Who will be covered by the new standards?
The new standards will apply to all companies subject to the Corporate Sustainability Reporting Directive (CSRD). These are small and medium-sized enterprises (SMEs)[1] listed on a stock exchange, and their specificities will be taken into account. The CSRD also applies to large companies[2] that are either an EU company or an EU subsidiary of a non-EU company. The third category to which the CSRD applies is insurance companies and credit institutions, whatever their legal form.
SMEs that are not subject to the CSRD will not be bound by the European Sustainability Reporting Standards but can report on their progress on a voluntary basis.
When will the reporting standards apply?
The ESRB will come into force between 2024 and 2028, depending on the type and size of the company. The transition will take place in three phases:
- 1 January 2024 - the standards will apply to all companies already subject to the Non-Financial Reporting Directive, such as large listed companies, large banks and large insurance companies (all with more than 500 employees),
- 1 January 2025 - application of the standards to large companies that are not currently subject to the Non-Financial Reporting Directive,
- 1 January 2028 - the standards will apply to large companies from third countries.
What are the key highlights of the new standards?
Basic principles have been retained in the new standards, e.g. dual materiality (companies are bound to report on their environmental and human impacts as well as financial materiality) and the requirement to report from across the value chain on a wide range of topics.
There are 12 standards covering different areas, e.g. pollution, workers along the chain, consumers and end-users, business conduct, resource use and circular economy, etc.
Some content from previous versions has been simplified, eliminated or updated. Thus, the key innovations of the new standards are:
- Making some disclosure requirements voluntary (e.g. biodiversity transition plan).
- Certain mandatory disclosure requirements (i.e. disclosures that are not subject to materiality assessment) have become subject to materiality assessment (e.g. climate change). In practice, for companies this is means that if they are obliged to report on sustainability under the Directive and find that a particular change is not a relevant topic for them and therefore will not report on it, they must explain this assessment.
- Introducing phase-in relief to give companies, especially smaller ones, more time to implement data collection and reporting procedures, the first set of ESRBs introduces relief for one, two or three years.
[1] SMEs: less than 250 employees and a net turnover of EUR 50 million or an asset value of less than EUR 43 million.
[2] A large company is defined in Directive 2013/34/EU.
Summary
The new standards will apply to all companies subject to the Corporate Sustainability Reporting Directive and will allow users of the sustainability statement to understand the significant impacts of individual companies on the people and the environment.
