a regulatory compliance matter but a strategic move for companies looking to enhance their corporate reputation, attract investors, and contribute to the global sustainability agenda.

Alignment with Global Standards:

A key strength of ESRS lies in its alignment with other global reporting standards like GRI and ISSB. This alignment ensures consistency and facilitates a seamless transition for companies familiar with these frameworks, promoting international comparability and a more cohesive global effort toward sustainable development. Given the global scale of business operations, this alignment is crucial for promoting transparency and accountability.

Who needs to start reporting under ESRS and when?

  • Large companies exceeding at least 2 of the following criteria: more than 250 employees, €50 million net turnover, or €25 million balance sheet total.
  • Listed SMEs exceeding at least 2 of the following criteria: more than 10 employees, €900,000 net turnover, or €450,000 balance sheet total.
  • Non-European companies operating within the EU whose turnover in Europe exceeds €150 million. The ESRS requirements will be initially streamlined for companies with fewer than 750 employees.
In addition to the company types outlined in the preceding table, it is crucial to emphasize that CSRD carefully considers regulatory adaptability for SMEs. This entails the implementation of proportionate reporting for listed SMEs, providing them with flexibility and extended timelines. EFRAG is currently engaged in the development of standards for both listed and non-listed SMEs, with the objective of improving reporting efficiency. Additionally, measures have been put in place to prevent unwarranted reporting burdens on SMEs operating within the value chains of larger companies.
 

Bottom Line

The European Sustainability Reporting Standards represent a significant milestone in the global journey toward sustainability. ESRS, by providing a harmonized framework, not only addresses challenges in sustainability reporting but also aligns with established global standards, reinforcing the importance of transparent and comparable reporting. As businesses navigate sustainability reporting complexities, adopting ESRS becomes not just a compliance requirement but a strategic imperative for those committed to positive impacts on the environment, society, and long-term viability in the global marketplace.

Compliance with the ESRS presents a significant challenge for companies obligated to adhere to a reporting framework spanning hundreds of data points. In this context, a strategic approach is imperative: prioritize materiality, select impactful KPIs, implement in phases, leverage technology, and engage stakeholders. At CHS, we are ready to assist you in proactively addressing these challenges starting today.