Part 1: Overview of ESRS
The new European standard for sustainability reporting, ESRS, is now in effect. Over the next few years, the standard will become mandatory for over 50,000 European companies, including around 4,000 in Sweden.
Many companies are now asking – what does it mean for us?
Larger companies of public interest are required to start sustainability reporting for the fiscal year 2024. For them, there is not much time left to conduct the analyses and adjustments required. Reporting for other large companies that are not listed begins from the fiscal year 2025. While this may seem like a longer timeframe, many companies have significant adjustments to make and are in the midst of preparations and analyses. Suppliers and customers will also start demanding higher standards in their value chain in connection with this. If your company has not started yet, it is high time to assess what it will mean for you.
ESRS – Brief Facts
ESRS is a new common European standard for sustainability reporting. The standard is based on the European directive CSRD that came into effect in January 2024.
ESRS consists of 12 standards and over 1000 data points to report on.
ESRS is a crucial part of the EU's efforts and goals to achieve net-zero greenhouse gas emissions by 2050.
There hasn't been a common standard for reporting sustainability data in the same way there is for financial reporting.
The purpose is to increase transparency, quality, and comparability in non-financial reporting.
Include more companies under mandatory requirements for sustainability reporting.
Larger companies/groups of public interest with more than 500 employees: Fiscal year 2024 (reporting 2025), e.g., listed companies, banks, and credit institutions.
Other larger companies/groups: Fiscal year 2025 (reporting 2026). Larger companies should meet two out of three criteria: more than 250 employees, 40 MEUR in turnover, 20 MEUR in assets.
Listed small and medium-sized companies, small and non-complex credit institutions, and some insurance companies: Fiscal year 2026 (reporting 2027) with exceptions possible.
Non-European companies not listed on an EU-regulated market: Fiscal year 2028 (reporting 2029).
Provides information for investors, consumers, employees, and other stakeholders.
Makes sustainability information comparable and transparent across companies.
Integrates sustainability into core operations and business models.
Includes the entire value chain.
Incorporates social aspects in reporting to a greater extent than before.
Materiality Analysis – What Are Our Material Issues?
ESRS places significant demands on organizations, especially in the initial stage with what is called materiality analysis. Since the standard applies to companies regardless of industry or sector, sustainability risks and opportunities can vary between companies. Therefore, companies will report on data related to the sustainability issues, risks, and opportunities that are material to their specific company. This process – materiality analysis, which should be based on double materiality, will initially take time and commitment from companies. In the analysis, which should consider both how the company impacts its surroundings and how it is influenced by its surroundings, the double materiality analysis should include the entire company's value chain, requiring the involvement of many key personnel.
New Requirements for the Organization – Sustainability in Focus
We see that ESRS brings about a change in organizations and how they work with sustainability, especially for companies that have not previously conducted sustainability reporting or actively worked on sustainability risks.
Since large amounts of information need to be collected from the entire company, new demands are placed on the organization and processes. Instead of having a sustainability manager, department, or similar responsible for data collection and reporting, many more individuals now need to be involved. We believe this will increase the need for resources that focus entirely or partially on working with sustainability issues on a daily basis. There is also a need to include sustainability in many core processes and decision-making forums within companies. New requirements are placed on management to be involved and informed about sustainability issues, likely leading to new information needs and flows. Hopefully, this will mean that both employees, the management team, and the board have sustainability on their daily agenda and continuously work on sustainability issues.
At Spearhead, we have practical experience from creating sustainability reporting functions for Swedish companies and can support you throughout your ESG-agenda.
Want to know how your organization can use ESG to stay ahead? Reach out to email@example.com and we'll tell you more.