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EU: Adoption of European Sustainability Reporting Standards - Q&A

Current sustainability information reported by companies across the EU is frequently insufficient and incomparable. High-quality and reliable public reporting by companies will help create a culture of greater public accountability.

In order to accomplish this, the European Commission adopted European Sustainability Reporting Standards (ESRS), which is mandatory for use by companies that are obliged by the Accounting Directive. The ESRS is drafted on the basis of technical advice from the European Financial Reporting Advisory Group (EFRAG), while Commission also made a number of modifications. The ESRS, consisting of 12 ESRS, covers the full range of sustainability issues, including climate, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy. It also includes specific datapoints required for reporting by financial market participants, benchmark administrators, and financial institutions under various EU regulations on sustainable finance, such as SFDR, BMR, and CRR. The standards require undertakings to perform a robust materiality assessment to ensure that all sustainability information necessary to meet the objectives and requirements of the Accounting Directive will be disclosed.This approach to materiality in the ESRS ensures the disclosure of relevant and significant sustainability information and facilitates companies’ compliance with disclosure requirements. Furthermore, the Commission also has worked to ensure ESRS’s alignment with global standards with International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI). 

The ESRS delegated act adopted by the Commission will be formally transmitted in the second half of August to the European Parliament and to the Council for scrutiny.  The scrutiny period lasts up to two months, extendable by two additional months. The Parliament or Council may approve or reject the act but cannot amend it. Once approved, the ESRS will be implemented gradually, with different timelines for reporting by companies based on their size, EU listed, or non-listed status.


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