The European Securities and Markets Authority (ESMA) has issued a statement urging companies to prepare for the new sustainability reporting requirements introduced by the European Union’s Corporate Sustainability Reporting Directive (CSRD). This directive marks a significant expansion in the scope of reporting obligations, now encompassing over 50,000 companies, a notable increase from the previous 12,000 under the Non-Financial Reporting Directive.
Effective from the beginning of 2024, the CSRD mandates large public-interest entities with more than 500 employees to comply with comprehensive sustainability reporting requirements. Smaller firms will follow in subsequent years based on their size and revenue thresholds. The directive aims to enhance transparency by requiring detailed disclosures on environmental impacts, social standards, human rights, and sustainability-related risks.
ESMA stresses the critical importance for companies to establish robust data collection and management systems. This includes conducting rigorous materiality assessments to identify and report on both the risks posed by sustainability issues to the enterprise and the company’s impacts on the environment and society—a framework known as “double materiality.”
Furthermore, ESMA emphasizes the necessity for companies to ensure transparency during the transition period provided by the CSRD’s initial implementation years. They encourage firms to prepare digitization-ready sustainability statements that align seamlessly with financial disclosures. ESMA also underlines the integration of financial and sustainability information, stressing the need for clear and structured reporting that facilitates understanding of the current and anticipated financial impacts of sustainability issues.
In addition to these guidelines, ESMA has also issued its Final Report on the Guidelines on Enforcement of Sustainability Information (GLESI), aimed at providing supervisory bodies with clear guidelines for enforcing sustainability reporting regulations effectively.
Overall, ESMA’s guidance underscores the importance of proactive preparation by companies to meet the stringent new requirements of the CSRD, ensuring robust compliance and transparent reporting on sustainability impacts.