EU Introduces New Standards for Sustainability Reporting

The European Commission has taken action to deliver a sustainable European Union economy by adopting the European Sustainability Reporting Standards (ESRS) that all companies within the jurisdiction must comply with based on the Corporate Sustainability Reporting Directive (CSRD).

The CSRD came into force on January 5, 2023, and aims to modernise how large companies and small to medium-sized enterprises are required to report on sustainability.

What are the European Sustainability Reporting Standards?

The ESRS covers environmental, social, and governance (ESG) issues, such as climate change, biodiversity, and human rights. These three topics include reporting on a wide variety of topics:

• Environmental: Greenhouse gas emissions, climate risks, ecosystem impacts, and biological diversity conservation efforts. We have already created a guide to help businesses calculate their carbon emissions.
• Social: Employee well-being, diversity, and community engagement
• Governance: Human rights topics such as supply chain ethics, labour practices, and human rights due diligence.

The standards also provide stakeholders with information to make informed choices about achieving sustainable finance and promoting transparency, accountability, and responsible business practices.

The ESRS aims to align with existing international reporting frameworks, such as the Global Reporting Initiative (GRI), reducing reporting campaign duplication. To cater to companies’ diverse natures; new standards will be phased in to allow for smoother integration.

How Can Organisations Ensure Compliance with ESRS?

Ensuring compliance with ESRS is possible for any organisation if they implement the following measures:

Establish Internal Processes

Collect, verify, and report sustainability data and implement appropriate controls for the accuracy and consistency of reported information.

Collect and Monitor Relevant Data

Across the ESG dimensions, centralise it using appropriate tools or platforms to analyse it efficiently.

Conduct a Materiality Assessment

Identify and prioritise the most significant ESG risks and opportunities for the company and its stakeholders.

Align With Other Frameworks

Measure ESRS against other prestigious reporting frameworks, such as the Global Reporting Initiative or Sustainability Accounting Standards Board, to compare it with the existing best practices.

Enhance Credibility

Use external assurance or independent auditors to verify reported data and minimise the risks of greenwashing.

Engage with Stakeholders

Check-in regularly with stakeholders, including investors, employees, customers, and communities, to ensure that their expectations/concerns related to sustainability are properly addressed.

Consequences of Non-Compliance With ESRS

Non-compliance with the European Sustainability Reporting Standards (ESRS) can have significant consequences for companies.

Regulatory authorities may impose monetary fines on businesses that fail to meet sustainability reporting requirements. For example, under the CSRD, companies that fail to comply with reporting requirements can face penalties of up to 1% of their annual turnover.

Serious cases can result in legal action by the regulatory body or affected parties and damage to the company's reputation and brand image among investors, customers, and other stakeholders.

How Will ESRS Impact Organisations Worldwide?

The ESRS could impact non-EU countries and multinational corporations massively. Additionally, companies located or listed in EU member states and non-EU companies with significant operations in the EU could also be affected.

The non-EU companies with a net turnover of 150 million Euros in the EU and at least one branch or subsidiary in the EU fall within the remit of the ESRS standard.

Large companies with more than 500 employees, either EU public interest entities or non-EU companies with equity securities or debt on an EU-regulated market, must report by the ESRS for the financial year commencing January 1, 2024.

Other large companies are planned to report in line with ESRS with phased implementation from January 1, 2025, and list SMEs after January 1, 2026. However, companies outside the EU with significant operations and a set turnover will report after January 1, 2028.

How to Protect from Further Changes in Environmental Legislation?

The EU's ESRS provides a comprehensive sustainability reporting framework on governance, strategy, impacts, risks, and metrics that relevant companies must adapt to meet this requirement. Not adapting to the times can lead to serious consequences such as possible monetary fines, brand damage, and loss of trust with stakeholders.

To protect against future legislation changes, we strongly encourage organisations to invest in quality environmental training courses such as the IEMA Certificate in Environmental Management. With pass rates consistently over 92%, our version of the course ensures you will know how to:

• Explain environmental principles and their relationship with organisations, products, and services.
• Explain significant policy and legislation and their implications for organisations, products, and services.

Not only this, learners will be able to reduce business costs whilst also making aa positive impact on the environment. Our course page below has a guide to the full syllabus and business benefits, as well as a demo of the course.

About the Author 

Enock Ebbah MSc has a wealth of combined experience, having spent 13 years developing and delivering energy, environment and sustainability projects, energy research and responsible engineering. His specialist expertise in strategic Net Zero solutions, energy transition, decarbonisation initiatives, and sustainable approaches to using energy, materials, and resources for sustainable development. As an Environment and Sustainability Consultant at Astutis, Enock helps organisations deliver ambitious environment, sustainability, and Net Zero outcomes by providing environmental assessments, environmental and sustainability training, ESG materiality assessments, and sustainability reporting and strategy.