On 31st July 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS) – the “final rules” for use by all companies subject to the Corporate Sustainability Reporting Directive (CSRD). The standards cover the full range of environmental, social, and governance issues, and they provide information for investors to understand the sustainability impacts, risks, and opportunities of the companies in which they invest. In this podcast, we discuss the environmental standards relating to the ESRS disclosures.
Job title of speakers:
To gain additional insights about this subject, be sure to explore the other episodes of the CSRD series available on the Assurance in Action Podcast network.
Follow us on- Intertek's Assurance In Action || Twitter || LinkedIn.
On 31st July 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS) – the “final rules” for use by all companies subject to the Corporate Sustainability Reporting Directive (CSRD). The standards cover the full range of environmental, social, and governance issues, and they provide information for investors to understand the sustainability impacts, risks, and opportunities of the companies in which they invest. In this podcast, we discuss the environmental standards relating to the ESRS disclosures.
Job title of speakers:
To gain additional insights about this subject, be sure to explore the other episodes of the CSRD series available on the Assurance in Action Podcast network.
Follow us on- Intertek's Assurance In Action || Twitter || LinkedIn.
Rowena Curtis Intertek 0:09
Hello and welcome to our podcast. Today, we're diving into the E in ESG related to the Corporate Sustainability Reporting Directive or CSRD requirements.
On the 31st of July 2023, the European Commission adopted the European Sustainability Reporting Standards, ESRS the final rules for use by all companies subject to the Corporate Sustainability Reporting Directive, CSRD. The standards cover the full range of environmental, social and governance issues, and they provide information for investors to understand the sustainability impacts, risks and opportunities of the companies in which they invest. In this next series of podcasts, we'll deep dive into the ESRS disclosures starting today with the environmental standards.
I'm here today with Simona Romanoschi, VP of Innovation at Intertek Business Assurance. Simona has been with Intertek for 22 years and during this time she has worked with customers globally in many sectors on the development and implementation of various innovations for supply chain assurance, verifications and risk management solutions. In more recent years, Simona has helped bring to market new innovative sustainability services to support customers in driving sustainability strategies across their own corporate and business operations, but also in working with their supply chain partners.
So, Simona, now that the ESRS have finally been adopted by the European Commission last July, can you explain to us how the ESRS are structured?
Simona Romanoschi Intertek 1:49
Yes, thank you, Rowena. Sure. So there are in total 12 ESRS. Again, European Sustainability Reporting Standards, which cover the full range of sustainability issues.
First, there are two overarching and cross cutting standards.
ESRS 1 called General Requirements, which sets general principles for reporting and cover important concepts such as double materiality.
And then there is ESRS 2, which is called General Disclosures, which specifies essential information to be disclosed by all companies under CSRD scope.
So I just mentioned there are 12 standards, so the remaining 10 are the topic standards that cover environment, social and governance and are quite detailed and cover approximately 70 specific disclosures and KPI.
There will be also sector specific standards which are being developed and will be applicable and material to all companies within a sector. This will have additional topics that are not covered today or not sufficiently covered by the topical standards as they are today.
The topic and sector specific standards and the individual disclosure requirements and data points within them are subject to a materiality assessment. This means that the company will report only relevant information, and they may omit the information in question. That is not relevant or material for its business model and activity.
Rowena Curtis Intertek 3:17
OK, so has anything changed in the final publication of ESRS?
Simona Romanoschi Intertek 3:24
So yes, with this? Uh. Final publication in July, at the end of July, there were some significant changes in the final adopted standards. And just to recap, the main highlights, only ESRS 2 is now universally mandated for all reporting companies.
Other elements of ESRS are required only if they relate to an issue that is deemed to be material to the industry or to the specific company.
Obviously, it's mentioned covered companies will be required to undertake robust materiality analysis using the double materiality process and the double materiality process essentially obliges companies to consider how the company needs activities, impact people and the environment, but also how social and environmental issues create financial risks and opportunities for the company.
Once companies identify a topic as material is important to highlight that the disclosure requirements become mandatory. The information must be disclosed if it is material and the materiality assessment process will be subject to external assurance.
