European Sustainability Reporting Standards (ESRS)

ESG
:   
Disclosure
March 31, 2024

The European Sustainability Reporting Standards (ESRS) are a set of standards developed under the mandate of the Corporate Sustainability Reporting Directive (CSRD) by the European Financial Reporting Advisory Group (EFRAG). The ESRS aim to provide a unified framework for sustainability reporting within the European Union, enhancing the consistency, comparability, and reliability of sustainability information provided by companies.

Key characteristics and objectives of the ESRS include:

  1. Comprehensive Scope: The standards cover a wide range of sustainability topics, including environmental, social, and governance (ESG) issues. They are designed to capture the full spectrum of sustainability impacts, risks, and opportunities faced by companies.
  2. Double Materiality Perspective: Consistent with the CSRD, the ESRS are based on the concept of double materiality. This means they require reporting not only on how sustainability issues affect the company’s financial performance (financial materiality) but also on the company's impacts on people and the environment (impact materiality).
  3. Mandatory Application: For companies within its scope, the CSRD mandates the application of the ESRS, making sustainability reporting a legal requirement. This significantly expands the number of companies required to report detailed sustainability information compared to the previous Non-Financial Reporting Directive (NFRD).
  4. Sector-Specific Standards: Alongside general standards applicable to all reporting entities, the ESRS framework includes sector-specific standards to address the unique sustainability aspects and impacts of different industries.
  5. Alignment with International Initiatives: While focusing on the needs of the European market, the ESRS aim to align with global sustainability reporting frameworks and standards where possible, facilitating the integration of sustainability reporting into global financial markets.
  6. Enhanced Transparency and Accountability: By standardizing sustainability reporting, the ESRS seek to improve transparency and accountability among companies, providing stakeholders, including investors, customers, and the public, with reliable and comparable information to make informed decisions.

The development of the ESRS and their integration into European corporate reporting practices mark a significant step towards more sustainable economic activities in the EU by ensuring that companies assess and disclose their sustainability performance in a harmonized and comprehensive manner. This initiative is part of the EU's broader sustainable finance framework, which aims to direct capital flows towards sustainable investments to achieve a carbon-neutral, sustainable economy.

‍

ESRS Announcement

Explore more insights

See All Insights
Disclosure

Green Washing

Greenwashing is the practice of making false or misleading claims about the environmental benefits or sustainability of a product, service, or company. This can include exaggerating or fabricating a product's eco-friendliness, hiding its negative environmental impacts, or making unsubstantiated claims about its sustainability.
Disclosure

Measuring Double Materiality: Focus on Water Impact

Hypothetical beverage company called "FreshDrink Co." Financial materiality (impact on the company): Climate change is causing water scarcity in regions where FreshDrink Co. sources its water. This scarcity could lead to increased water costs and potential supply disruptions, directly affecting the company's financial performance and long-term viability. Environmental and social materiality (impact of the company): FreshDrink Co.'s water usage in water-stressed areas may deplete local water resources, affecting the surrounding ecosystems and communities' access to clean water.
Disclosure

Measuring Double Materiality: Focus on Social Impact

Social impact in the context of double materiality refers to how a company’s operations affect people and communities. This includes direct and indirect consequences of business activities on employees, consumers, local communities, and society at large.
Disclosure

Measuring Double Materiality: Focus on Governance Impact

Governance impact in the context of double materiality focuses on how a company’s governance structures influence both its financial performance and its broader societal impact. This approach requires organizations to evaluate both how governance practices affect their bottom line and how they impact stakeholders such as employees, shareholders, and the community.
Disclosure

Double Materiality

Double materiality suggests that companies should assess the impact of external environmental and social factors on their operations (external materiality) and evaluate the impact of their activities on the external environment and society (internal materiality).
Disclosure

2020 UK Stewardship Code

The responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment, and society