On 5 April 2025 ESMA released a report with key messages on how to improve future non-financial reports, acknowledging a ”current learning phase of the sustainability reporting journey”.

It is based on findings from corporate reporting during 2024 (on FY 2023, prepared in accordance with the Accounting Directive, 2013/34/EU).

The report addresses listed companies in the EEA, auditors and other corporate reporting professionals, with the aim to promote transparency and accountability to the market.

ESMA examined 573 non-financial statements, whereof most (425) related to checking whether the information met the requirements of the Accounting Directive.

This led to enforcement actions related to content towards 121 issuers, causing an action rate of 28%, up from 23% in the previous year.

Most actions required the issuer to make a correction in a future non-financial statement.

22 enforcement actions were also taken, based on the examination of the 137 issuers in the sample, related to the recommendations derived from the 2023 European Common Enforcement Priorities (ECEP).

They were all in the form of requiring the issuer to correct the relevant matter in future non-financial statements.

Enforcement actions

Close to half of all actions related to Article 8 Taxonomy Regulation disclosures – or the lack thereof – followed by disclosures related to non-financial KPIs and description of policies and outcome of policies, due diligence and principal risks.

In particular, the level of specificity of disclosures related climate-related targets and emission reduction targets can be improved, especially in relation to the strategic dimension of the targets, the specific decarbonisation levers used and the financial resources necessary to fulfil the targets.

Overall, the review of the disclosures on targets confirms the importance of relying on sufficiently detailed disclosure rules focusing on minimum basic requirements to enable the comparability of disclosures and the assessment of the credibility of individual issuer’s commitments.

Other actions related to issues such as the reporting perimeter (lack of transparency on it or insufficient coverage of the reporting), reporting on environmental, social and governance (ESG), related governance issues and ESG ratings.

Key findings

Disclosures relating to Article 8 of the Taxonomy Regulation

ESMA refers to these disclosures as having a ”theoretical relevance as a tool to communicate the transition potential of a business”.

• Difficulties were flagged with the application of the activity-based reporting set out in the taxonomy regime for integrated business models or for economic activities whose management is typically outsourced
• Disclosures to explain the methodologies and the conclusions underlying the eligibility and alignment assessments as well as to explain the quantitative information in the reporting templates, most notably on the main taxonomy ratios, did not provide entirely satisfactory.
• The disclosure of CapEx plans remained very limited with sometimes insufficient accompanying contextual information.

Disclosures of climate-related targets, actions and progress

An increased transparency in reporting on climate-related matters is now required, gaining further relevance in light of the forthcoming application  of the enhanced disclosure regime set out in the CSRD.

The Non-Financial Reporting Directive (NFRD) requirements are not specific as to the basic elements that disclosures on targets should contain.

• Many times disclosures lacked basic elements, such as the scope of the target, the baseline value and base year, the underlying methodologies and assumptions and whether the target is based on scientific evidence.
• Explanations of the relationship between the targets and their strategic dimension were often missing for a sizeable part of the sample.
• Many disclosures lacked specificity, e.g., in relation to decarbonisation levers, the science-based nature of the targets and the absence of intermediate milestones.
• The disclosure of financial resources necessary to support the achievement of the targets disclosed was often missing or lacking specificity, for example not providing specific breakdowns to assess the relationship between a specific target and the related investments.

Overall, the review of the disclosures on targets confirms the importance of relying on sufficiently detailed disclosure rules focusing on minimum basic requirements to enable the comparability of disclosures and the assessment of the credibility of individual issuer’s commitments.

Scope 3 emissions

Disclosures on Scope 3 greenhouse gas (GHG) emissions are part of the information that investors would consider as necessary input to sustainable investment decisions.

• Shortcomings remain in terms of transparency on the exclusions from the scope 3 calculation and transparency on the use of estimates to calculate the emissions.
• Only in a minority of cases were disclosures of the gross amounts of GHG emissions provided separately from the effect of carbon credits and other measures.
• Comparative information on scope 3 emissions was in many cases not sufficient to get an understanding of the factors driving the evolution of the reported information.

