ESG reporting: necessary reporting standards and requirements
The European Commission just adopted yet another sustainability regulation: the European Sustainability Reporting Standards (ESRS).
It can be hard to keep up with all the regulatory requirements on Environmental, Social and Governance (ESG) topics. The past few years, the EU also adopted the EU Taxonomy, the Sustainability Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and more. These regulations, among others, are part of the EU’s plan with the European Green Deal, which was adopted in 2020. Each law consists of pages upon pages of complex legal text, and many of them change week-by-week too.
Here we share an overview of some components of EU's action plan, and related initiatives.
The EU Taxonomy was introduced in 2020 and is at the forefront of the EU's sustainable finance agenda.
The purpose of the EU Taxonomy is to create transparency for how much of a company’s income and expenses are aligned with environmentally sustainable activities. This transparency is also necessary for investors who want to back more sustainable companies and to assess how sustainable an investment firm’s portfolio is.
The taxonomy covers six environmental objectives:
- climate change mitigation
- climate change adaptation
- 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
Starting January 2023, all large companies are required to report their taxonomy alignment, along with other relevant ESG related information.
Read our blog on the EU Taxonomy for a detailed overview, and how this impacts your business.
Corporate Sustainability Reporting Directive (CSRD)
The EU proposed the CSRD in April 2021 as part of its ambitious Sustainable Finance Strategy, seeing the vital role of corporate sustainability.
The CSRD expands on the existing Non-Financial Reporting Directive (NFRD) and aims to enhance the quality, comparability, and consistency of corporate sustainability reporting.
Under the CSRD:
- large companies will be required to disclose information on a broader set of sustainability matters, including social and governance aspects.
- the concept of "double materiality: is introduced, which emphasizes the consideration of both the impacts of the company on sustainability issues and the impacts of sustainability issues on the company.
The EU has outlined the following stages and timelines for the CSRD to take place:
- 1 January 2024 for companies already subject to the non-financial reporting directive (reporting in 2025 for the financial year 2024).
- 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive (reporting in 2026 for the financial year 2025).
- 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings (reporting in 2027 for the financial year 2026).
Read our blog for the detailed overview of everything companies need to know about the CSRD.
Sustainable Finance Disclosure Regulation (SFDR)
To promote transparency and prevent greenwashing in the financial sector, the EU implemented the SFDR in March 2021.
The SFDR requires financial market participants, including asset managers, to disclose information on how they integrate ESG factors into their investment decision-making processes.
It also mandates companies to classify their financial products into three sustainability categories:
- Article 6: products that do not integrate sustainability into the investment process
- Article 8: products promoting environmental or social characteristics)
- Article 9: products with sustainable investment as their objective).
The main aim of SFDR reporting for investment funds is to provide a comprehensive framework to capture ESG performance of investment funds and other financial market participants.
The framework should enable investors to make informed choices regarding the environmental and social impacts of their investment decisions, direct capital towards sustainable activities, and prevent greenwashing of financial products.
Read our blog detailing the key reporting requirements and practical tips for investment funds under the SFDR.
Global Reporting Initiative (GRI)
While not specific to the EU, the Global Reporting Initiative (GRI) plays a crucial role in promoting ESG reporting worldwide.
GRI is an independent international organization that has developed the most widely used standards for sustainability reporting. These standards help companies report their economic, environmental, and social impacts, providing a framework for disclosing information beyond financial metrics.
Many EU member states and companies adhere to GRI's reporting guidelines to ensure consistency and comparability in ESG reporting. The EU's sustainability reporting initiatives, including the CSRD, align with the GRI framework to foster global harmonization in ESG reporting practices.
Consider Celsia your trusted partner
Celsia's EU Taxonomy reporting software is specifically designed to meet all your sustainability assessment needs.
Our experts have 25+ years of experience in sustainability, and are ready to help you get started both with understanding regulatory requirements that apply to you and technical preparation that will ensure that you use Celsia to its full potential.
Click here to get in touch, or write to us at firstname.lastname@example.org today!
Principal Adverse Impact (PAI) indicators in SFDR
Read this blog to understand PAI indicators in relation to SFDR.
Transition to a green economy: key benefits & risks for businesses
Read this blog to understand the green economy transition approach and its implications for businesses.