The European Sustainability Reporting Standards (ESRS) are a set of mandatory reporting guidelines developed by the European Union to enhance corporate transparency on environmental, social, and governance (ESG) issues. These standards are integral to the EU's broader sustainability agenda, particularly the European Green Deal, which aims to make Europe climate-neutral by 2050.

Purpose of ESRS

The ESRS were introduced to standardize sustainability reporting across EU companies, ensuring that stakeholders—such as investors, consumers, and regulators—have access to consistent, comparable, and reliable ESG information. This initiative addresses previous shortcomings in non-financial reporting, where disclosures were often inconsistent and lacked depth.

Integration with EU Strategies

The ESRS are a key component of the Corporate Sustainability Reporting Directive (CSRD), which came into force on January 5, 2023. The CSRD expands the scope of reporting requirements to a broader range of companies, including large firms and listed small and medium-sized enterprises (SMEs). Under the CSRD, companies are obligated to report sustainability information in accordance with the ESRS. This framework supports the European Green Deal's objectives by promoting transparency and accountability in corporate sustainability practices.

Key Features of ESRS

• Comprehensive Coverage: The ESRS encompass a wide range of ESG topics, including climate change, pollution, water and marine resources, biodiversity, resource use, workforce matters, human rights, and governance issues.
• Double Materiality: Companies must assess and report on both how sustainability issues affect their business (financial materiality) and how their operations impact society and the environment (impact materiality).
• Standardized Reporting: The ESRS provide a uniform structure for sustainability disclosures, enhancing the comparability and reliability of reported information across different companies and sectors.
• Mandatory Assurance: Reported sustainability information must undergo independent assurance to verify its accuracy and completeness.

Implementation Timeline

The ESRS are being implemented in phases:

• 2024: Companies already subject to the Non-Financial Reporting Directive (NFRD) must begin reporting under the ESRS for the 2024 financial year, with reports published in 2025.
• 2025: Other large companies not previously covered by the NFRD will start reporting for the 2025 financial year.
• 2026: Listed SMEs will begin reporting for the 2026 financial year.

NOTE: Changes to the schedule are being planned (so-called Omnibus Simplification), which may affect the implementation timeline. Read more here.

EU's Objectives with ESRS

Through the ESRS, the EU aims to:

• Enhance corporate accountability and transparency on sustainability issues.
• Provide stakeholders with reliable ESG data to inform decision-making.
• Align corporate practices with the EU's climate and sustainability goals, particularly the European Green Deal.
• Combat greenwashing by ensuring that sustainability claims are substantiated with verified data.

In summary, the ESRS represent a significant step towards integrating sustainability into the core of corporate reporting, thereby supporting the EU's transition to a more sustainable and climate-resilient economy.