The lacking or insufficient information will be required under the European Sustainability Reporting Standards (ESRS) which is expected to increase the comparability and overall quality of GHG emissions reporting.

Improve contextual information and explanations of relationships between targets, strategy and related investments

By using ESRS taxonomy-centric report templates and IRO-management models provided in Cleerit ESG, disclosures on contextual information, and explanations of the relationship between the targets, their strategic dimension and the related investments, will be improved – for the benefit of the market and management.

You are welcome to contact us if you want to know more about how leading market actors are enhancing their strategic sustainability governance and reporting > Book a presentation

Source: https://www.esma.europa.eu/sites/default/files/2025-04/ESMA32-193237008-8791_Report_on_2024_Corporate_reporting_enforcement_and_regulatory_activities.pdf

Following the publication of the Omnibus proposals and in line with the European Commissioner Albuquerque’s request, the EFRAG Sustainability Reporting Board (SRB) has approved today its comprehensive and fast-tracked work plan to deliver its technical advice by 31 October 2025 for the revision and simplification of the European Sustainability Reporting Standards (ESRS).

EFRAG’s approach will build on the experience of first-wave companies that implemented ESRS for their 2024 financial year.

📅 Timeline and steps

⭕ April to mid-May 2025

Establishing a vision on actionable levers for substantial simplification (to be confirmed following the stakeholders’ feedback)

Gathering evidence from stakeholders, analysis of the issued reports and other sources – the public call for input is open until Tuesday 6 May

⭕ Second half of May to July 2025

Drafting and approving the Exposure Drafts amending ESRS

⭕ August and September 2025

Publishing the Exposure Drafts, receiving and analysing feedback (including via public consultation) from stakeholders

⭕ October 2025

Finalising and delivering the technical advice to the EC

The work plan is based on the Omnibus proposals as tabled by the EC and does not consider the consequences of changes that may stem from the legislative process. Should changes be made, the timetable and work plan might need to take account of them for the delivery of an appropriate technical advice.

EFRAG has initially identified actionable levers that will be further specified following the evidence gathering phase:

🌿 Revising the presentation and architecture, including the articulation of cross cutting and topical provisions.

🌿 Addressing the most challenging provisions, including the clarification of the application of the materiality principle, to ensure that only material information is required to be reported.

🌿 Evaluating general burden reduction reliefs for ESRS, to reduce the compliance efforts horizontally across disclosures. This may include reliefs for (i) reporting information about acquired businesses and disposals, (ii) certain confidential and possibly business sensitive information and (iii) metrics affected by estimation uncertainty and lack of data quality, including through a broader use of the “undue cost and effort” principle.

🌿 Substantially reducing the number of required datapoints (“shall”), and considering the relevance of disclosure requirements, if need be, with a (not exclusive) focus on narrative disclosures. This critical part of the burden reduction effort will include deletions and transfer of datapoints from a “mandatory” status to a “voluntary” status (“shall” transferred to “may” or to guidance/guidelines or to illustrative examples/educational material). The reduction of datapoints shall be considered from a burden reduction angle as well as from a numerical angle.

Read more here: https://www.efrag.org/sites/default/files/media/document/2025-04/EFRAG%20ESRS%20Revision%20Work%20Plan%20and%20Timeline%20submitted%20to%20the%20EC_25042025.pdf

The recognition of gender diversity, inclusion and pay equity as important dimensions of corporate sustainability performance is not only a matter of fairness, but also of economic analysis confirming that it drives growth, innovation and competitive advantage.

These indicators are also relevant to the UN Sustainable Development Goal 5 “Gender equality” and 10 “Reduced inequalities”.

They focus on measuring vertical inequality associated with the distribution of income, wealth and other economic resources among individuals, and horizontal inequality between social groups, differentiated, for example, by race, ethnicity and gender.

Traditional social relations and cultural norms may undermine gender equality within organizations, and there are increasing pressures not only to disclose but also to explain and address differences related to gender imbalance and pay gaps.

