In a vote in the European Parliament on 18 October, MEPs reaffirmed the commitment to the European Sustainability Reporting Standards (ESRS), mandatory under the Corporate Sustainability Reporting Directive (CSRD), which will apply from January 2024 onwards as initially planned.

With over 90% of the commitments made in the 2019 Political Guidelines delivered, the EU Commission also reaffirmed the commitment to reduce reporting requirements by 25%, in line with the strategy to boost the EU’s long-term competitiveness and to provide relief for SMEs, without undermining the policy objectives of the concerned initiatives.

Examples of the expected simplifications include:

➡ A 2-year delay of the date of adoption of the sector-specific ESRS, currently required in 2024, to allow companies to focus on the implementation of the first set of sector-agnostic ESRS adopted on 31 July 2023.

➡ A 2-year delay of the date of adoption of the ESRS to be used by certain non-EU companies with business in the Union.

Considering that the reporting requirements for these non-EU companies only apply from financial year 2028, this will allow more resources to be dedicated to the development of effective and proportionate sector-specific ESRS, while still giving enough time for these non-EU companies to prepare ahead of financial year 2028.

➡ An increase in the size criteria in the Accounting Directive by 25% to account for the effects of inflation. This would reduce the scope of application of the presentation, audit and publication requirements for financial statements, and also the scope of application of the CSRD and the EU Taxonomy Regulation (Art. 8).

The classification of companies into “micro”, small”, “medium” or “large”, is based on meeting two out of three size criteria: two monetary size criteria, the “balance sheet total” and “net turnover”, and the average number of employees.

Over a period of 10 years from 1 January 2013 to 31 March 2023, the cumulated inflation reached 24.3% in the euro area and 27.2% for the EU27.

Initially, all large EU companies meeting two of the following three criteria: more than 250 employees, a net turnover exceeding €40m and/or a balance sheet total exceeding €20m, were required to report according to ESRS for financial year 2025 at the latest (report due in 2026).

With this adjustment, the monetary size criteria will to increase to a net turnover exceeding €50m and/or a balance sheet total exceeding €25m.

Source: IMMC.COM%282023%29596%20final.ENG.xhtml.1_EN_ACT_part1_v5.docx (europa.eu)

CSRD is about future-proofing your business.

ESRS is where sustainability meets strategy and sets the stage for real transformation and profitable business.

The European Sustainability Reporting Standards, ESRS, mandatory for companies subject to CSRD, specify the information that the company shall disclose to allow for readers to understand its material impacts on people and environment, and the material effects of sustainability matters on the company’s development, performance and position.

Future-proofing is the process of anticipating the future and developing methods of minimizing the effects of shocks and stresses of future events – on the company’s development, performance and position.

The ESRS strategy disclosure requirements, SBM, focus on how the company’s strategy and business model interact with, and addresses, its material sustainability impacts, risks and opportunities.

• The term “impacts” refers to positive and negative, actual or potential, sustainability-related impacts that are connected with the company’s business, as identified through an impact materiality assessment.
• The term “risks and opportunities” refers to the company’s sustainability-related financial risks and opportunities, including those deriving from dependencies on natural, human and social resources, as identified through a financial materiality assessment.

But, it’s not only about mitigating adverse impact and risks, it’s also about pursuing new opportunities, as laid out in EU’s new growth strategy the Green Deal.

What does ESRS say about opportunities?

To start with, when reporting on material opportunities, the reader should be able to understand if the opportunity is currently being pursued and is already incorporated in the company’s own general strategy, or if it is just general opportunity for the company or the sector it operates in. (ESRS-1.109)

ESRS also lists 5 opportunity levers the company can consider: Resource efficiency, Markets, Financing, Reputation and Resilience.

