Following consultation, the European Sustainability Reporting Standards (ESRSs) have been finalised and approved by the EU Commission. 

The ESRSs outline how companies subject to the Corporate sustainability reporting directive will report on their ESG impacts and on how social and environmental issues create financial risks and opportunities for the company itself. 

Once approved by the EU Parliament and Council, the planned timeline will see the ESRSs come into force for large, listed companies, large banks, large insurance undertakings and large non-EU listed companies from the 2024 financial year, with the first sustainability reports due to be published in 2025.

Other large companies will come into scope from the 2025 financial year, and listed SMEs from the 2026 financial year.

“This is a major milestone for sustainability reporting across Europe and moves forward the global debate on sustainability reporting,” said Michael Izza, ICAEW Chief Executive, reacting to the announcement.

“Time is now of the essence for companies within scope of the new ESRS to get to grips with the requirements and start to plan for their implementation.” 

Changes from draft ESRS

In line with feedback from ICAEW and others on the draft standards, the ESRSs have undergone significant modifications through the consultation process. 

In a bid to reduce the administrative burden for companies, EFRAG, which drafted the rules, has reduced the number of reporting requirements by close to half.

The 12 finalised standards also include additional phase-in provisions for some of the reporting requirements for organisations with fewer than 750 employees, and for reporting requirements, such as biodiversity, which were considered to be particularly challenging for companies.

The Commission worked to provide companies greater flexibility to decide what information is relevant for their reports, to avoid the costs of reporting irrelevant data, and also made a limited number of reporting requirements voluntary rather than mandatory, due to their complexity or cost. One such example was reporting a biodiversity transition plan. 

International alignment

In adopting the ESRS, the Commission has highlighted its efforts to ensure alignment with other international sustainability reporting standards, something that ICAEW had focused on in its response to the draft standards.

The Commission states that the ESRSs and the first two standards of the International Sustainability Standards Board (ISSB), which were published in June have been developed in parallel. 

It states: “Intensive and constructive discussions between the Commission, EFRAG and the ISSB have ensured a very high degree of alignment where the two sets of standards overlap … [with the] aim to prevent companies required to report in accordance with ESRS and that wish to also comply with ISSB standards, would have to report separately under ISSB standards.”

These efforts are acknowledged by ICAEW. Izza confirmed: “We welcome continuing efforts to promote interoperability between these new and future ESRSs and the standards of the International Sustainability Standards Board.”