This document provides a detailed overview of the European Sustainability Reporting Standards (ESRS), essential for companies mandated to report sustainability performance under the EU Corporate Sustainability Reporting Directive (CSRD). Developed by the European Financial Reporting Advisory Group (EFRAG), ESRS serves as a robust framework for reporting on environmental, social, and governance (ESG) aspects, aiding stakeholders in making informed decisions and promoting sustainable practices within the EU.
CSRD Timeline Highlights:
The European Commission introduced the CSRD proposal in April 2021.
CSRD became effective on January 5, 2023.
Reporting under CSRD begins in the 2024 financial year, with reports due the following year.
ESRS Key Features:
Double Materiality:
This concept underscores the mutual influence between a company's sustainability and financial performance. It necessitates companies to evaluate their societal and environmental impact, considering the financial materiality of these impacts on their business operations.
Reporting Domains:
Governance: This section demands disclosures on a company's governance mechanisms, illustrating its dedication to sustainable and ethical operations.
Strategy: Disclosures in this area should detail the intersection of the company's strategy with its sustainability impacts, risks, and plans for addressing them.
Impact, Risk, and Opportunity Management: Companies are required to report on their processes for identifying and managing sustainability-related aspects based on a thorough materiality assessment.
Metrics and Targets: This section focuses on the performance metrics for evaluating the management of key sustainability issues, outlining the required disclosures for reporting on these metrics and targets.
Stakeholder and Materiality Assessment:
ESRS categorises stakeholders into affected parties and report users, emphasising the importance of stakeholder engagement in identifying material impacts for sustainability reporting.
Sustainability Due Diligence:
An ongoing process to identify, prevent, and mitigate negative environmental and social impacts, informing the materiality assessment for sustainability reporting. While ESRS does not mandate specific due diligence actions, it facilitates the disclosure of related information.
ESRS provides a structured approach for companies to report comprehensively on their sustainability practices, ensuring transparency and accountability in their business operations.