European Sustainability Reporting Standards (ESRS)

Description of Characteristics:

EU-Specific: The ESRS are a set of sustainability reporting standards being developed by the European Union (EU) to ensure that companies provide comprehensive and comparable information about their sustainability performance.
Mandatory Compliance: The ESRS will be mandatory for a wide range of companies operating in the EU, including large public-interest entities and listed SMEs.
Double Materiality: The ESRS incorporates the concept of double materiality, requiring companies to report on both the impact of sustainability issues on their financial performance (financial materiality) and the impact of the company on the environment and society (impact materiality).
Detailed and Comprehensive: The ESRS are expected to be more detailed and comprehensive than existing sustainability reporting frameworks, covering a wide range of ESG topics.
Alignment with EU Policies: The ESRS are designed to support the EU’s Green Deal and other sustainability-related policies.

Targeted Audience:

Primarily Large and Listed Companies in the EU: The ESRS are mandatory for companies that meet the CSRD’s criteria.
Investors and Other Stakeholders: The standards aim to provide investors and other stakeholders with the information they need to make informed decisions about the sustainability performance of companies.

Specific Criteria:

Cross-Cutting Standards:
- ESRS 1 – General Requirements: Outlines general principles for reporting under the ESRS.
- ESRS 2 – General Disclosures: Specifies essential information to be disclosed irrespective of the specific sustainability matter.
Topical Standards:
- Environment (E): Climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy.
- Social (S): Own workforce, workers in the value chain, affected communities, consumers and end-users. 1. en.frankbold.org en.frankbold.org
- Governance (G): Business conduct.
Sector-Specific Standards: The ESRS will also include sector-specific standards that address the unique sustainability challenges and opportunities faced by different industries.

Reporting Principles:

Double Materiality: Companies must report on both their impacts on the environment and society and how sustainability issues create financial risks and opportunities for the company.
Proportionality: The level of detail in reporting should be proportionate to the size and complexity of the organization and the materiality of the sustainability issues.
Comparability: Disclosures should be prepared in a way that allows for comparison over time and between companies.
Reliability and Verifiability: Disclosures should be based on reliable data and information and subject to external assurance.
Connectivity: Sustainability reporting should be connected to financial reporting, providing a holistic view of the company’s performance.

Reporting Process:

Identify Material Sustainability Matters: Companies conduct a double materiality assessment to determine which sustainability matters are material to their business and stakeholders.
Collect and Analyze Data: Gather and analyze data related to the identified material sustainability matters.
Prepare Disclosures: Prepare sustainability disclosures in accordance with the ESRS, addressing both impact and financial materiality.
Obtain External Assurance: Seek external assurance for the sustainability disclosures (mandatory for certain companies under the CSRD).
Publish and Communicate: Publish the sustainability report as part of the management report and communicate it to stakeholders.

Connections to Other Frameworks:

Alignment with EU Policies: The ESRS are designed to support the EU’s Green Deal and other sustainability-related policies.
Building on Existing Frameworks: The ESRS draw on existing frameworks, such as the GRI Standards and the TCFD recommendations.
Influence on Global Standards: The ESRS are likely to influence the development of global sustainability reporting standards, such as those being developed by the ISSB.

Challenges:

Complexity: The ESRS are detailed and prescriptive, which can be challenging for companies, particularly those new to sustainability reporting.
Data Collection: Gathering the required data can be time-consuming and resource-intensive, especially for impact materiality assessments.
Assurance: Obtaining external assurance for sustainability disclosures can be costly and complex.

Compliance Guidance:

ESRS Delegated Act: The final ESRS are published in the form of a Delegated Act by the European Commission.
EFRAG Guidance: The European Financial Reporting Advisory Group (EFRAG) provides guidance on the implementation of the ESRS.

Usability Evaluation:

Level of Global Adoption: While specific to the EU, ESRS is expected to influence global sustainability reporting practices due to the EU’s significant economic influence.
Ease of Use: Can be challenging due to its detailed and prescriptive nature.
Focus Areas: Comprehensive coverage of environmental, social, and governance topics, with a strong emphasis on double materiality.
Data Availability: Data availability can vary depending on the company’s existing ESG data management practices and the maturity of its impact measurement processes.

SyncFrame Compatibility:

High Alignment: SyncFrame is designed to be compatible with the ESRS, incorporating their key principles and metrics.
Data Integration: SyncFrame’s technology-driven approach can help companies collect and analyze the data required for ESRS disclosures.
Impact Assessment: SyncFrame’s focus on impact measurement aligns well with the ESRS’ emphasis on double materiality.
Adaptation: SyncFrame will continue to evolve and adapt to align with the finalized ESRS and provide comprehensive support for companies in meeting their disclosure requirements.

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