With the European Council and European Parliament reaching an agreement about the Corporate Sustainability Reporting Directive (CSRD) this June the legislation is well on track to be adopted by the end of the year. This means that very soon large and medium sized companies operating within EU (Listed SMEs; large European companies with over 250 employees, over EUR 40 million net revenue, and over EUR 20 million total assets; non-EU companies generating revenue over EUR 150 million within EU) will be subject to a new requirement – in-depth disclosures of ESG and sustainability information where data takes the centre stage.  This is part of the larger set of policies and regulations under the EU Green Deal activities that aim to achieve climate neutrality within the EU, with the goal of the reporting related requirements being to ensure companies provide useful and usable information on their sustainability performance to stakeholders.

To help companies disclose required information in a way that would provide the best possible transparency, allow for easy comparison between companies and be presented in a carefully articulated manner, European Commission has envisioned the adoption of new standardized disclosure requirements.

European Sustainability Reporting Standards or ESRS are a set of sustainability information reporting standards proposed under the CSRD. European Financial Reporting Advisory Group (EFRAG) was tasked with creating a draft version of ESRS to be used as the basis for the European Commission to adopt the standards as delegate acts.

The proposed ESRS are made up of 13 sets of standards, where:

• 2 are cross-cutting standards;
• 11 cover topical disclosure standards.

These 11 standards are further divided into 3 groups: Environment with 5 sets of standards, Social with 4 sets and Governance with 2 sets. Each set is further divided into sub, sub-sub topics and specific issues allowing for very detailed, structured and broad topic coverage. Under the current version of the standards sector-agnostic and sector-specific disclosures should be disclosed alongside company-specific requirements. Existing

What makes ESRS unique is the requirement to disclose not only topics material (important and relevant) to the reporting entity, but also explain why the other topics covered by ESRS are not material to the specific entity. Notably, disclosure requirements are designed to be compliant with Sustainable Finance Disclosure Regulation (SFRD), EU Taxonomy, Corporate Sustainability Due Diligence Directive (CSDDD), and other relevant EU recommendations.

The process of adopting ESRS on EU level is progressing in fast pace with EFRAG finishing initial public consultations on the draft ESRS this August and aiming to submit the revised draft standards to the European Commission for approval and adoption November 2022.

With the first sustainability performance report based on ESRS being due in early 2024, it is recommended to start preparing for this as early as possible and there is no better time than now,  as the data and information required to be disclosed by the regulations and standards is very detailed and specific. You can read more on how to manage the new expectations here.

Ieva Kustova, Head of ESG & Sustainability, KPMG in Latvia