ESRS is a set of standards and indicators prepared by The European Financial Reporting Advisory Group (EFRAG) that aim to put an end to reporting practices that follow a plethora of different national framework references or other standards, such as GRI, SDGs and the UN Global Compact, by standardising the way in which companies report on non-financial aspects. The CSRD is the law that requires companies to issue sustainability reports, and the ESRS describes all the information those reports need to contain.
Who would ESRS apply to?
ESRS will apply to all large companies, whether or not they are listed on the stock exchange (except for micro-entities), which meet at least two of the following criteria:
- Balance sheet total assets greater than €20 million.
- Net turnover of more than €40 million.
- Average of more than 250 employees during the fiscal year.
It is expected that SMEs will be given a further three years to comply with the CSRD. This also includes companies based outside of the EU that undertake significant business activity in the EU (with a turnover of more than €150 million in the EU) and that have at least one subsidiary (large or listed) or branch (with a net turnover of more than €40 million) in the EU. According to estimates, more than 50,000 EU companies will be required to publish sustainability information under the ESRS.
ESRS Standards and Compliance Timeline
The reporting requirements will be phased in over time for different kinds of companies.
The first companies will have to apply the standards in financial year 2024, for reports published in 2025.
Listed SMEs are obliged to report as from 2026, with a further possibility of voluntary opt-out until 2028, and will be able to report according to separate, proportionate standards that EFRAG will develop.
EFRAG has submitted its draft ESRS to the European Commission in April 2022. The number of drafts has been brought down to twelve, two cross-cutting draft standards, five topical draft standards on environment, four topical draft standards on social aspects, and one topical draft standard on governance.
ESRS will be mandatory for companies under the CSRD to comply with from 2024.
What should my company do now to prepare for ESRS?
As we move from a voluntary reporting landscape to a regulated one, emissions data will be treated in a similar manner to financial data, including increased financial and legal internal review as well as third-party assurance. Consequently, companies will need to be confident in their reporting and demonstrate the transparency of their methodologies.
To whom and how to report:
Companies must prepare their financial statements and management statement in XHTML format in accordance with the ESEF regulations and the EU sustainability taxonomy, then digitally ‘tag' their reported sustainability information according to a digital categorization system specified by the ESRS Regulation (or use ESG software that can auto-tag and format data).
