European Sustainability Reporting Standards (ESRS)

The ESRS (European Sustainability Reporting Standards) represent a new chapter in how companies address and communicate their environmental, social, and governance (ESG) impact. These standards, driven by the European Union, aim to standardize the non-financial information that companies must disclose, making it more comparable, transparent, and reliable for investors and other stakeholders.

Why are the ESRS important?

The ESRS are a key component of the European Green Deal and its goal of achieving climate neutrality by 2050. By requiring companies to report on their sustainability performance, the ESRS aim to:

• Improve ESG risk management: By requiring companies to assess and disclose their ESG risks, the ESRS promote better risk management and greater business resilience.
• Guide investments toward sustainable companies: Standardized information makes it easier for investors to compare companies' ESG performance, allowing them to make more informed and responsible investment decisions.
• Promote transparency and accountability: By making ESG information more accessible and comparable, the ESRS increase corporate transparency and accountability to stakeholders.

Which companies must comply with the ESRS?

The ESRS apply to a wide range of companies, including:

• Publicly listed companies on regulated EU markets.
• Large companies that meet at least two of the following criteria:
  • More than 250 employees.
  • A net turnover exceeding €40 million.
  • A total balance sheet of more than €20 million.

It is important to note that the ESRS will also indirectly affect many small and medium-sized enterprises (SMEs) that are part of the supply chains of larger companies subject to the regulation.

How are the ESRS structured?

The ESRS are structured around two main pillars:

• Cross-cutting standards: These establish general principles for sustainability reporting, including materiality, data quality, and information disclosure.
• Sector-specific standards: These address sector-specific ESG impacts, risks, and opportunities.

Implications for carbon footprint measurement

The ESRS have significant implications for the measurement and management of the carbon footprint. The standards require companies to disclose detailed information about their greenhouse gas (GHG) emissions, including:

• Direct emissions from the company itself (Scope 1 emissions).
• Indirect emissions from purchased energy consumption (Scope 2 emissions).
• Indirect emissions throughout the value chain (Scope 3 emissions).

Additionally, the ESRS require companies to set science-based emission reduction targets and report on their progress toward achieving these goals.

How to prepare for the ESRS

Companies should start preparing for the ESRS as soon as possible. This includes:

1. Familiarizing themselves with the standards and their requirements.
2. Assessing their current maturity level in ESG reporting.
3. Identifying data gaps and developing processes to collect the necessary information.
4. Integrating sustainability into corporate strategy and operations.

The ESRS represent a significant shift in the sustainability reporting landscape. By providing a standardized framework for ESG disclosure, the ESRS aim to enhance transparency, accountability, and corporate action toward a more sustainable future.

Companies that proactively adopt the ESRS will be better positioned to mitigate risks, seize opportunities, and thrive in the future economy.