The European Sustainability Reporting Standards (ESRS), for use by all companies subject to the CSRD, are built on a double materiality approach, whereby impact materiality and financial materiality are equally important – the exception being negative impact on human rights which one could argue takes precedence.

ESRS (drafted by EFRAG, technical advisor to the European Commission) state that a company’s impact on people and the environment, and its financial effects from risks and opportunities, arising from its dependencies on resources and relationships, may be inter-related and interdependent.

A negative impact will likely materialize as a negative financial effect for the company, at least in the long term. But a company also faces sustainability related risks that are not necessarily related to its impacts – climate change being a good example.

The International Financial Reporting Standards on Sustainability (IFRS-sds), issued by ISSB, also recognize that the two perspectives are linked: “an entity’s ability to generate cash flows over the short, medium and long term is inextricably linked to the interactions between the entity and its stakeholders, society, the economy and the natural environment throughout the entity’s value chain. … Together, the entity and the resources and relationships throughout its value chain form an interdependent system in which the entity operates.” (S1, paragraph 2)

So, what are the main differences between the two standards – apart from IFRS-sdc only covering one topic (climate change) in stage one, compared to 10 ESG topics for ESRS?

And how do TCFD, SASB and GRI fit in the picture?

IFRS Sustainability by ISSB

The International Sustainability Standards Board (ISSB) was created by the IFRS Foundation in 2021 as a sister board to the International Accounting Standards Board (IASB), to address the needs of investors and the financial markets for sustainability information – in particular sustainability-related risks and opportunities that are becoming increasingly important for investment decisions.

ISSB’s main objective is to respond to the need for such information by issuing unified IFRS Sustainability standards (IFRS-sds), since a fragmented landscape of voluntary, sustainability-related standards and requirements add cost, complexity and risk to both companies and investors.

The aim is to help companies to report what is needed for investors across markets globally, to support investor decision-making and facilitate international comparability to attract capital.

ISSB has focused on ensuring transparency through the disclosure of the company’s sustainability related risks and opportunities, and related control systems – including who is in charge, how do they get relevant information and if they have the necessary skills to manage this information and its consequences for the company’s strategy and business model.

Materiality follows the same principle as the IFRS Accounting Standards definition of “material”: “could reasonably be expected to influence investor decisions”.

This is logical since the IFRS-sds stakeholder is “primary users of general-purpose financial reports in making decisions relating to providing resources to the entity” – meaning the investors.

Sue Lloyd (Vice Chair ISSB) explained that the IFRS-sds standards aim to help companies and their investors, identify “how sustainability can affect its prospects”, by focusing on “how it maintains its resources and relationships, how it manages its dependencies on them, and how its impacts on these resources and relationships give rise to sustainability related risks and opportunities for the company”.

The company’s impact on the environment and people therefore only becomes relevant (material) if likely to translate into financial effects for the company.

IFRS-sds does not require companies to disclose a specific climate transition pathway aligned with common objectives like net zero or the 1.5-degree scenario – although they indirectly encourage to do so.

As Sue Lloyd put it: “The role of ISSB is providing information to investors, not to tell companies how to do business, have transitions plans, etc”.

It is also important to note that while IFRS-sds aim to shed light on the resilience of the entity’s strategy and its business model with regards to sustainability-related risks, an entity need not provide quantitative information about the current or anticipated financial effects of a sustainability-related risk or opportunity if the entity determines that:

• those effects are not separately identifiable
• the level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful
• the entity does not have the skills, capabilities or resources to provide that quantitative information (S1 paragraphs 38-39).

Since the first set of IFRS-sds only cover the topic climate change, it refers to the topical SASB standards (in step one), organized by industry, to help companies identify other topics that could potentially give rise to sustainability related material risks and opportunities, and related disclosures.

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Sustainability Accounting Standards Board (SASB)  

The Sustainability Accounting Standards Board (SASB) was founded as a nonprofit organisation in 2011 to help businesses and investors develop a common language about the financial impacts of sustainability.

SASB Standards help companies disclose relevant sustainability information to their investors. They are industry-based as risks and opportunities likely to be “decision-useful” for investors vary by industry.

