The European Commission has adopted the European Sustainability Reporting Standards (ESRS) to boost transparency and  help investors, civil society organisations, consumers and other stakeholders evaluate the sustainability performance of companies, as part of the European Green Deal.

The ESRS will apply directly in all 27 EU member states obligating approximately 11,700 large companies, listed companies, banks and insurance companies, to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment.

EU law mandates all large companies and all listed companies – except listed micro-enterprises – to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.

This new directive modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability.

The new rules will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues. 

Reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided.

The first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025.

Companies subject to the Corporate Sustainability Reporting Directive (CSRD) will have to report according to ESRS. The standards were developed by the EFRAG, previously known as the European Financial Reporting Advisory Group, an independent body bringing together various different stakeholders. The standards will be tailored to EU policies, while building on and contributing to international standardisation initiatives.

The rules introduced by the Non-Financial Reporting Directive (NFRD) remain in force until companies have to apply the new rules of the CSRD. Under the NFRD, large companies have to publish information related to

•           environmental matters

•           social matters and treatment of employees

•           respect for human rights

•           anti-corruption and bribery

•           diversity on company boards (in terms of age, gender, educational and professional background)

As a result of the adoption of ESRS, company boards need to take steps to prepare for the reporting requirements with processes, including analysis of value chains and double materiality. 

This will also include a need to assess whether their existing sustainability diligence and reporting practices comply with the CSRD.

Regulatory compliance creates a personal liability for directors and officers. Accordingly, care should be taken to procure comprehensive management liability insurance, to pay for the legal defence and damages awards as a result of wrongful acts. For any enquiries, please contact Vida Jarasiunaite Vida.jarasiunaite@wdenis.eu or Mark Dutton mark.dutton@wdenis.com