European Union issues sustainability reporting standards 

The European Sustainability Reporting Standards (ESRS) that companies must use to report certain sustainability information under the Corporate Sustainability Reporting Directive (CSRD) were issued by the European Commission (commission) on Aug. 1, 2023. The ESRS will be forwarded later in August 2023 to the European Parliament and the Council of Ministers for a two-month scrutiny period (extendable by two months) for their agreement. Under the directive, the first sustainability reports must be published by large organizations (including large non-European Union (EU) listed companies) in 2025 for the financial year starting on or after Jan. 1, 2024, and will be phased-in for smaller organizations (including other non-EU listed companies). The directive is expected to impact 50,000 companies.

The commission says the EU legal framework on sustainability “makes a major contribution towards the development of a coherent global framework and towards the global comparability of reported sustainability information,” and that the CSRD will improve the quality of sustainability data and companies’ management of sustainability risks and opportunities, and will incentivize private financing of the EU’s Green Deal. 

According to the commission, the ESRS will provide a common approach that will help companies communicate and manage their sustainability performance. The ESRS are based on technical advice from EFRAG, a multistakeholder advisory group that is majority-funded by the EU, and were developed with close involvement of different stakeholders. The commission acknowledges, in the accompanying Delegated Regulation, that “some of the most challenging disclosure requirements” concern an organization’s own workforce and disclosures for value-chain workers (in addition to disclosures about biodiversity, affected communities, and consumers and end-users).

The 12 ESRS are set out in the annex to the Delegated Regulation supplementing Directive 2013/34/EU and cover the full range of sustainability issues. They will require companies to report their impacts on people and the environment, and how social and environmental issues contribute to their financial risks and opportunities — this is called a “double materiality” perspective. The annex is 245 pages and ESRS 1 and 2 are mandatory for all companies — they cover the general requirements to follow when reporting, and the essential information to be disclosed. The other 10 ESRS will be subject to a materiality assessment — companies will have to report relevant information that is material but they can omit information that is not material or relevant to its business. The ESRS most relevant to workforce matters are ESRS S1 (own workforce) and S2 (workers in the value chain).

EFRAG will publish nonbinding guidance on the ESRS, and will prioritize guidance on materiality assessment and value chain reporting — the draft guidance will be published for public consultation “in the near future.” EFRAG will also host a portal to enable companies and other stakeholders to ask technical questions about the ESRS.     

• A European Green Deal (Europa)
• FAQs (European Commission, July 31, 2023)
• Press release (EFRAG, July 31, 2023)
• Directive 2022/2426 (EUR-Lex, Dec. 16, 2022)

• EU requires enhanced corporate sustainability disclosures (Jan. 11, 2023)