- The European Union has introduced regulations to include non-financial factors in company reports.
- The CSR Directive extends ESG reporting obligations to around 50,000 EU companies and requires more detailed reporting of non-financial results compared to the previous NFRD.
- The CSRS Directive will be implemented progressively from 2025 to 2029.
- The European Sustainability Reporting Standards (ERSR) harmonize standards for ESG reporting.
- Sectoral rules and simplified rules for SMEs are expected to be published in the near future.
- By implementing the new ESG rules, companies can expect to gain an edge over their competitors when bidding or raising capital. Taking ESG categories into account will enable companies to make better strategic decisions.
More details below.
Differences between regulations and standards
Although the ESG acronym has been around since 2004 and is part of the 2015 UN initiative Agenda 2030 and although by definition it touches on aspects such as environmental impact, social issues and corporate governance standards, the lack of global ESG standards has been a huge obstacle to ESG having real business value.
The European Union, observing this problem, decided to establish appropriate regulations for economic operators regarding ESG information. The rules aim to extend financial statements to include non-financial factors, i.e. to extend companies’ responsibilities to include sustainability, social and corporate responsibility issues. The rules, in turn, address the way in which ESG should be included in reports.
Basic ESG regulations
The regulation was introduced in two phases: in 2017, a directive NFRD (English: Non-Financial Disclosure Directive ) was published, which imposed an obligation on public interest entities (PIEs) to submit annual telegram number list reports and key performance indicators. In doing so, it did not impose a specific reporting model, but instead encouraged the use of already existing frameworks, such as for example Iniciativa Mundial de Presentación de Informes (GRI) or Marco de información integrada (IRF). By law, 150 of the largest companies in Poland were covered, and 11,700 in the European Union as a whole.
There is no doubt that the NFRD has contributed to improving the availability g in esg– corporate governance and sustainability of ESG information among EU companies . However, many stakeholders (including investors) expressed concerns that the information disclosed by companies was insufficient and difficult to compare due to the lack of a common, standardised ESG reporting standard. In addition, there was a need to align the NFRD requirements with provisions introduced at later stages within the framework of the EU Sustainable Finance Strategy, i.e. the EU Taxonomy and the SFDR.
Instead a CSRD was introduced.
What makes it stand out on the EU regulatory map? The CSRD significantly gambler data vexpands the scope of non-financial reporting, increasing the number of entities covered by ESG reporting and broadening the scope of sustainability reporting. It applies to around 50,000 companies listed in the EU or with significant activities in the Union, regardless of where they are based. Under the Directive, these companies are required to report on their non-financial results more comprehensively than was required under previous legislation. In order to allow time for the implementation of ESG aspects in corporate entities’ reporting, the Directive will be introduced gradually:
In order to pursue the sustainable development goals set out in the Paris Agreement (i.e. aiming for climate neutrality by 2050 at the latest) and in the 2030 Agenda, the European Union has introduced an EU Taxonomy which aims to standardise the classification system for companies’ sustainability reporting standards. The EU Taxonomy determines whether a company can be defined as environmentally sustainable if it contributes significantly to one of the 6 environmental issues objectives:
- Mitigating climate change
- Adaptation to climate change
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
At the same time, the company must not undermine any of its other objectives and must operate in accordance with minimum safeguards, such as OECD guidelines, UN principles and fundamental ILO conventions.
Key ESG standards
At th end of July 2023, the European Commission approved the European Sustainability Reporting Standards (ESRS) , resulting in an officially approved set of ESG reporting guidelines. The ESRS unify reporting standards, which were previously diverse and inconsistent. The full document consists of 12 documents, including two cross-cutting documents discussing the fundamentals of ESG standards and 10 focusing on thematic standards
The European ESG reporting standards contained in the ESRS link to the TCFD and ISSB through a similar regulatory structure, to ensure interoperability of global ESG standards. The requirements included in the ESRS cover areas