What are The European Sustainability Reporting Standards (ESRS) and What do They Mean for Your Business?
Key Contact: Richard Voke
Author: Elle McCook
With the focus on sustainability becoming increasingly more important to businesses, the EU Commission has introduced the first ever EU-wide Environmental, Social and Governance (ESG) reporting standards.
The EU Sustainability Reporting Standards (ESRS) expand on the existing Corporate Sustainability Reporting Directive (CSRD) and will require companies to report activities on a broad range of ESG issues, including carbon, pollution, water, waste, biodiversity, and human rights.
Who do the ESRS apply to?
The ESRS will apply to all companies currently within the scope of the CSRD, as well as a variety of other SME and large private and listed companies across a range of industries.
While the ESRS do not directly impact UK companies, they will apply to non-European companies that have significant business operations in the EU.
In 2022, the UK adopted similar mandatory ESG disclosure laws requiring companies to make climate-related financial disclosures as part of their annual report. These disclosure requirements apply to:
- UK companies with 500+ employees and securities admitted to AIM/banking or insurance companies and those with turnover of more than £500 million;
- Large LLPs (not traded or banking LLPs) with 500+ employees and a turnover of more than £500m; and
- Traded or banking LLPs with 500+ employees.
While the UK regulations are not considered to be as robust as the ESRS regulations, it is clear that with ESG-related disclosure and reporting requirements being more stringent than ever, UK businesses need to prepare themselves to meet these new reporting requirements.
What does this mean for my business?
The aim of the ESRS is to standardise sustainability reporting and bring it up to the same quality and standards as the existing financial reporting framework.
The ESRS currently consist of 12 draft frameworks. As a starting point, those businesses which fall under the ESRS should carry out a due diligence exercise on current sustainability measures and existing reporting practices (if applicable), which may include gathering data from suppliers, operators, and company partners to understand which of the frameworks will apply.
The new reporting framework is going to be phased in, with the first batch of companies to start reporting as early as 2024.
If you would like more information on how ESG reporting standards will affect your business, please contact our ESG team.