Important news for legal counsels dealing with ESG matters: EU Commission adopts first set of European Sustainability Reporting Standards (ESRS)
02/08/23
As we have explained before, ESG as a hard law instrument, deserves and is starting to receive more and more attention from #legalcounsels who are responsible for managing risk and governance in their organisations.
On 31 July, the European Commission officially adopted the first set of the European Sustainability Reporting Standards (ESRS). The ESRS were developed by EFRAG and were submitted to the European Commission in November 2022. These standards are of tremendous help, for instance for the legal counsels, when it comes to understanding the many concepts laid down in the recent Corporate Sustainability Reporting Directive (CSRD) which is being transposed into National law in the EU Member States. However, it remains a complex legal landscape to navigate. The CSRD and the ESRS aim to bring sustainability reporting on a par with financial reporting over time. Sustainability reporting will give stakeholders comparable, reliable information about a company’s sustainability-related impacts, risks and opportunities. Hence, it is important for the legal counsels to address this in their internal due diligence processes and governance upskilling where needed.
The adoption of the ESRS comes after consultations with EU Member States as well as various EU bodies such as the EU Supervisory Authorities, the European Environment Agency and the European Union Agency for Fundamental Rights.
In parallel with the adoption of ESRS, the European Commission has also released a comprehensive Q&A document to assist companies in understanding and implementing the new reporting standards effectively. The Q&A publication offers practical guidance, clarifications and examples to help organisations to seamlessly navigate the reporting requirements.
The version of the EFRS which has been adopted contains some slight changes compared to the draft version submitted by EFRAG. For example, the Commission has introduced some additional phase-in provisions for some of the reporting requirements, on top of certain phase-in provisions already proposed by EFRAG. These additional phase-ins mainly apply to companies with fewer than 750 employees as the costs are relatively high for these companies in comparison to large companies. The additional phase-in provisions give companies more time to prepare, allow them to spread the initial costs over a number of years and should result in higher quality reporting.
EFRAG will periodically publish additional non-binding technical guidance on the application of the ESRS. The Commission has suggested that EFRAG should prioritize the development of guidance on materiality assessment and on reporting with regard to value chains. It is expected that EFRAG will draft additional guidance on these topics soon. Furthermore, EFRAG will host a portal for any technical questions that companies or other stakeholders may have on the application of the ESRS. Whether this portal will be able to offer binding opinions on specific situation-related questions remains to be seen. It would be worth exploring this binding ruling approach given the expected high volume of questions on unclear matters.
If you have any legal questions on the application of the ESRS or other ESG-related topics such as the CSRD and the CSDDD, feel free to get in touch with any of our ESG Legal specialists at PwCLegal: for the E @ElsEmpereur, for the S @JessicaDeBels for the G @PierreQueritet (see also PwC Legal ‘Talk in Legal’ podcast).
Brussels, 2 August 2023
@PierreQueritet @QuintenSmits - PwCLegal Corporate M&A and ESG
Quinten Smits
