To support the first wave of companies in applying European Sustainability Reporting Standards (ESRSs), the European Securities and Markets Authority (ESMA) has issued a statement highlighting:
- the guidance already available or under development that companies are expected to consider; and
- the key areas to assess when preparing sustainability statements under ESRSs for the first time.
In addition, the European Commission has issued a set of frequently asked questions (FAQs) to support companies in scope of the Corporate Sustainability Reporting Directive (CSRD).
The speed of implementing the CSRD, its scope and the detailed data requirements of ESRSs mean that many companies may find reporting sustainability information challenging, even those that have prior experience – e.g. those that have previously reported under the Non-Financial Reporting Directive (NFRD).
The publication of the first sustainability statements prepared under ESRSs will be a significant milestone in the journey towards mandatory sustainability reporting. Companies implementing the new standards are on a learning curve, but ESMA reminds companies that this does not relieve them of their responsibility to ensure compliance with ESRSs.
Which companies are affected?
ESMA’s statement is directed at those companies that are required to:
- prepare sustainability statements under ESRSs for the first time – i.e. for their 2024 year-end reporting; and
- those applying ESRSs for their 2025 year-end reporting.
It does not cover reporting required by the EU Taxonomy Regulation1.
What are ESMA’s key focus areas?
ESMA’s key focus areas include the following.
Key focus area | ESMA’s expectations |
Governance and internal controls | Companies need to have robust governance and controls to enable them to:
Companies also need to carefully assess whether their existing processes, systems and controls remain fit-for-purpose and to be transparent when disclosing information about them under ESRS 2 General disclosures. |
Double materiality | When undertaking their double materiality assessment (DMA) process, companies need to:
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Transition reliefs | Companies need to be transparent when using the transition relief available under ESRSs. Specifically, ESMA highlights the following.
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Other areas of focus |
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What’s next – Key actions for companies
- Read ESMA’s statement and understand how your company will meet ESMA’s expectations.
- Read EFRAG’s implementation guidance, ESRS Q&A technical explanations and FAQs published by the European Commission and understand how they can help when implementing ESRSs.
- Consider the joint interoperability guidance issued by the International Sustainability Standards Board and EFRAG in conjunction with EFRAG’s implementation guidance if you are a dual reporter and consider if the differences are relevant for your reporting.
- Monitor further guidance from ESMA, EFRAG and the European Commission. ESMA will publish its European Common Enforcement Priorities (ECEP) on sustainability reporting later in 2024.
1 Regulation (EU) 2020/852 (EU Taxonomy Regulation) is the EU’s framework to facilitate sustainable investment.
2 European Reporting Advisory Group’s (EFRAG) IG 1: Materiality Assessment Implementation Guidance.
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