Attentive readers of our newsletter noticed a week ago that something important was getting ready. In fact, that's what happened (which is why we're sending today's newsletter on Tuesday instead of the usual Monday): The European Commission issued a delegated act introducing the ESRS, or European Sustainability Reporting Standards. They supplement the CSRD and, according to them, companies will report on ESG issues starting next year.
The creation of the standards began in September 2020 - almost three years ago. Back then, at the Commission's request, a PTF-NFRS project working team was established at EFRAG. This team took six months to develop a proposal for the architecture of a new system for reporting sustainability issues, and later (after it became PTF-ESRS) worked on the content of the first set of standards. The draft standards were submitted for public consultation in April 2022, and subsequently modified. EFRAG submitted the results of its work to the EC in November 2022. Since then, the standards have been in the hands of the Commission, which made a number of changes to them and submitted them for further public consultation on June 9. Today we know the final content of the standards, and they can be consulted at Commission's website or on the MATERIALITY website.
We have already written about the changes, that the Commission made to the draft submitted in November 2022 by EFRAG. Further changes, made in the final straight, are minor. First, if, as a result of the materiality study, a company determines that climate change issues are insignificant in its case (i.e., it will not apply the ESRS E1 standard in its report), it must include an appropriate justification in the report. Second, if, as a result of the materiality test, the company determines that the data used by financial market participants to carry out their disclosure obligations (i.e., the data required by the SFDR, BMR or CRR regulations) is not material in its case, then it will not be able to simply omit such data, but will have to explicitly include a statement that it is „not material” („not material”) - only that without detailed justification.
The regulation issued by the Commission is subject to the right of scrutiny by the European Parliament and the Council (the so-called scrutiny period is now underway). This means that these two legislative bodies may, after reviewing the content of the regulation, express their objections, but may not propose any changes to the content of the legal act. Only after the expiration of the relevant period will the regulation be published in the Official Journal of the EU. However, no complications are expected, and the Commission has chosen the timing of the regulation so that its publication will still take place in 2023. The standards will apply to sustainability reports for the fiscal year beginning on or after January 1, 2024, which means, for most companies subject to the obligation, to reports for 2024 published in the first months of 2025.
The handle has fallen. The CSRD is in effect. The Commission has issued the standards. If anyone was still waiting for something, the procrastination is really over. It's time to prepare for reporting according to ESRS standards.
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