CSRD ESRS – „just“ new regulation or opportunity?

CSRD ESRS – the new ESG Reporting Standard

Feeling overwhelmed by the increasing number of ESG legal abbreviations like CSRD, NFRD, ESRS? The incorporation of ESG reporting into national laws as a regulation, with all its positives and negatives, is accelerating. It will increasingly integrate into all types of company reporting and processes.

This article aims to provide a comprehensive overview and link to current and upcoming regulations, especially focusing on small and midsize companies. We'll also explore how Diversium can assist.

The history of non-financial reporting has been around for quite some time. For more information and a visualization of the validity timeline, visit: EU Finance. 

Brief overview of Regulations and the ESRS Standard

• NFRD (Non-Financial Reporting Directive):

  • An EU Directive from 2014 for large banks, insurance companies, and listed companies with over 500 employees.

  • Focuses on transparency in environmental impact, social responsibility, human rights, and diversity in boards.

    
    

• CSRD (Corporate Sustainability Reporting Directive):

  • An EU Directive from 2022, replacing NFRD.

  • Expands the scope of entities required to report and introduces more detailed requirements for reporting on environmental, human rights, and social standards.

  • Includes the requirement for an audit of sustainability statements.

    
    

• ESRS (European Sustainability Reporting Standards):

  • A Commission Regulation from 2023 supplements EU directives on sustainability reporting standards.

  • Covers three areas: Environmental (ESRS E), Social (ESRS S), and Governance (ESRS G), with specific areas including:

    • ESRS 1: General Requirements

    • ESRS 2: General Disclosures

    • ESRS E1: Climate Change

    • ESRS E2: Pollution

    • ESRS E3: Water and Marine Resources

    • ESRS E4: Biodiversity and Ecosystems

    • ESRS E5: Resource Use and Circular Economy

    • ESRS S1: Own Workforce

    • ESRS S2: Workers in the Value Chain

    • ESRS S3: Affected Communities

    • ESRS S4: Consumers and End-users

    • ESRS G1: Business Conduct

  • Standards for SMEs are expected in 2024, and for audits and non-EU groups in 2028.

 In the Czech Republic, for example, CSRD and the new ESRS reporting standards were approved by the legislative process within the fiscal consolidation package laws change and signed by President Petr Pavel recently. They have been incorporated into the Tax Law.

 The new ESRS standard is being defined by EFRAG and in the process of definition, it has incorporated many voluntarily created ESG "standards and norms" like GRI. What ESRS brings is the definition of requirements in several areas and, through CSRD, forces legal support into national laws.

For more information, video explanations, and the full set of Standard definitions, visit: EFRAG.

The incorporation into national laws is phased – firstly impacting large companies which are now reporting under NFRD regulation are obligated to report the year 2024 by new ESRS standards which are more complex and set new requirements. Part of the new requirements is to include the supplier chain as well in the ESG assessment under ESRS, thus affecting Small and Midsize companies which are in the position of suppliers for these large customers.

Stay tuned for more topics related ESG in practical way leading to #SustainableIT!

 How Diversium can help you?

• ESG Report creation

• Consulting ESG goals - ESRS standards

• Assesment of your Product portfolio – unlocking hidden potential and covering risks

• No buzzwording – practical approach

• Connecting business to bring pioneering #SustainableIT forward

Resources

• EFRAG: https://www.efrag.org/lab6

• Finance Europa: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en