Delegated Regulation (ESRS) on reporting standards for sustainability information 2023/2772

Commission Delegated Regulation (EU) 2023/2772 (ESRS) European Sustainability Reporting Standards of 31 July 2023, supplementing Directive 2013/34/EU of the European Parliament and of the Council with regard to reporting standards for sustainability information.

This regulation enters into force on the third day after its publication in the Official Journal of the European Union. It applies from 1 January 2024 for accounting years beginning on or after 1 January 2024.

This regulation focuses on the reporting of sustainability information by businesses. The main goal is ensure transparency and comparability of information about how businesses affect aspects of sustainability and how these aspects affect their operations.

Basic principles of the regulation

The regulation introduces several key principles for reporting sustainability information:

• Double significance: Businesses must report sustainability aspects based on the principle of double significance. This principle has two dimensions: the significance of the impact a financial significance. This means that they must consider both the impacts of the business on the sustainability aspects and the impacts of the sustainability aspects on the business.
• Value chain: The sustainability statement must cover the entire value chain of the business, not just its own operations. This means that businesses must consider impacts and dependencies throughout their supply chain.
• Time horizons: The regulation emphasizes the link between past, present and future in the reporting of sustainability information. Businesses must consider short, medium and long-term impacts, risks and opportunities.

Structure of the regulation

The Regulation introduces the European Sustainability Reporting Standards (ESRS), which are divided into three categories:

1. Cross-sectional ESRS: They establish general requirements for reporting information on sustainability. This includes a description of the procedures for identifying and assessing significant impacts, risks and opportunities related to environmental pollution, water and marine resources a resource use and circular economy.
2. Thematic ESRS: They focus on specific sustainability topics. Examples include:
   • Pollution of the environment: Businesses must report information on how they affect air, water and soil pollution, what measures they have taken to mitigate negative impacts and what the expected financial impacts are.
   • Water and marine resources: Disclosure of information is required on how the company affects water and marine resources, what measures it has taken to protect them and what the expected financial impacts are.
   • Resource utilization and circular economy: Businesses must report on their impact on the use of resources, on measures to support the circular economy and on expected financial impacts.
   • Own workforce: The regulation also focuses on social aspects, requiring the publication of information on the effects on the own workforce, on measures to ensure good working conditions and on risks and opportunities related to employees.
   • Workers in the value chain: Businesses must also consider their impact on workers throughout their value chain, including suppliers. They must inform about the measures to ensure their rights and the risks and opportunities associated with it.
   • Affected communities: The regulation also emphasizes the responsibility of businesses towards the communities in which they operate. Businesses must disclose information about impacts on these communities, about measures to mitigate negative impacts, and about risks and opportunities.
   • Consumers and end users: Another important topic is the impact on consumers and end users of the company's products and services. Disclosure of information on impacts on their health, safety and privacy, on measures to protect their interests and on risks and opportunities is required.
   • Business Conduct: The regulation also deals with the ethical aspects of business. Businesses must communicate their strategy and practices in areas such as supplier relationship management, anti-corruption and bribery, and payment procedures.
3. Sectoral ESRS: They will be developed later and will apply to specific industries.

Content of the sustainability statement

The sustainability statement must include information on:

• Measures and resources related to significant aspects of sustainability: Businesses must describe the measures they have taken to address significant aspects of sustainability and the resources allocated to their implementation. The goal is ensure understanding of key measures taken to prevent, mitigate and correct negative impacts, as well as to take advantage of opportunities.
• Metrics and target values: The regulation requires businesses to set measurable targets and indicators to track their sustainability progress. The goal is monitor the effectiveness of policies and measures through target values.
• Processes for identification and assessment of materiality: Businesses must describe their procedures for identifying and assessing the significance of sustainability impacts, risks and opportunities.
• Disclosure requirements in other ESRS: Businesses must identify and list any disclosure requirements in other ESRS that they have met.

Transitional provisions

The regulation contains transitional provisions that allow companies to phase in certain disclosure requirements. For example, in the first year (first year) of a sustainability statement under the ESRS, some disclosure requirements or data points may be omitted or may not apply. The list of gradually introduced disclosure requirements is provided in Appendix C to the Regulation.

Application requirements

The regulation also contains application requirements that provide more detailed guidance on individual aspects of reporting sustainability information. These application requirements are listed in Appendix A to the regulation and have the same validity as other parts of the standard.

Important concepts

The regulation introduces and defines several important concepts related to sustainability. Some of these include:

• Double significance: A principle that requires businesses to consider both their impacts on aspects of sustainability and the impacts of aspects of sustainability on them.
• Significance of influence: It focuses on how the business affects the economy, environment and society.
• Financial significance: Assesses how aspects of sustainability affect a company's financial situation, performance and cash flows.
• Value chain: It includes all entities and activities that are involved in the life cycle of a product or service, from the acquisition of raw materials to the disposal of waste.
• Stakeholders: Individuals or groups that can influence or be affected by the business. These include, for example, employees, suppliers, customers, investors and local communities.
• Sustainable oceans and seas: A concept that emphasizes the responsible use and protection of marine resources and ecosystems.

Conclusion

The Sustainability Reporting Regulation represents a significant step towards a more transparent and responsible business practice. The introduction of ESRS and the emphasis on dual materiality, value chain and time horizons provide a comprehensive framework for reporting sustainability information. It is important that businesses thoroughly understand the requirements of the regulation and have the necessary processes and systems in place to ensure compliance. Spring