Awareness of the importance of sustainability in the way of doing business has been one of the focal points of European regulation on the subject for years.
First and foremost to demonstrate this is the European Green Deal: a package of initiatives and legal reforms aimed at achieving climate neutrality by 2050.
As part of the Green Deal, the European Commission responded to the climate crisis by issuing a new directive: directive no.
2464/2022, cd.
Corporate Sustainability Reporting Directive (CSRD) on non-financial reporting requirements.
The essential purpose of the directive was to expand the number of companies obliged to provide non-financial information about the socio-environmental impact of their business.
A clear objective, made possible by the European Sustainability Reporting Standards (ESRS).
Birth and dissemination of ESRS standards
Assessing, measuring and reporting corporate performance from an ESG perspective means using conventional tools such as the Sustainability Report or the Sustainability Balance Sheet, the foundations of which are based on standards established by international bodies and organizations.
Examples of these standards are the guidelines issued by the Global Reporting Initiative, or the Sustainability Accounting Standards Board’s criteria, or even the more recent ESRS standards.
In preparation for the approval of the CSRD Directive, the European Commission adopted delegated regulations containing European standards useful for corporate sustainability reporting, namely the ESRS standards, to which all companies covered by the directive must refer.
The goal of the European Commission is to create a system of rules and guidelines on sustainable practices and reporting requirements that are aligned and harmonized with standards set by international bodies (Example: Global Reporting Initiative Standards).
ESRS standards are issued by the European Financial Reporting Advisory Group (EFRAG), an independent advisory body appointed as a technical advisor by the European Commission for the implementation of the principles contained in the directive.
From the time when the CSRD directive comes into force, i.e., January 2024, EFRAG is required to periodically update the ESRS standards also and especially with reference to that part of the “industry” standards, thus specific to business activity performed.
Structure of ESRS standards and enterprises involved
The structure of ESRS standards issued by EFRAG is based on 12 main standards, which embrace ESG criteria broadly.
The first two standards apply generically to all topics covered by the CSRD, while the others cover specific areas:
- ESRS 1, General Requirements.
- ESRS 2, General disclosures (Disclosure rules).
- ESRS E1, Climate Change.
- ESRS E2, Pollution.
- ESRS E3, Water and marine resources (Marine resources).
- ESRS E4, Biodiversity and ecosystems.
- ESRS E5, Resource use and circular economy.
- ESRS S1, Own workforce (Workers)
- ESRS S2, Workers in the value chain.
- ESRS S3, Affected communities.
- ESRS S4, Consumers and end-users.
- ESRS G1, Business conduct.
The General Regulations and Disclosure Rules part of ESRS (ESRS 1 and 2) provides standard guidance on drafting and content rules related to the instruments used to report sustainability.
Since these are general, cross-cutting standards, they are mandatory for all organizations affected by CSRD.
In addition to outlining a regulatory framework that embraces the concept of sustainability in a broad sense, the CSRD directive and ESRS standards introduce the principle of dual materiality: companies affected by sustainable disclosure and reporting requirements are required to measure the impact that business activity has on society and the environment, and the impact that environmental changes may have on the company itself.
Companies obliged to prepare the Sustainability Report, according to ESRS standards, under the CSRD are:
- Listed companies that were already subject to the Non-Financial Statement requirement;
- Large companies, i.e., with more than 250 employees, or a turnover > of 40 million euros, or a balance sheet of more than 20 million euros;
- SMEs, for which the obligations under the directive will apply from 2027 onward;
- Non-EU companies that have at least one subsidiary or branch in the EU territory, again from 2027 onward.
For the first time in the European landscape, there is a significant increase in the number of companies required to inform investors, stakeholders and consumers about the environmental and social impact of their business in an accurate and standardized manner.
Why rely on Tecno for sustainable reporting
The apparatus of information and reporting requirements defined by the CSRD are binding only on large companies, at least for the next two years.
Although regulatory compliance does not directly affect medium-sized companies and SMEs, from an integrated sustainability perspective it is always convenient to prepare Sustainability Reports or Sustainability Reports.
