European Sustainability Reporting Standards (ESRS)

ESG
:   
Regulatory
March 31, 2024

The European Sustainability Reporting Standards (ESRS) are a set of standards developed under the mandate of the Corporate Sustainability Reporting Directive (CSRD) by the European Financial Reporting Advisory Group (EFRAG). The ESRS aim to provide a unified framework for sustainability reporting within the European Union, enhancing the consistency, comparability, and reliability of sustainability information provided by companies.

Key characteristics and objectives of the ESRS include:

  1. Comprehensive Scope: The standards cover a wide range of sustainability topics, including environmental, social, and governance (ESG) issues. They are designed to capture the full spectrum of sustainability impacts, risks, and opportunities faced by companies.
  2. Double Materiality Perspective: Consistent with the CSRD, the ESRS are based on the concept of double materiality. This means they require reporting not only on how sustainability issues affect the company’s financial performance (financial materiality) but also on the company's impacts on people and the environment (impact materiality).
  3. Mandatory Application: For companies within its scope, the CSRD mandates the application of the ESRS, making sustainability reporting a legal requirement. This significantly expands the number of companies required to report detailed sustainability information compared to the previous Non-Financial Reporting Directive (NFRD).
  4. Sector-Specific Standards: Alongside general standards applicable to all reporting entities, the ESRS framework includes sector-specific standards to address the unique sustainability aspects and impacts of different industries.
  5. Alignment with International Initiatives: While focusing on the needs of the European market, the ESRS aim to align with global sustainability reporting frameworks and standards where possible, facilitating the integration of sustainability reporting into global financial markets.
  6. Enhanced Transparency and Accountability: By standardizing sustainability reporting, the ESRS seek to improve transparency and accountability among companies, providing stakeholders, including investors, customers, and the public, with reliable and comparable information to make informed decisions.

The development of the ESRS and their integration into European corporate reporting practices mark a significant step towards more sustainable economic activities in the EU by ensuring that companies assess and disclose their sustainability performance in a harmonized and comprehensive manner. This initiative is part of the EU's broader sustainable finance framework, which aims to direct capital flows towards sustainable investments to achieve a carbon-neutral, sustainable economy.

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