As regards gender diversity, there can be different ways of thinking about targets. One would be to assume that the appropriate target for gender balance should be determined by demographic balance, that is, 50-50.

Another would be to factor in persistent core issues – such as segmented labour markets, cultural bias and the gender division of labour associated with caregiving – underpinning gender inequality from a structural perspective.

Women’s paid work is often concentrated in low-paid, low-quality jobs, advancement and career structures remain constrained by cultural norms and bias, and they tend to spend around 2.5 times more time on unpaid care and domestic work than men (UN Women 2018).

Despite progress made over the years in achieving gender equality, many challenges remain to women’s equal enjoyment of human rights in all spheres. Women continue to experience multiple forms of discrimination, disadvantage and exclusion, and they are underrepresented in decision-making positions.

Among high-income countries, the widening of the gender pay gap is particularly evident at the upper end of the wage distribution, while in low- and middle-income countries this is more apparent at the low end of the distribution (ILO 2018).

The right to equal pay for equal work is one of the EU’s founding principles enshrined in Article 157 of the Treaty on the Functioning of the European Union. However, the practical implementation and enforcement of this principle remains a challenge. In 2021, according to the EU Commission the gender pay gap was still 12,7% in the EU, varying from 0.7 % in Luxembourg to 22.3% in Latvia.

In 2022, as part of the EU Gender Equality Strategy 2020-2025, the European Parliament formally adopted the new EU law on gender balance on corporate boards. By 2026, companies will need to have 40% of the underrepresented sex among non-executive directors or 33% among all directors by 30 June 2026.

This figure is situated between the minimum of the ‘critical mass’ of 30%, which has been found necessary in order to have a sustainable impact on board performance and full gender parity, 50%. (European Commission, 2012)

So, targets within the range of 30 to 50%, and the specific goal of 40%, seem to constitute current benchmarks for gender diversity.

With regard to the gender pay gap, there seems to be considerable agreement that parity is the ultimate goal. A possible benchmark could be the performance of companies or countries identified as leaders or top performers.

According to the OECD (2018), top-performing countries are those with gender pay gaps of less than 10%. The Equileap scorecard method, for example, which is used for identifying and ranking the best performers in terms of gender equality, singles out companies with a mean gender pay gap of 3% or less (Equileap 2018). Interestingly enough, mandatory reporting in Great Britain has revealed that 24% of employers have no gender pay gap, or one that favours women. (*Report published by the UN Research Institute for Social Development – UNRISD)

Parity is the obvious normative goal for the gender pay gap. And one could conclude that should the disparity exceed 3% it’s time to get really worried.

It’s also important not to mask the scale of disadvantage in one category. Data disaggregated by multiple hierarchical or occupational categories can reveal where disparities are located.

Gender equality in the workplace, and more generally, has since gained greater global attention due to the SDGs and specific SDG targets as well as new UN guidance published in 2019 on Gender Dimensions of the Guiding Principles on Business and Human Rights (supported by the Government of Sweden). You can access the document here: https://www.ohchr.org/sites/default/files/Documents/Issues/Business/BookletGenderDimensionsGuidingPrinciples.pdf

(*) Report: Sustainability Accounting. What can and should corporations be doing? Research and writing by Peter Utting with Kelly O’Neill. The United Nations Research Institute for Social Development (UNRISD)

The French Accounting Standards Authority has released an educational publication on the subject: “Climate matters: what are the links between financial statements and the sustainability statement?”

• Topic: What coherence and complementarity can be expected from the information presented in the sustainability statement (ESRS standards) and the financial statements (IFRS standards or French standards)?
• Objective: Better understand the articulation between these two pillars of corporate information in order to support stakeholders in the appropriation of these complex and evolving subjects.

Summary:

Climate matters and sustainability statements

Climate disruption generates physical and transition risks affecting the assets, liabilities and activities of companies and their value chain(s).

Physical risks result from acute climatic hazards (e.g. storms, floods) and chronic (e.g. rising sea levels, prolonged droughts).

