Digesting the alphabet soup: mandatory standards in motion for an ESG inspired EU

Taking a step back, we know that the ESRS were finalised by the European Financial Reporting Advisory Group (EFRAG) late last year. The standards are legally set by the Corporate Sustainability Reporting Directive (CSRD) and are intended to help companies manage and communicate their sustainability performance.

In the build up to this, EFRAG was appointed by the European Commission to create the standards. After months of consultations with various stakeholders, auditors, reporters and investors the EFRAG were able to produce a finalized draft to the European Commission. Working alongside member states and parliamentary bodies such as European Securities and Markets Authority (ESMA), the European Commission will be expected to publish the completed ESRS under the CRSD for June 2023.

Whilst it is already common practice for many companies to report on their ESG progress, this has not been mandatory under EU legislation. Discussed in our previous article, as the ESRS forms a part of the CSRD this means ESG reporting will become mandatory for approx. 49,000 companies who operate in the EU.

The ESRS will have 12 standards split across the following themes:

These processes will be a phased approach as there will be many complexities and challenges for each company to demonstrate these.

The ESRS already incorporates pre-existing ESG frameworks to work from, making the process easier to manage – examples include, standards required for greenhouse gas requirements that are aligned to the Science-based Targets initiative (SBTi), or climate-related risks and opportunities aligned to the Taskforce for Climate-related Financial Disclosures (TCFD). These were just a few of the crucial considerations that the UN’s Enhanced Transparency Framework (ETF) took when aligning timelines and requirements of meet a 1.5°C global warming scenario by 2050.

A requirement from the ETF is for the data to be clear and transparent. When publishing results, it should be in a digitally tagged European Single Electronic Format (ESEF). This will help all companies report in a standardised format, enabling key audiences to easily access data across your organisation, as well as easily linking the financial value of the sustainable information. In addition to this, all data must be audited by a third-party to ensure credibility, in line with the ETF.

The ESRS supports the EU in meeting its own climate initiatives that are set out in the EU Green Deal policy package. All companies must disclose their greenhouse gas emission targets, as well as outlining the methodology used to calculate these. A significant aspect of the ESRS is that compliant companies will need to continuously update their climate-related progress and periodically update their targets. As of 2025, greenhouse gas targets must be set every five years.

Whether the CSRD applies to your organization or not, with the implementation of the ESRS it is vital to prepare your organisation. If you would like to find out more information about the directive and ESG regulations across the EMEA region, please get in contact to discuss how our Sustainability, Resilience and ESG team can support you.