CSRD & EU Climate Regulations: What Companies Need To Know About the Revised European Sustainability Reporting Standards
As of July 7, 2023, the European Commission has closed the comment period of the standards developed for the Corporate Sustainability Reporting Directive (CSRD). Soon, the European Commission will adopt their final version of the European Sustainability Reporting Standards (ESRS) for political approval. This approval process could take anywhere from a few weeks to a few months and is expected to result in the official ESRS publication before the end of 2023, in time for companies to begin reporting in 2024. Nasdaq’s ESG Solutions team will publish an update when these standards are finalized, but for now, here’s an update on the ESRS of CSRD.
What are the European Sustainability Reporting Standards (ESRS)?
The first set of sector-agnostic draft standards, comprising the 12 ESRS drafts, were submitted by the European Financial Reporting Advisory Group (EFRAG) under the CSRD on November 2022. They included two cross-cutting standards, five environmental topic standards, four social topic standards and one governance topic standard. The most recent draft was released by the European Commission for comment in early June 2023 and is altered from the initial draft. While it contains much of the same material, some changes have been made.
Recent Changes to the ESRS
The most substantial change in the latest draft is the application of materiality. The same two cross-cutting standards (ESRS 1 and ESRS 2) and 10 topic standards remain; however, all topic standards and their data points are now subject to a materiality assessment. Unlike many voluntary frameworks, the EU has been clear that double materiality is the standard that companies will be held to, incorporating both financial and impact materiality.
In addition to the wider scope of standards that are now subject to a materiality assessment, other substantial changes to the standards include:
1. Some previously mandatory metrics are now voluntary, including biodiversity transition plans and certain indicators about “non-employees” in the undertaking’s own workforce
2. Phasing-in of certain standards for smaller undertakings, defined as companies with fewer than 750 employees, who may choose to omit:
- Scope 3 greenhouse gas (GHG) emissions data and the disclosure requirements specified in the standard on “own workforce” in the first year that they apply the standards
- The disclosure requirements specified in the standards on biodiversity and value-chain workers, affected communities, and consumers and end-users in the first two years that they apply the standards.
3. An expanded glossary of terms and acronyms
4. Better interoperability with other standards and frameworks and alignment with EU legal frameworks
Nasdaq can help companies prepare for reporting to CSRD and other voluntary and regulatory frameworks through our ESG technology and advisory solutions. Moreover, Nasdaq offers tools, like Nasdaq OneReport, to help companies prepare for current and future ESG regulatory requirements.
- Nasdaq OneReport’s EU ESG Regulatory Reporting Readiness Module helps EU-based companies (or others affected by these regulations) to stay up-to-date and respond to these developments.
- The tool’s robust workflow supports dozens of voluntary and regulatory standards, such as SFDR and EU Taxonomy reporting, as well as CSRD once guidance is finalized.
- Nasdaq OneReport provides robust cross-referencing and guidance, with thousands of maps across frameworks and standards, to help companies save time and money in collecting and disclosing the highest quality data to relevant stakeholders.
ESRS Adoption Timeline
The ESRS are still expected to be finalized and signed into law for use by the beginning of 2024. A more detailed timeline can be found here via Nasdaq article, CSRD Update: Impacted Businesses and How to Prepare for Mandatory Reporting.
More regulations to come from the EU include:
- The Corporate Sustainability Due Diligence Directive (CSDDD) aims to “establish a European framework for a responsible and sustainable approach to global value chains, given the importance of companies as a pillar in the construction of a sustainable society and economy.” The proposed legislation would apply to larger EU LLCs and companies in high-impact sectors as well as non-EU companies who meet the employee and net turnover thresholds. While it has been proposed, the final text is still subject to political negotiations.
- The 10 Sector Specific ESRS are still to come. The EFRAG Sustainability Reporting Board has pushed its release of sector-specific ESRS another year. The sector-specific standards were originally projected to be released in October 2023.
As these announcements continue to evolve, please check back for more updates from Nasdaq’s ESG Solutions team. For more information about how Nasdaq ESG Solutions can help your company prepare for reporting, contact us here: nasdaq.com/solutions/corporate-esg-solutions/contact.
