EU markets regulator the European Securities and Markets Authority (ESMA) announced the issuance a Public Statement on the first application of the European Sustainability Reporting Standards (ESRS), aimed at helping companies prepare for new sustainability reporting and supervisory requirements under the EU’s Corporate Sustainability Reporting Directive (CSRD), with the first reports set to begin next year.

The CSRD is a major update to the EU’s Non-Financial Reporting Directive (NFRD), the previous EU sustainability reporting framework, significantly expanding the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000, and introducing more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk. The CSRD took effect from the beginning of 2024 for large public-interest companies with over 500 employees, with the first reports to be issued in 2025, followed by companies with more than 250 employees or €40 million in revenue in the following year, and listed SMEs one year later.

The CSRD also introduces a “double materiality” approach to sustainability reporting, which includes reporting both on the risks and impact of sustainability issues on an enterprise, as well as on the enterprises’ impacts on environment and society.

The new publication highlights key areas of relevance for companies preparing to issue their first CSRD reports, including the establishment of governance arrangements and internal controls, designing and conducting materiality assessments, being transparent about transitional reliefs provided by the regulation in the first years of application, preparing a digitization-ready sustainability statement, and creating connectivity between financial and sustainability information.

In several areas of the report, ESMA stresses the importance of preparing data collection and management systems to meet the requirements of the CSRD. In the report, ESMA states:

“ESMA acknowledges that meeting the data availability and quality demands stemming from the ESRS requirements may be challenging upon first-time application of the ESRS. These demands will require the development or strengthening of their sustainability data collection and control infrastructure.”

Among the key pieces of guidance provided in the report is a call for issuers to “carefully set up their systems of data collection and analysis, as well as internal controls” in order to meet the ESRS’ detailed reporting requirements and to conduct double materiality assessments. The regulator stressed that even companies that have experience with sustainability reporting under prior regulatory systems should assess if there existing systems are still fit-for-purpose under the CSRD.

The CSRD regulation includes transitional relief for the first three year of reporting for companies unable to obtain information from their upstream and downstream value chains    . In the report, ESMA encourages companies to perform gap assessments regarding value chain information in order to enable continuous improvement as they begin reporting, and reminds issuers that “the ESRS do not envisage cases in which the lack of data justifies the omission of disclosure of material information.”

Additional areas of guidance highlighted in the report included a need for companies to reconsider the materiality process, particularly to meet the needs of the CSRD’s double materiality reporting requirements, and to provide full transparency on the materiality process. ESMA also noted the need for sustainability reports to be clearly structured and digitization-ready, and for companies to ensure the connectivity of financial and sustainability information, including being able to report connections within the sustainability statement as part of the disclosures on current and anticipated financial effects.

In addition to the ESRS report, ESMA also issued its a Final Report on the Guidelines on Enforcement of Sustainability Information (GLESI), setting guidelines for supervisory bodies on enforcing sustainability information regulations.

Click here to access the reports.