CSRD Update: Set 1 of the European Sustainability Reporting Standards (ESRS) adopted by the European Commission

Authors

Sergei Makarchuk, LL.M.

 

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As part of the European Green Deal, the Corporate Sustainability Reporting Directive (CSRD - 2022/2464) requires companies in scope to report the information necessary to understand the company’s impact on sustainability issues and the information necessary to understand how sustainability issues affect the company’s development, performance and position.

On 31 July 2023, the European Commission adopted the first set of European Sustainability Reporting Standards (ESRS) as a delegated regulation (as foreseen in Section 29b (1) of the CSRD), which provides common standards for the reporting requirements under the CSRD. This first set of the ESRS mainly contains general, sector-agnostic reporting standards. The second set of the ESRS (sector-specific standards) is expected to be adopted by the Commission by 20 June 2024.

The first set of ESRS adopted by the European Commission includes:

  • Commission Delegated Regulation supplementing Directive 2013/34/EU as regards sustainability reporting standards (Delegated Regulation);
  • Annex 1 to the Delegated Regulation, which contains twelve sector-agnostic standards covering environmental, social, and governance issues;
  • Annex 2 to the Delegated Regulation, which lists the acronyms used and the terms defined in the ESRS; and
  • Q&A on the adoption of the ESRS.

 

A first draft of these ESRS was initially developed and published by EFRAG (European Financial Reporting Advisory Group) in late 2022 and subsequently amended by the Commission. The Commission's amendments include, in particular: (i) some additional reporting requirements have been included; (ii) companies have been given more discretion to decide what information is relevant in their specific situation; and (iii) some additional reporting requirements have been made voluntary instead of mandatory.

By the end of August 2023, such Delegated Regulation will be transmitted to the European Parliament and to the Council, which will scrutinize it for two (or possibly four) months. The European Parliament or the Council may object to the Delegated Regulation, but may not amend it.

The reporting requirements under the ESRS will be phased in according to the following schedule:

  1. Large listed companies, large banks, large insurance firms within the EU with over 500 employees, and large non-EU listed undertakings with over 500 employees: Starting from their 2024 financial year, their first sustainability report must be published in 2025.
  2. Other large companies, including non-EU listed companies: Starting from their 2025 financial year, their first sustainability report must be published in 2026.
  3. Listed smaller companies (SMEs), including non-EU SMEs: Starting from their 2026 financial year, their first sustainability reports must be published in 2027. However, these listed SMEs may opt out for a further two years, so that their first sustainability report must be published in 2029, starting with their 2028 financial year.
  4. Non-EU companies with an annual turnover in the EU of more than EUR 150 million, with an EU branch with a turnover of more than EUR 40 million or with an EU subsidiary that is a large company or a listed SME: Starting from their 2028 financial year, their first sustainability report must be published in 2029. This category of companies will have to report in accordance with specific standards yet to be developed and adopted.