Resource efficiency, e.g.,

• Transition to more efficient services and less resource-intense processes.
• Decrease quantities of substances used or improve efficiency of production process to minimise impacts.
• Eco-design for longevity, repair, reuse, recycle, by- products, take-back systems, decoupling activity from extraction of materials, intensifying circular material use, creation of a system that allows for dematerialization (e.g., digitisation, improving utilisation rates, weight reduction).
• Practices to ensure products and materials are collected, sorted, and reused, repaired, refurbished, remanufactured.

Markets, e.g.,

• Development of less resource-intense products and services.
• Diversification of business activities.
• Demand for less resource-intense products and services, and new consumption models such as product-as- a-service, pay-per-use, sharing, leasing.

Financing, e.g.,

• Access to green funds, bonds or loans

Reputation, e.g.,

• Positive stakeholder relations and engagement as a result of a proactive stance on managing risks.
• Preferred partner status.

Resilience, e.g.,

• Diversification of resources and business activities (e.g., start a new business unit to recycle new materials)
• Investing in green infrastructures
• Adopting recycling and circularity mechanisms that reduce dependencies.
• Increase the capability to safeguard future stocks and flows of resources.

ESRS is as much about strategy as it is about reporting, so you will need CSRD-ready sustainability strategy & reporting digital support to succeed.

What better way to start than to see ESRS on your screen, fully digitized? Ready to navigate, learn, share and get ready.

The science-based SaaS solution Cleerit ESG helps you

• factor in risk exposure,
• identify, assess and manage material topics,
• unlock the potential of your materiality assessments,
• cascade ambitious targets and
• create actionable roadmaps for strategic success –
• while preparing CSRD and
• automating your sustainability reporting with ESRS-ready templates.

And secure, modern SaaS technology makes it all easy and affordable.

You have rarely had such a high Return On Investment. Why wait?

On 5 January 2023, the EU Corporate Sustainability Reporting Directive (CSRD) entered into force.

➡ The CSRD is an EU “directive” (2022/2464) – a legislative act that sets out a goal that EU countries must achieve.

The CSRD supports the Union’s legal framework and the objectives of the EU Green Deal.

The EU Green Deal is the new growth strategy of the European Union, which aims to transform the Union into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases (GHG) by 2050, while leaving no person and no place behind.

It will contribute to the EU objective of building an economy that works for the people, strengthening the Union’s social market economy, helping to ensure that it is ready for the future and that it delivers stability, jobs, growth and sustainable investment.

To succeed the Green Deal, it is necessary for the EU to reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth, manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues, and foster transparency and long-termism in financial and economic activity.

Disclosing relevant, comparable and reliable sustainability information amongst companies is a prerequisite for meeting those objectives.

The EU Commission was therefore empowered to adopt mandatory common sustainability reporting standards, to ensure that information was comparable, and that all relevant information was disclosed consistent with EU needs.

Building on the double materiality principle, the standards needed cover all information that is material to users of that information.

The development of mandatory common sustainability reporting standards was also necessary to

✔ Enable the assurance and digitalisation of sustainability reporting

✔ Facilitate its supervision and enforcement

✔ Reach a situation in which sustainability information has a status comparable to that of financial information

➡ The adoption of such mandatory common sustainability reporting standards was completed by means of a delegated act on the first set of European Sustainability Reporting Standards (ESRS) on 31 July 2023.

ESRS is now to be used for sustainability reporting by all undertakings subject to the CSRD.

These mandatory sustainability reporting standards (ESRS) specify the information that undertakings are to report in accordance with CSRD articles 19a and 29a-b.

🍃 ESRS is where sustainability meets company strategy and sets the stage for real transformation.

You will need CSRD-compliant and ESRS-ready sustainability strategy & reporting software to succeed.

➡ Contact us if you are interested in a two-month trial of the SaaS solution Cleerit ESG for 65 € per month and user.

