On July 31, 2023, the European Commission reached a significant milestone by adopting the European Sustainability Reporting Standards (ESRS) to be applied by all companies falling under the scope of the Corporate Sustainability Reporting Directive (CSRD).
1) What is the ESRS
ESRS, which stands for European Sustainability Reporting Standards, is a set of guidelines incorporated within the Corporate Sustainability Reporting Directive (CSRD). Their primary purpose is to ensure that companies report their sustainability-related information in a structured and uniform manner. The guidelines cover a wide range of topics including environmental impacts, social responsibilities, employee matters, human rights, and anti-corruption measures.
What makes the ESRS unique is their emphasis on comprehensive reporting that is going beyond merely disclosing policies and objectives. It encourages companies to provide insights into their actual performance and the outcomes of their sustainability initiatives. This holistic approach encompasses both the company's own operations and its value chain.
2) General vs. Topical Standards
The European Sustainability Reporting Standards (ESRS) serve as a fundamental framework for sustainability reporting, acting as a backbone upon which specific company details are built. These cross-cutting standards form a "common ground," applicable to all businesses, and provide guidance on reporting governance, strategy, risk management, and sustainability-related performance metrics.
However, the ESRS also provide topical standards. Those are designed to delve into specific environmental, social, and governance themes. Think of them as spotlights that shine a light on crucial sustainability issues, such as climate change, biodiversity, human rights, and anti-corruption . These standards focus on illuminating the areas that are most relevant to each company, based on their sector and business model.
For instance, an automobile company might heavily emphasise reporting on emissions and waste management, while a tech company may highlight their data protection and labour practices. The Topical ESRS play a pivotal role in guiding companies to provide comprehensive and theme-specific information, ensuring transparency and facilitating comparability among different organisations. This approach enables stakeholders to gain a deeper understanding of a company's sustainability efforts and performance in the specific areas that matter most for its business and industry.
3) Context: CSRD & Double Materiality & ESRS
Double materiality acts like a two-way mirror, reflecting not only how a company impacts the environment and society, but also how sustainability issues impact the company's performance. This concept highlights the interconnectedness between a company's actions and their broader environmental and societal implications.
In the context of the ESRS, embracing double materiality ensures that your sustainability report offers a comprehensive and holistic view of your organisation's sustainability efforts. By considering both the impact the company has on the environment and society, as well as how sustainability issues can affect its performance, the report becomes more insightful and valuable.
4) What is coming next?
Next up are the sector-specific ESRS that cater to the distinct characteristics and challenges faced by various industries. Just as each industry possesses its unique features, their sustainability reporting must also account for these specific nuances. The sector-specific ESRS play a crucial role in ensuring that companies within different sectors don't adopt a one-size-fits-all approach to sustainability reporting.
Rather than reporting in a generic manner, these standards emphasise the sustainability issues that are particularly relevant and distinctive for each sector. The detailed, sector-specific standards, will become relevant one year after the EU Commission has adopted them and published them in the Official Journal.
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