Recent ISSB’s inaugural global sustainability disclosure standards and adoption of ESRS, signify global ESG alignment—a step towards a common language for sustainability reporting. Artius Global views the need for common standards and only then can the industry move forward to transparent disclosure.
The ESRS covers the full range of environmental, social, and governance issues, including climate change, biodiversity and human rights. The key end game is to provide information and insights for investors to understand the sustainability impact of the companies in which they invest.
What sets the ESRS apart is not only its comprehensive coverage but also its commitment to global alignment. The European Union has actively engaged in discussions with international bodies such as the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) to ensure a high degree of interoperability between EU and global standards. This collaborative approach aims to prevent unnecessary double reporting by companies operating on both EU and global scales.
In January 2023, the European Union embraced the Corporate Sustainability Reporting Directive (CSRD), mandating annual sustainability reports alongside financial statements for EU and non-EU companies operating within the EU. These reports must adhere rigorously to the ESRS framework.
Fast forward to July 31, 2023, the European Commission adopted the actual requirements and disclosure process. The ESRS will become law and will apply directly in all 27 EU member states, excluding the UK. Companies will need to report in compliance with these new ESRS as early as the 2024 reporting period.
One striking aspect of ESRS is its mandate for mandatory disclosure across the board, encompassing all companies falling under the CSRD. This isn’t merely about meeting regulatory obligations; it’s a collective stride towards elevating transparency and accountability. The impact extends far and wide, affecting not only EU-based enterprises but also organizations with activities that touch the EU market. This broad inclusivity means that over 50,000 EU and non-EU companies will be reporting to the CSRD using the ESRS framework starting in 2024.
The rules will be implemented in two phases:
Phase 1: Companies that were previously subject to the Non-Financial Reporting Directive (NFRD) and large non-EU listed companies with more than 500 employees will be required to begin reporting under the new rules for the financial year 2024. The first reports will be issued in 2025.
Phase 2: Listed SMEs, including non-EU listed SMEs, will begin issuing their first sustainability statements in 2027. Non-EU companies that generate more than €150 million of revenue annually in the EU and that have a branch in the EU with revenue over €40 million or a subsidiary that is a large company or a listed SME, will also be required to report under the new rules, beginning with the financial year 2028.
The ESRS and the CSRD will likely reshape the way companies report and manage their sustainability efforts, and they underscore the growing importance of ESG considerations in the global business landscape. Companies should be prepared to adapt to these new requirements and proactively address their ESG performance to meet investor expectations and regulatory mandates.
While the journey toward achieving a universal standard for sustainability reporting is underway, it’s important to acknowledge that this process will take time. So, what should companies do in the meantime?
During this transitional phase, companies may find themselves navigating a landscape with multiple reporting frameworks, including the GRI, ISSB, ESRS & more. Each of these frameworks has its own set of complex guidelines and requirements.
To successfully navigate this intricate terrain and chart a course for the future, this is precisely where Artius Global’s practitioner expertise comes into play. Our seasoned team specializes in helping organizations understand the nuances of these frameworks and are well-versed in navigating the complexities of regulatory reporting.
Read more here: The Commission adopts the European Sustainability Reporting Standards
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