What’s the issue?
Under the proposed Corporate Sustainability Reporting Directive1 (CSRD), many more companies in the EU will need to prepare extensive sustainability reports as part of their management reports.
The European Financial Reporting Advisory Group (EFRAG) was mandated to develop draft European Sustainability Reporting Standards (ESRSs) setting out the detailed disclosure requirements under the CSRD by the European Commission. After public consultation, EFRAG has now proposed a first set of draft ESRSs to the European Commission for adoption.
The draft ESRSs cover environmental, social and governance topics. Additional sector-specific standards are planned for release in due course.
The draft ESRSs introduce the concept of double materiality (multi-stakeholder approach) and expand a company’s reporting boundary to its entire value chain.
What’s the impact?
The draft ESRSs are ambitious and would have a significant impact on the scope, volume and granularity of sustainability-related information to be collected and disclosed by companies.
ESRSs would be applied by:
- all large and most listed EU companies;
- large subsidiaries of non-EU parents (group exemptions apply); and
- non-EU companies with a turnover in the EU of more than EUR 150 million.
A company would need to report on how its activities and value chain affect the environment and people, as well as how sustainability matters affect its cash flows, financial position and financial performance.
1 Based on CSRD as adopted by the European Parliament and the European Council in November 2022. In order to become effective, the CSRD still needs to be published in the EU Official Journal and transposed into national law.