Transition risks, on the other hand, are linked to regulatory, technological, market or reputational developments as part of the transition to a low-carbon economy (e.g. stricter emissions standards, emergence of new technologies making existing technologies obsolete, change in the perception of companies based on their sustainability strategy).

These risks lead to current and future financial effects.

The commitments made and plans implemented by companies to mitigate climate change and adapt to its consequences require investments and financial resources today and tomorrow.

When they are material, climate risks (as well as opportunities), commitments, and their financial effects must be published in the sustainability statement.

These financial effects include the impacts on the financial position, financial performance and cash flows in the short, medium and long term (e.g. value of assets exposed to physical risk, turnover related to exposed activities).

The sustainability statement is established according to the European sustainability reporting standards, ‘ESRS’, for companies subject to the ‘CSRD’.

This sustainability statement is subject to mandatory verification.

Climate matters and financial statements

At the same time, these same climate risks and commitments are part of the contextual elements, assumptions, or input data considered in the preparation of financial statements established according to international financial reporting standards (‘IFRS’ or “International Financial Reporting Standards”) or French accounting standards (‘PCG’ or General Accounting Plan).

Depending on their nature, and depending on the applicable accounting principles, certain climate issues may have an impact on the financial statements in the form of recognized items or information in the appendix (e.g.: the revision of the useful life of certain assets), others do not generate any immediate effect or information presented in the financial statements.

The accounting (IFRS, PCG) and sustainability (ESRS) regulatory frameworks have differences

Although financial materiality is defined in the same way (information is material if its presentation or omission can influence the decisions of investors/lenders), its conditions of application may vary depending on the reporting scope, time horizons, and evaluation and reporting criteria and thresholds.

Furthermore, financial statements generally reflect rights and obligations existing at the closing date, while the sustainability statement also provides a large amount of prospective information (e.g. emissions targets, future financial effects, etc.).

What is presented in the ESRS sustainability statement is therefore not necessarily intended to be included in the financial statements, and vice versa.

Connectivity between the sustainability statement and the financial statement

According to EFRAG, connectivity refers to the ability to integrate and articulate information from the different sections of the annual report to create a set of coherent and complementary information that allows users of the reports to make informed decisions.

Connectivity is specifically required in the sustainability statement by the ESRS, in connection with the financial statements.

The analysis of standards and illustrative cases shows that, although the two pillars of information each respond to distinct rules, their connection, rather than their juxtaposition, highlights their coherence and complementarity.

This provides a holistic view of how the company addresses, and is affected by, climate matters.

Food for thought for companies

Some companies are implementing an integrated approach to facilitate the management of climate matters and inform strategic, financial or operational decisions (e.g.: definition of action priorities and financial plans).

This approach can be organized at several levels, including: governance (e.g.: awareness of the requirements, limits and interconnections of reporting frameworks), organization (e.g.: coordination of reporting and operational teams on climate issues), and internal control.

This integrated approach facilitates the alignment of the assumptions for developing the two reports (e.g.: concerning investments and financial resources allocated to climate mitigation and adaptation actions, global warming scenarios, regulatory developments).

The ESRS therefore require that any points of convergence or divergence be explained in the sustainability statement and that direct links (i.e. amounts coming directly from the financial statements) or indirect links (i.e. aggregation or decomposition of the amounts presented in the financial statements) be highlighted.

Food for thought for all stakeholders

To promote better connectivity, the following possibilities for improvement are proposed to the authorities, to the extent that this reflection goes beyond the operational framework of companies and involves broader considerations at the national and European level:

• raise awareness and train stakeholders in the connectivity between financial statements and sustainability statements,
• use the analyses of the first publications to contribute to reflections at the national, European and international levels,
• integrate specific financial effects into future sectoral sustainability standards (e.g. research and development expenditure for low-carbon products),
• continue reflection on the evolution of accounting standards in relation to climate issues, and promote the incorporation of climate risks into company valuation

The full document (in French) can be downloaded here >>>

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