European Commission adopts the delegated act on first set of ESRS
On 31st July 2023, European Commission adopted the Delegated Act on the first set of European Sustainability Reporting Standards (ESRS). A significant milestone and another step forward in the transition to a sustainable EU economy.
The standards cover the full range of environmental, social, and governance issues, including climate change, biodiversity and human rights. They provide information for investors to understand the sustainability impact of the companies in which they invest. They also take account of discussions with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) in order to ensure a very high degree of interoperability between EU and global standards and to prevent unnecessary double reporting by companies.
What are the main modifications compared to the draft standards developed by EFRAG?
· All standards and all disclosure requirements and data points within each standard will be subject to materiality assessment by the undertaking, with the exception of the disclosure requirements specified in the “General disclosures” standard (ESRS 2)
· Companies need to declare in detail why climate change (ESRS E1) is not material (if that’s the outcome of the materiality assessment)
· Companies need to provide a reference table with all datapoints deriving from additional legislative requirements (like the Sustainable Finance Disclosure Regulation, Benchmark regulation…) and explicitly state if a datapoint is “not material”
Phasing-in certain requirements
· All companies may omit a. anticipated financial effects related to non-climate environmental issues (pollution, water, biodiversity, and resource use); and b. certain datapoints related to their own workforce (social protection, persons with disabilities, work-related ill-health, and work-life balance) in the first year that they apply the standards
· Companies with less than 750 employees may omit a. scope 3 GHG emissions data and b. the disclosure requirements specified in the standard on “own workforce” in the first year that they apply the standards
· Companies with less than 750 employees may omit the disclosure requirements specified in the standards on biodiversity and on value-chain workers, affected communities, and consumers and end-users in the first two years that they apply the standards
Additional disclosures voluntary
· Datapoints such as biodiversity transition plans, certain indicators about “non-employees” in the undertaking’s own workforce, and an explanation of why the undertaking may consider a particular sustainability topic not to be material are voluntary now
Flexibilities in certain disclosures:
· Companies have additional flexibilities in the disclosure requirements on: a. the financial effects arising from sustainability risks and b. engagement with stakeholders, and in the methodology to use for the materiality assessment process
· Datapoints regarding corruption and bribery and regarding the protection of whistle-blowers have been modified
Are ESRS aligned with global standards?
The Commission has worked to ensure a very high level of alignment between ESRS and the standards of the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI).
The GRI served as an important reference point, and many of the reporting requirements in ESRS were inspired by the GRI standards.
Companies that are required to report in accordance with ESRS on climate change will to a very large extent report the same information as companies that will use the ISSB standard on climate-related disclosures.
EFRAG will publish first draft Implementation Guidance and FAQ regarding materiality assessment (MAIG) and value chain (VCIG) on or before 16 August 2023. A webinar is planned on 23 August 2023. You can register here
Would you like to know more about how 2Impact can help you implement the new ESRS? Contact us at email@example.com to discuss your reporting ambitions and journey.
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