Available for 77 industries, SASB Standards aim to help identifying the sustainability-related risks and opportunities most likely to affect an entity’s cash flows, access to finance and cost of capital over the short, medium or long term and the disclosure topics and metrics that are most likely to be useful to investors.

From CDSB, IIRC and TCFD to SASB and ISSB

The Climate Disclosure Standards Board (CDSB), created in 2007, offered companies a framework for reporting environment and social information with the same rigour as financial information. The CDSB Framework formed a foundation for the Task Force for Climate-Related Financial Disclosures (TCFD) recommendations and sets out an approach for reporting environmental and social information in mainstream reports, such as annual reports, 10-K filing, or integrated reports.

The International Integrated Reporting Council (IIRC), a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs, was formed in August 2010 with the aim to create a globally accepted framework for a process that results in communications by an organisation about value creation over time, as the next step in the evolution of corporate reporting.

The Financial Stability Board (FSB) created the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 to improve and increase reporting of climate-related financial information.

Over the years, the corporate sustainability disclosure landscape became very complex. Many global businesses and investors called for simplification and clarity in this landscape.

In response, in November 2020 the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) announced their intention to merge into the Value Reporting Foundation, which was officially formed in June 2021. By integrating two entities that were focused on enterprise value creation, the merger signaled significant progress towards simplification.

On 3 November 2021 at the COP26 climate conference the IFRS Foundation Trustees announced the consolidation of the Value Reporting Foundation (VRF) and the Climate Disclosure Standards Board (CDSB) into the IFRS Foundation, to support the work of the newly established International Sustainability Standards Board (ISSB).

As of August 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB Standards. The ISSB has committed to maintain, enhance and evolve the SASB Standards and encourages preparers and investors to continue to use the SASB Standards.

In July 2023 the Financial Stability Board (FSB) announced that the work of the Task Force on Climate-related Financial Disclosures (TCFD) has been completed, with the ISSB Standards marking the ‘culmination of the work of the TCFD’. Having fulfilled its remit, TCFD disbanded in October 2023.

Companies applying IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures will meet the TCFD recommendations as the recommendations are fully incorporated into the ISSB Standards (and into ESRS). The FSB has asked the IFRS Foundation to take over the monitoring of the progress of companies’ climate-related disclosures.

Companies can continue to use the TCFD recommendations should they choose to do so, and some companies may still be required to use the TCFD recommendations. Using the recommendations can be a good entry point for companies as they move to use the ISSB Standards (or ESRS).

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The IFRS-sds standards are voluntary and policy-agnostic

More than 20 jurisdictions have already decided to use or are taking steps to introduce ISSB’s IFRS Sustainability Standards (sds) in their legal or regulatory framework, including Australia, Brazil, Canada, Hong-Kong, Japan, Malaysia, Mexico, Singapore, South Korea and the UK. Together, these jurisdictions account for nearly 55% of global GDP, more than 40% of global market capitalisation and more than half of global greenhouse gas emissions.

IFRS-sds standards have also been endorsed by the International Organization of Securities Commissions (IOSCO), calling on its 130 member jurisdictions — capital markets authorities that regulate more than 95% of the world’s securities markets — to consider how they can incorporate the ISSB Standards into their respective regulatory frameworks.

However, supervisory authorities of EU Member States represent over 20% of IOSCO membership, and they will be subject to ESRS standards.

The UK has also committed to its own Transition Plan Taskforce (TPT) Disclosure Framework – “a key building block for delivering a net zero future” – in addition to the IFRS-sds requirements. The TPT builds on the work of the ISSB and supports compliance with IFRS S2.

Unified sustainability reporting practices are an important step towards “more resilient economics, serving people and life better”, as noted by ISSB Chair Emmanuel Faber.

Critics accuse the ISSB of “high-jacking” sustainability reporting by claiming the IFRS-sds standards to be a “global baseline”, while narrowly focusing on only one stakeholder (the investor), and neither addressing sustainability per se, nor the management and science-based alignment of sustainability-related issues.

The ESRS standards are forward-driven and support the European Green Deal

The aim of ESRS (Set 1) is more ambitious, and forward-driven. It’s not policy neutral. Together with CSRD, it supports the European Green Deal, a growth strategy for the 27 EU member states.

