European Commission adopts revised ESRS
The European Commission has announced that it has adopted revised European Sustainability Reporting Standards (ESRS) as well as a new voluntary reporting standard for smaller companies.
The ESRS, which were formally adopted in 2023, are a set of standardised disclosure requirements for companies operating in the EU, required under the Corporate Sustainability Reporting Directive (CSRD). They consist of 12 standards covering environmental, social, and governance (ESG) topics including climate change, biodiversity and human rights. They provide investors and other stakeholders with the necessary information to understand the sustainability-related risks to which companies are exposed, alongside their impacts on people and the environment.
Last year the European Commission released its Omnibus Specification package, an attempt to streamline sustainability reporting within the EU[i]. The package covers the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD)- which the ESRS falls under, the Carbon Border Adjustment Mechanism (CBAM), and The EU green taxonomy[ii]. This announcement was followed by news in October that the European Parliament’s Committee on Legal Affairs had voted to significantly narrow the scope of both the CSRD, and the Corporate Sustainability Due Diligence Directive CSDDD, limiting their application to only the largest companies.
These changes included a review of the ESRS, which has led to the Commission releasing an updated set of standards which are designed to reduce administrative burdens for EU businesses while maintaining high-quality disclosures. The revised ESRS are shorter and clearer, add new flexibilities, and streamline key processes. They reduce the number of mandatory data points by over 60% and the total number of data points by over 70%[iii]. The Commission says that these changes are expected to reduce reporting costs by more than 30% per company, in line with the overall target of reducing burdens associated with reporting requirements by 25%.
In addition, the European Commission has announced the launch of a new voluntary standard aimed at providing a single, proportionate reference framework for sustainability reporting by smaller companies outside the scope of the CSRD.
In a statement the Commission said: “The voluntary reporting standard provides a single, proportionate reference framework for sustainability reporting by smaller companies outside the scope of the CSRD. It will make it easier for companies not covered by the CSRD to respond to specific requests for sustainability information from large financial institutions and companies.”[iv]
Next steps
The delegated acts revising the ESRS and establishing the new voluntary reporting standard will now be transmitted to the European Parliament and the Council of the EU for scrutiny. The measures will be assessed for a period of 2 months, with the option to prolong the process by an additional 2 months. Once this period is completed, the measures will apply.
References
[ii] EU taxonomy for sustainable activities - European Commission
[iv] Commission adopts revised sustainability reporting standards - Finance
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