What are the European Sustainability Reporting Standards (ESRS)?
The European Sustainability Reporting Standards (ESRS) are a set of guidelines developed by the European Financial Reporting Advisory Group (EFRAG) to standardize sustainability reporting across companies in the European Union. These standards are designed to align with the Corporate Sustainability Reporting Directive (CSRD) and provide a clear framework for companies to report on their environmental, social, and governance (ESG) impacts in a consistent and comparable manner.
Why are the ESRS Important?
The ESRS are crucial for several reasons:
Consistency: They create a unified approach to sustainability reporting, ensuring that companies report ESG data in a standardized way that stakeholders can easily understand and compare.
Transparency: By requiring companies to disclose detailed information on their sustainability practices, ESRS promote greater transparency and accountability.
Compliance with CSRD: Adhering to ESRS is a key component of complying with the CSRD. Companies that meet ESRS requirements will fulfill their CSRD obligations, avoiding potential regulatory penalties.
Investor Confidence: Standardized reporting increases investor confidence by providing reliable information on a company’s sustainability performance, which is increasingly important for investment decisions.
Categories of ESRS: Environmental, Social, and Governance
The ESRS are structured around three main categories, reflecting the broad aspects of sustainability that companies need to address:
1. Environmental Standards
These standards focus on a company’s impact on the natural environment. Key areas include:
Climate Change: Companies must disclose their greenhouse gas emissions, climate-related risks, and mitigation strategies. This includes information on how they are reducing carbon footprints and adapting to climate change impacts.
Pollution: Reporting on emissions to air, water, and soil, and how the company manages pollution risks.
Water and Marine Resources: Disclosures related to water usage, conservation practices, and impacts on marine ecosystems.
Biodiversity and Ecosystems: Companies must report on how their operations affect biodiversity and ecosystems and what measures are in place to protect and restore them.
Resource Use and Circular Economy: Information on how resources are managed, waste reduction practices, and efforts to transition to a circular economy model.
2. Social Standards
These standards cover a company’s impact on people, including employees, communities, and customers. Key areas include:
Own Workforce: Reporting on employee well-being, working conditions, diversity and inclusion, training and development, and labor rights.
Workers in the Value Chain: Disclosures related to working conditions and human rights across the supply chain.
Affected Communities: Assessing and reporting on the impact of business operations on local communities, including human rights considerations and community engagement.
Consumers and End-users: Information on product safety, consumer rights, data privacy, and how the company ensures the well-being of its customers.
3. Governance Standards
Governance standards focus on how companies are managed and how they handle issues such as ethics, accountability, and risk management. Key areas include:
Business Conduct: Disclosures related to anti-corruption policies, bribery prevention, ethical business practices, and responsible marketing.
Corporate Governance: Information on the structure and functioning of the board of directors, executive compensation, and policies for shareholder engagement.
Risk Management: How the company identifies, assesses, and manages sustainability risks.
Aligning with CSRD Through ESRS
The ESRS framework is directly aligned with the requirements of the CSRD, which mandates detailed and standardized sustainability reporting for a wide range of companies operating within the EU. To comply with CSRD, companies must adhere to the ESRS guidelines and include their sustainability disclosures in their annual reports, ensuring that the information is verifiable and consistent with financial reporting.
To find out more about CSRD, view KEY ESG's helpful article below:
How to Ensure Compliance with ESRS
Understand the Standards: Familiarize yourself with the specific ESRS guidelines relevant to your industry. EFRAG provides detailed documentation and guidance on each standard.
Conduct a Double Materiality Assessment: This helps identify the most relevant ESG issues for your company, ensuring that your reporting focuses on material topics.
Implement Robust Data Collection Processes: Set up systems to collect accurate and timely ESG data. Use technology and tools that support data collection, analysis, and reporting.
Engage with Stakeholders: Regularly consult with stakeholders (investors, customers, employees, etc.) to understand their concerns and expectations regarding sustainability reporting.
Audit and Assurance: Ensure your sustainability data is subject to limited assurance by independent auditors to meet CSRD requirements.
Train Your Team: Provide training to employees involved in data collection, analysis, and reporting to ensure they understand ESRS requirements and best practices.
Conclusion
The European Sustainability Reporting Standards (ESRS) play a critical role in standardizing sustainability reporting across the EU. By aligning with these standards, companies not only comply with the CSRD but also demonstrate their commitment to transparency, sustainability, and responsible business practices. Understanding and adhering to ESRS guidelines is essential for companies looking to build trust with stakeholders, improve sustainability performance, and stay ahead in a rapidly evolving regulatory landscape.
For further assistance or to learn more about ESRS compliance, reach out to the KEY ESG team via our in-app chat function or email us at support@keyesg.com.