The EU standards are based on an initial draft prepared by the appointed technical adviser, the European Financial Reporting Advisory Group (EFRAG), following the adoption of the EU Corporate Sustainability Reporting Directive (CSRD), supplementing the directive 2013/34/EU on annual financial statements, consolidated financial statements and related reports.

CSRD now requires companies within its scope to report based on a double materiality approach in compliance with the European Sustainability Reporting Standards (ESRS), adopted by the European Commission as delegated acts.

The aim is not only to help companies to communicate (disclose) sustainability related information, but also to manage their sustainability performance more efficiently, and therefore to have better access to sustainable finance to support the implementation of the European Green Deal.

The European Green Deal represents a 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”.

The implementation of the European Green Deal requires that “investors are offered clear, long-term signals to avoid stranded assets and to raise sustainable finance”.

CSRD therefore requires large companies, as well as third-country companies with significant activities in the EU, to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.

The definition of a “large” company is currently being reviewed as part of the Omnibus simplification package.

The aim is to help investors, civil society organisations, consumers and other stakeholders to evaluate the sustainability performance of companies, as part of the European Green Deal.

The aim of the European Green Deal is to improve the well-being and health of citizens and future generations by providing:

• fresh air, clean water, healthy soil and biodiversity
• renovated, energy efficient buildings
• healthy and affordable food
• more public transport
• cleaner energy and cutting-edge clean technological innovation
• longer lasting products that can be repaired, recycled and re-used
• future-proof jobs and skills training for the transition
• globally competitive and resilient industry

To achieve the goals, the ESRS address the needs of a large group of stakeholders:

• Affected stakeholders: individuals or groups whose interests are affected or could be affected – positively or negatively – by the undertaking’s activities and its direct and indirect business relationships across its value chain (ESRS 1, sec 3.1 par 22 a)
• Users of sustainability statements: primary users of general-purpose financial reporting (existing and potential investors, lenders and other creditors, including asset managers, credit institutions, insurance undertakings), and other users of sustainability statements, including the undertaking’s business partners, trade unions and social partners, civil society and non-governmental organisations, governments, analysts and academics. (ESRS 1, sec 3.1 par 22 b)
• In addition, common stakeholders are: employees and other workers, suppliers, consumers, customers, end- users, local communities and persons in vulnerable situations, and public authorities, including regulators, supervisors and central banks. (ESRS 1, AR 6)
• Nature may be considered as a silent stakeholder. In this case, ecological data and data on the conservation of species may support the undertaking’s materiality assessment. (ESRS 1, AR 7)

This multi-stakeholder approach is consistent with research findings in the fields of corporate strategy and strategy execution.

Companies face many different stakeholders and have to manage different – sometimes contradictory – perspectives to be successful, given the interdependent system in which they operate. This is also why the narrow focus on investors in IFRS-sds has been criticized.

When creating the ESRS, EFRAG (EU) built on – and also aimed to contribute to – internationally recognized existing reporting standards and guidelines, including TCFD, GRI, SASB, the International Integrated Reporting Council (IIRC), the Climate Disclosure Standards Board (CDSB) and CDP (formerly the Carbon Disclosure Project), while also taking into account other science-based guidelines, as well as existing EU regulation and international instruments for responsible business conduct.

TCFD, ESRS and IFRS-sds

The Task Force on Climate Related Financial Disclosures (TCFD) was established in 2015 by the Group of 20 (G20) and the Financial Stability Board (FSB), as a response to the failings of the 2015 Paris Agreement.

One of the most significant problems identified was the lack of transparency and international standards by which countries demonstrate or disclose that they are meeting their commitments.

To address the issues stemming from the 2015 Paris Agreement, the Task Force published recommendations designed to standardise worldwide climate-related disclosures that could “promote more informed investment… and in turn, enable stakeholders to understand better concentrations of carbon-related assets in the financial sectors.”

The TCFD climate-related disclosures provide information to investors about what companies are doing to mitigate the risks of climate change, as well as transparency on the way in which they are governed with relation to these matters.

