From FY24, companies will be required to provide granular sustainability information

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April 2025 update: On 26 February 2025, the European Commission released an Omnibus package of proposals to reduce sustainability reporting and due diligence requirements. As part of this Omnibus package only the largest companies would report under ESRS and the requirements may be subject to change in the future. For more detail on the proposals, see our article.

24 Jan, 2025 (This article was published on 1 August 2023 and updated on 24 January 2025*)

Global Corporate Reporting Institute | ESRS Today

Highlights

How will ESRS affect companies in China?
Key features of current ESRS
Interoperability with international standard-setting initiatives
Next step: Read our publication

Companies in scope need to get ready now for enhanced sustainability reporting, as the European Commission (EC) has published the final text of its first set of twelve European Sustainability Reporting Standards (ESRS). For the first wave of companies, disclosures will be required as early as the 2024 reporting period.

Companies will need to assess which topics to report using the double materiality concept, which requires information that is material from either a financial perspective or an impact perspective. Companies will also need to include information from their value chain.

It is important to engage now to understand the requirements of this first set of ESRS and to assess how your company needs to adapt.

Patrick Chu
Partner, Head of ESG Reporting and Assurance
KPMG China

Irene Chu
Partner, ESG Advisory
KPMG China

Eddie Ng
KPMG ASPAC Corporate and Sustainability Reporting (CSR) and ESG Assurance Topic Team Leader
KPMG China

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Now the final text of the ESRS is clear, companies in scope have no time to lose before these standards become mandatory. The scale and ambition of these standards is unparalleled and there are key differences to other international frameworks. Companies need to get ready to meet the challenges and realise the opportunities that enhanced reporting will bring.

Eddie Ng
KPMG ASPAC Corporate and Sustainability Reporting (CSR)
and ESG Assurance Topic Team Leader, KPMG China

How will ESRS affect companies in China?

Ultimately, ESRS will be applied by (group exemptions may apply):

Large EU companies that exceed at least two of the following three criteria (including EU and non-EU subsidiaries): 250 employees, net revenue of EUR 50 million (formerly EUR 40 million) or total assets of EUR 25 million (formerly EUR 20 million). The new thresholds take effect from FY 2024. EU member states can choose to adopt them early from FY2023;
most companies with listed securities on EU-regulated markets (irrespective of whether they are based in the EU or not¹); and
Ultimate non-EU parent companies² with a combined group turnover in the EU of more than EUR 150 million and that have in the EU either a branch with a turnover exceeding EUR 40 million or a subsidiary that is a large company or a listed company.

The ESRS will affect not only EU companies but also non-EU companies. Companies in China that are listed in the EU or having subsidiaries or branches in the EU should determine whether they will be included in its mandatory disclosure scope, familiarise themselves with the disclosure requirements and start preparations as early as possible.

In addition, ESRS also expand the reporting boundary to cover material information across value chain. Therefore, companies in China may also receive requests for sustainability information from their EU customers, banks, investors or other stakeholders. Failure to fulfil the request may impair the relationship with key stakeholders. Those companies should engage with their EU stakeholders to understand the reporting requirements and start planning for it.

Key features of current ESRS

The ESRS set out detailed reporting requirements for companies in the scope of the Corporate Sustainability Reporting Directive (CSRD). Two cross-cutting standards provide general reporting concepts and include overarching disclosure requirements including multiple datapoints. Ten topical standards complement these with detailed disclosure requirements across environmental, social and governance topics. Together, these 12 ESRS require companies to provide information on:

their governance and strategy to address material sustainability topics;
the impacts, risks and opportunities arising from those topics; and
quantitative metrics and targets.

	Key features of current ESRS
Double materiality principles	Double materiality refers to two dimensions of materiality – ‘financial’ and ‘impact’. Companies will need to perform materiality assessments for both dimensions and report matters that are material in either dimension for all sustainability-related topics.
Reporting across a broad range of topics	ESRS require disclosures on material impacts, risks and opportunities across a broad range of environmental, social and governance topics. Following a materiality assessment, companies need to ensure they have the data, processes and expertise to report on topics that may be new to them, such as biodiversity or the circular economy.
Governance	Companies need to clearly set out their governance of how they address sustainability-related topics, including how sustainability key performance indicators (KPIs) affect remuneration.
Reporting at the same time as the financial statements	Companies in scope will prepare a sustainability statement including the disclosures required by the ESRS as part of their management report, published at the same time as the financial statements. It will be challenging for many companies to gather data in time.
Reporting on impacts, risks and opportunities across the value chain	The standards require companies to identify and report on impacts, risks and opportunities from across the value chain. Companies need to understand how this feature will impact their reporting and data gathering, even though the extent of data required from the value chain has reduced since the original drafts, and phase-in reliefs are available.
Reporting on policies, action plans and targets	Companies need to be ready for the transparency of providing granular disclosures about their policies, action plans and targets across all material topics. While the standards themselves do not require companies to put in place new targets or implement new policies, the standards will bring greater visibility and scrutiny of their plans. Undertaking an implementation project therefore represents an opportunity to identify and address areas where companies are less mature than they would want to be.
Assurance	Companies need to be prepared for disclosures to be subject to assurance. This will require a clear audit trail and documentation of processes and controls to support the disclosures provided.

Interoperability with international standard-setting initiatives

The CSRD requires the EC and EFRAG to take 'account, to the greatest extent possible, of the work of global standard-setting initiatives'. Both have worked with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) to increase interoperability.

The ISSB and EFRAG have published a detailed, bottom-up analysis of the climate-related disclosure requirements in IFRS S2 Climate-related disclosures and corresponding requirements in ESRS 1 General requirements, ESRS 2 and ESRS E1.

Next steps

Companies in scope can use ESRS Foundations, which provides useful guidance on how to apply the standards.

Document

ESRS Today

Our latest insights and guidance on European Sustainability Reporting Standards

Document

ESRS Foundations

Read our publication

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* The discussion on interoperability has been updated to include the publication of joint guidance by the ISSB and EFRAG.

¹ Exemptions apply, for example, micro-undertakings (companies that do not exceed two of the following three criteria (including EU and non-EU subsidiaries)): 10 employees, net revenue of EUR 900,000 (formerly EUR 700,000) or total assets of EUR 450,000 (formerly EUR 350,000) and for certain debt listings. The new thresholds take effect from FY 2024. EU member states can choose to adopt them early from FY2023.

² Separate standards will be developed for SMEs and non-EU parent companies.
Small and non-complex institutions and captive insurers are treated like listed SMEs (the option to opt out until 2028 does not apply unless they also meet the definition of an SME).

³ The EU’s Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088)

⁴ European Financial Reporting Advisory Group, which is mandated by the European Commission responsible for developing ESRS

Key features of ESRS