The Corporate Sustainability Reporting Directive (CSRD directive), which came into effect this year, governs the non-financial reporting and accountability obligations of large and medium-sized companies. A measure that has piqued the interest of many companies, even those that are not obligated, in corporate sustainability reporting.
The enactment of the CSRD directive was supported by the delegated regulations containing the European standards useful for corporate sustainability reporting, viz. the ESRS standards to which all companies covered by the directive must refer;
The ESRS standards were published and outlined by the European Commission and the European Financial Reporting Advisory Group (EFRAG) as the Technical Advisory Body, with the aim of creating regulatory harmonization among the various international standards applicable to sustainable reporting tools, such as those drafted by the Global Reporting Initiative.
The ESRS standards, consisting of 12 of the main ESG criteria, cover a wide range of topics: the first two standards are generally applicable to all aspects covered by the CSRD, while the remaining cover specific business areas.
EFRAG is required, is obliged to update its guidelines periodically, as the Body responsible for the dissemination of standards in sustainable corporate reporting practice.
In this article we will delve into the first of the guides provided by EFRAG on ESRS standards.
The detail on EFRAG’s Implementation guidance.
The new sustainability reporting regulations will be implemented gradually according to the structure and size of the companies involved: public interest companies, which already prepare a non-financial statement, will start implementing the new provisions from 2024 (with the first report in 2025); other large companies will start from 2025 (with the first report in 2026); listed SMEs will start from 2026 (with the first report in 2027, with the possibility of postponing by another two years).
To support companies in adopting these new standards, EFRAG has developed Implementation Guidelines, which were put out for consultation in late December and cover:
- EFRAG Preliminary Guidance 1, on the implementation of dual materiality assessment, containing reporting requirements on materiality assessment, including an illustration of the possible steps in the process to identify information to be reported on the impacts, risks and opportunities (IROs) of its environmental, social and governance activities;
- EFRAG Preliminary Guidance 2, on Value Chain Implementation, containing reporting requirements related to the value chain, offering guidance on how to identify stakeholders and consider impacts, risks and opportunities on business operations;
- EFRAG 3 Preliminary Guidelines, containing the full list of requirements contained in each disclosure requirement and their application requirements in Excel format.
The EFRAG guidelines on ESRS standards are a form of support for companies affected by the disclosure requirements defined by the CSRD directive, a way through which European institutions intend to promote the concept of transparency in business dynamics.
The EFRAG platform for the implementation of ESRS.
EFRAG recently made available the first set of technical clarifications to support companies in understanding the European Sustainability Reporting Standards (ESRS) through the EFRAG ESRS Q&A platform .
The responses provided within the platform are divided into two main categories:
- Implementation Guidance, which was subjected to public consultation prior to its finalization;
- Explanations, which provides clarifications of topics already covered in the ESRS.
The published explanations are organized into chapters according to their nature, including cross-cutting, environmental, social, and governance aspects.
As of January 31, 2024, out of 258 applications received, 127 have resulted in the publication of an explanation or implementation guide, while the rest are still being evaluated.
Most of the questions were about cross-cutting standards, followed by environmental and social sustainability standards.
EFRAG announced that further explanations will follow, organized into chapters based on their nature (environmental, social, governance, and cross-cutting), and will be published quarterly to ensure accessibility and clarity.
An initiative that demonstrates an ongoing commitment to the development of a clear and understandable framework for all stakeholders.
Techno and sustainable reporting: for a transparent and socially responsible enterprise
At a time when sustainability takes center stage in the way business is done, EFRAG has taken a significant step toward transparency and harmonization of standards applicable to corporate sustainability reporting by providing the first technical explanations on ESRS.
Preparing a Sustainability Report or Sustainability Balance Sheet is not only an obligation defined by European institutions, but a concrete commitment to the application of ESG principles within daily business dynamics.
Moreover, the dissemination of these documents is apt to convey reliability and seriousness in the eyes of stakeholders and end consumers.
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