Both EFRAG and ISSB have incorporated the TCFD climate-related disclosures, so there is no need to report on TCFD separately if you report according to ESRS or IFRS-sdc.

But both ESRS and IFRS-sds go beyond TCFD disclosures, so TCFD alone is no longer enough.

When comparing TCFD with ESRS it must also be noted that TCFD is on climate only and ESRS are covering also numerous other sustainability matters besides climate.

ESRS also include detailed minimum disclosure requirements (MDR) on Policies, Actions and Targets (PATs), designed to shed light on – and guide – impact, risk and opportunity MANAGEMENT, in addition to governance and control mechanisms.

These MDR on Policies, Actions and Targets are absent in both TCFD and IFRS-sds.

GRI, ESRS and IFRS-sds

The Global Reporting Initiative (GRI) was founded in Boston (USA) in 1997 following on from the public outcry over the environmental damage of the Exxon Valdez oil spill, eight years previously.

The aim was to create the first accountability mechanism to ensure companies adhere to responsible environmental conduct principles, which was then broadened to include social, economic and governance issues.

GRI became the world’s first globally accepted, voluntary, standards for sustainability reporting.

Over 10,000 companies from more than 100 countries use GRI. 78% of the world’s biggest 250 companies by revenue (the G250) and 68% of the top 100 businesses in 58 countries (5,800 companies known as the N100) have adopted the GRI Standards for reporting. (KPMG Survey, Oct 2022)

The ESRS have adopted the same definition for impact materiality as GRI and have leveraged GRI’s expertise.

As IFRS-sds, on the other hand, does not incorporate impact materiality, it “delegates” this task to GRI, stating that:

“The combination IFRS-sds, focused on meeting investor needs, alongside GRI standards, focused on broader stakeholder needs, as a package, can be an efficient reporting system to allow companies to report across their stakeholders”. (Sue Lloyd, Vice Chair ISSB)

ESRS interoperability

ESRS – IFRS-sds

EU/EFRAG and the ISSB have ensured a very high degree of interoperability between the two sets of standards. Companies that are required to report in accordance with ESRS will to a very large extent report the same information as companies that use the two ISSB standards IFRS S1 & S2.

Specific consideration has been given to the definition of financial materiality, particularly in ESRS 1 paragraph 48 of the Delegated Act. Material financial information under ESRS is now focused on the needs of primary users (investors), assuming that the needs of other stakeholders are satisfied either through impact materiality information or through the information needed by investors.

For financial materiality, an undertaking that applies ESRS is expected to be able to comply with the identification of the risks and opportunities to be disclosed under IFRS-sds (however, note that EFRAG’s proposed Materiality Assessment Implementation Guidance for public input on August 23 does not state the inverse to be true).

The ESRS follow the same structure as the ISSB (Governance—Strategy—Risk Management—Metrics & Targets), as first proposed by the Task Force on Climate related Financial Disclosures (TCFD), with the necessary adaptions to account for the double materiality principle and to secure an efficient interaction between the general disclosures and the various topics that the ESRS have to cover according to the CSRD.

ESRS – GRI

EU/EFRAG and GRI acknowledge that they have achieved a high level of interoperability between their respective standards in relation to impact reporting.

ESRS and GRI definitions, concepts and disclosures regarding impacts are therefore fully or, when full alignment was not possible due to the content of the CSRD legal mandate, closely aligned.

For impact materiality, an assessment performed under GRI constitutes a good basis for the assessment of impacts under ESRS.

International instruments (UN, OECD)

In an effort to enhance further alignment and convergence for companies in relation to due diligence expectations, ESRS also take account of the international instruments of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises to the greatest extent possible, as required by the CSRD, without prejudice to the EU legislative processes regarding sustainability due diligence (the EU directive CSDDD).

ESRS – the most comprehensive one-stop-shop sustainability reporting standards

As such, ESRS are currently the most comprehensive one-stop-shop reporting standards for sustainability-related impacts, risks and opportunities – covering 10 topics, including more than 90 sub-topics to be assessed (ESRS 1, AR 16) and potentially material for a company and/or its many different stakeholders.

ESRS are also the only standards requiring assurance.

