CSRD, EFRAG, and ESRS will fundamentally change corporate reporting in the EU:
Sustainability reporting will be significantly upgraded and treated on an equal footing with financial reporting. After presenting the basics in our previous blog post in Volume 1: CSRD, EFRAG & ESRS - Frequently Asked Questions Vol. 1 , let's now focus on what the content changes are for companies that must report.
- Material topics predefined by sector:
The ESRS draft prescribes which material topics apply by sector. Companies must report on a topic-by-topic basis by sector. If companies do not want to/can not report, this must be justified, e.g. based on their own materiality assessment.
- Core business model in focus:
ESRS no longer distinguishes sustainability from core business. Companies must describe their core business, business model and strategy, and reflect the importance and impact of the core business on sustainability.
- 1.5° climate targets to be set:
Given the urgency of the climate crisis, all companies will be required to report on climate targets and actions, as well as the 1.5° adjustment of these targets.
Environmental criteriataxonomy adjusted:
The environmental criteria are aligned with the six environmental objectives of the EU taxonomy: 1. climate change, 2. pollution, 3. water and marine resources, 4. biodiversity and ecosystems, 5. resource use and circular economy.
- Social criteria added for end users:
Social criteria include 1. own workforce, 2. workers in the value chain, 3. affected communities, and - new - 4. consumers and end users. These companies must report on how they impact consumers and end-users on material issues such as health, safety, or end-user rights.
- Governance criteria expanded:
Existing governance issues such as anti-corruption, anti-competition, or political lobbying are enriched with new aspects such as payment behavior towards suppliers: thousands of SMEs go bankrupt because large corporate customers with long payment terms pay late, leading to significant economic damage in the EU.
ESRS is still in draft status and further changes are expected as it progresses. But it is clear that ESRS builds on and extends existing standards. Companies that are just starting to report can therefore prepare for ESRS by starting with initial reporting cycles, using existing reporting standards such as DNK or GRI.
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