ESRS 2, SBM-1 datapoint 40, compulsory for all companies subject to CSRD, require companies to disclose detailed information about the key elements of its general strategy that relate to or affect sustainability matters:

➡ description of significant groups of products and/or services offered

➡ description of significant markets and/or customer groups served

➡ where applicable and material, products and services that are banned in certain markets

➡ breakdown of total revenue by significant ESRS sectors

➡ where applicable, a statement indicating, together with the related revenues, that the company is active in the following sectors

✔ fossil fuel (coal, oil and gas)
✔ chemicals production
✔ controversial weapons
✔ cultivation and production of tobacco

➡ its sustainability-related goals, including an assessment, in terms of significant groups of products and services, customer categories, geographical areas and relationships with stakeholders

➡ the elements of the company’s strategy that relate to or impact sustainability matters, including the main challenges ahead, critical solutions or projects to be put in place, when relevant for sustainability reporting.

The objective of this Disclosure Requirement is to provide an understanding of the company’s exposure to impacts, risks and opportunities and where they originate.

Disclosure requirement E1-1 also requires the company to disclose its transition plan for climate change mitigation, to ensure that its strategy and business model are compatible with the transition to a sustainable economy and the objective of achieving climate neutrality by 2050, in alignment with EU Climate Law and Benchmark Regulation.

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The European Sustainability Reporting Standards (ESRS) have now been adopted for use by all companies subject to the CSRD. If you are aiming for a good ESG rating, it’s time to get started.

ESRS is major opportunity to build awareness, resilience, efficiency and sustainable growth opportunities. It’s where sustainability meets strategy.

What better way to start than to see it on your screen, fully digitized? Ready to navigate, learn, share and get CSRD-ready.

The science-based SaaS solution Cleerit ESG helps you factor in risk exposure, identify and manage material topics, unlock the potential of your materiality assessments and create actionable roadmaps for strategic success

– while preparing CSRD and automating your sustainability reporting with ESRS-ready templates.

Contact us if you are interested in a two-month trial of the SaaS solution Cleerit ESG for only 65 € per month and user.

Under CSRD & ESRS, conducting stakeholder surveys to define what sustainability matters are material to your organization is no longer fit for purpose. Nor is a narrow focus on data collection.

Stakeholder concerns and evidence of actual and potential impacts are now in focus, not ranking the relative importance of different sustainability matters.

ESRS is process oriented. Numerical data only account for 30% of the disclosure requirements.

70% of ESRS is about contextual narrative disclosure, and more than 40% of the disclosures require accounting for policies, targets and actions for material topics, according to detailed Minimum Disclosure Requirements (MDR).

The material topics are to be found in the list of 92 topics provided in ESRS 1 (AR 16) that the company shall consider, together with entity-specific material topics.

When asked, “from a data collection point of view, how should business adapt to meet the requirements of mandatory regulations?”, Chiara Del Prete (Sustainability Reporting TEG Chair EFRAG), answered:

“I wonder whether collection of data is entirely capturing the transformational element of what we are trying to achieve in terms of direction of travel.”

“To the extent that they have policies, targets and actions in place to identify, mitigate, prevent and account for their impacts on people and environment – those data will be the same as those we would like to see coming into reports.”

“This is to say that there is much more than collection of data.”

CSRD & ESRS support the European Green Deal – a new growth strategy that aims to transform the Union into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use.

In 2022, McKinsey estimated that to reach net zero emissions, an additional $3.5 trillion a year must be invested in physical assets for energy and land-use systems until 2050.

That is the greatest reallocation of capital in history.

So, surveys and data collection will not be enough. Building awareness, skills and transparency – and closing the gap between sustainability, strategy and execution – will be key to success.

Exit stakeholder questionnaires. Enter robust due diligence processes.

Exit narrow focus on data collection. Enter efficient risk management and strategic plans supported by evidence, actions & resources and KPIs.

And, exit manual spreadsheets and glossy ESG-brochures.

Enter holistic, inclusive, fit-for-purpose system support supporting both sustainability strategy and reporting.

Reporting is necessary, but if we are looking to transform, reporting is only a means to an end, not the end.