In addition, ESRS prescribe a scienced-based methodology to increase sustainability strategy execution success, a pre-requisite to improving actual sustainability performance: the activity-based Minimum Disclosure Requirements (MDR, sections 4.2 and 4 in ESRS 2) for Policies, Actions (including resources) and Targets (PATs).

As an example – and going well beyond IFRS S2 – ESRS E1 requires companies (in addition to ESRS 2 MDR-A) to detail climate change mitigation actions taken in the reporting year and planned for the future,

• presented by decarbonisation lever (e.g., energy or material efficiency and consumption reduction, fuel switching, use of renewable energy, phase out or substitution of product and process) including the nature- based solutions
• describing the outcome of the actions for climate change mitigation, including the achieved and expected GHG emission reductions
• relating significant monetary amounts of CapEx and OpEx required to implement the actions taken or planned
• stating whether the GHG emission reduction targets are science- based and compatible with limiting global warming to 1.5°C
• stating which framework and methodology have been used to determine targets and what the underlying climate and policy scenarios are. 

Increasing your chances of succeeding

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

Indeed, time and time again, research findings conclude that strategies only have a 30% chance of succeeding, due to insufficiencies in execution. And failing to build resilient and sustainable business models is not an option.

By applying the inclusive governance model described in the ESRS Minimum Disclosure Requirements, the success rate increases.

Already in the 90’s, the Harvard strategy expert, Michael Porter, described the essence of strategy as “deliberately choosing a different tailored set of activities to deliver a unique mix of value”, and defined strategy as “an activity system”. (Porter, 1996, p. 64, 69-70)

To succeed, companies need to make choices and allocate resources. Resources are “intermediate between activities and advantage”, reflecting “prior managerial choices” (Porter, 1991, p. 108-109).

Empirical research has also confirmed the importance of connecting strategy to day-to-day activities and resource allocation. In successfully executing companies, 77% effectively translate their strategy into operational mechanisms and monitor day-to-day progress (HBR, The Gap Between Strategy and Execution, 2017, p. 62).

So, when disclosing on ESG policies, actions, targets and metrics in accordance with ESRS Minimum Disclosure Requirements, it is important to keep in mind that doing this right will not only help companies with ESRS reporting. It will help them to successfully craft and execute strategies and increase overall performance.

Reporting is only a means to an end, not the end

While all standards concerned with sustainability are important steps in the right direction – if you really want to show the market and your stakeholders that you are serious about sustainability, ESRS is currently your best option.

With a multi-stakeholder approach, and an IRO-, policy-, target- and activity-based methodology, as well as information on key elements of the entity’s strategy that relate to or affect sustainability matters, ESRS provide increased transparency and reliability for management, stakeholders, investors and financial institutions.

If you are aiming for a good ESG rating and access to sustainable finance, now is the time to dig in.

Indeed, the Ellsberg paradox – a deviation from the model of rational choice – is a demonstration that a person “tends to prefer choices with quantifiable risks over those with unknown, incalculable risks”.

In other words, we are more likely to bet on an outcome with unfavorable odds, than on one where we do not know the odds at all.

This goes to show that ignorance of the future carries a cost today: ambiguity makes risks uninsurable, or at the very least expensive. The less insurers know about risks, the more capital they need to protect their balance-sheets against possible losses. The same reasoning is likely to be true also for investors.

ESRS is a major opportunity to build awareness, resilience, efficiency and sustainable growth opportunities.

So, with or without Omnibus, it’s important to keep in mind that reporting is only a means to an end, not the end.

Setting up the management and control systems needed to identify, govern and manage your sustainability-related impacts, risks and opportunities, is needed to future-proof your business and safe-guard your competitive advantage.

And you will need the support of a fit-for-purpose ESRS-ready sustainability strategy, governance & reporting software to guide you, save time, increase decision-usefulness and decrease your burden ➡ Cleerit ESG.

#getCSRDready, #CSRD, #ESRS, #ESG, #Strategy, #Governance, #SustainabilityReporting, #Digitalisation, #Cleerit

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You are welcome to follow our page for more information and advice on CSRD & ESRS: https://www.linkedin.com/company/cleerit

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 >>>

#getCSRDready, #CSRD, #ESRS