Other disclosure requirements, which were initially mandatory, are now made voluntary with the latest July release, so this is some of the requirements for all reporters, for example, on biodiversity transition plans, some indicators on non-employees in the company workforce. Also companies have the option to explain or not why they have deemed a particular sustainability topic to be non-material.
However, there is a notable exception, which is climate change. So even if a company concludes that climate change is not a material topic and therefore does not report in accordance with the standard, it has to provide a detailed explanation of the conclusions of its materiality assessment with regards to the topic of climate change.
So obviously this is kind of exclusion or mandatory requirement that you still have to explain reflects the fact that climate change has wide ranging and systemic impacts across the economy and the sectors.
Lastly, other changes made in the final rules are related to smaller companies with fewer than 750 employees who now have extended phase in and may choose to not disclose certain requirements such as scope 3 greenhouse gas emissions and other disclosures on their own workforce in the ESRS 1 during the first reporting year, and then also they have the option not to disclose biodiversity, workers in the value chain and affected communities and the consumers in the first two reporting years as well.
Rowena Curtis Intertek 6:19
OK, so I'm talking about climate change. I can imagine this will be material for most of the companies. Can you tell us more about the rest of the environment standards?
Simona Romanoschi Intertek 6:29
Yes, sure. So there are, in the environmental standards that are essentially 5, you know, environmental standards or topics. And I'm gonna explain briefly each one.
It is important to note that companies will need to consider their dependencies on climate change and how they will be impacted from the financial side regarding these issues.
There are of course disclosure requirements regarding energy consumption, improvement in energy efficiency, energy mix such as coal, oil and gas-related activities and of course the share of renewable energy in its overall energy mix and scope 1, 2 and 3 GHG emissions which should cover the entire value chain, but also there are disclosures related to GHG removals and storage from companies, operations and value chain, and specific GHG emission reductions or removals from climate change mitigation projects that the company might be involved in.
Also to mention that for each of the standard topic mentioned above, but in general for all of the ESRS standards, the reporting companies should explain how these material topics are considered in the organization strategy. There's also disclosure on the governance, the policies, processes the companies have in place, their systems, key performance indicators, targets set and of course results and progress measuring that the reported information is really qualitative and quantitative in nature, assessing sustainability targets and indicators that are set by companies and progress towards achieving them over short, medium and long periods of time as appropriate due to the context of the company.
Rowena Curtis Intertek 11:57
So I was wondering regarding companies that already report under other frameworks like GRI for example, do they need to start all over again to comply with the European sustainability reporting standards?
Simona Romanoschi Intertek 12:10
Yes, a very good point. And actually we have, you know, good progress here because actually GRI and EFRAG have published a joint statement quite recently on the high level of interoperability achieved between the European Sustainability Reporting standards ESRS and the GRI standards. So current GRI reporters will be capable to report under the ESRS on one way entities reporting under ESRS are considered.
That's reporting with reference to the GRI standards and will therefore avoid the burden of multiple reporting.
The ESRS allows also entities to use the GRI standards to report on additional material topics covered in GRI standards that may not be covered by ESRS. For example TAX. Also, EFRAG and GRI still need to work on a detailed comparison between their relative disclosure requirements and data points that correspond to ESRS and GRI. And to illustrate the high level of commonality achieved, this is certainly great news for companies, since they will be able to report now in accordance with both the ESRS and GRI standards, through one report mechanism.
Rowena Curtis Intertek 13:27
Thank you very much, Simona. If you're insight into the environmental standards, so how can Intertek help you prepare for this CSR directive?
As mentioned, companies will be required to obtain third party assurance in relating to their CSR disclosures and with our team of experts at Intertek, we can help you with this to understand your current CSR readiness, we can help you undertake a gap analysis to ensure you have a clear view of your organization's current readiness and we'll work with you to define clear action plans to address any gaps to prepare you for your first submission.
Our experts can also train your teams to ensure everyone understands what's required to prepare for your submission. This can be delivered to a range of different teams and functions across your organization and will be bespoke to best fit your requirements.
We can also provide auditing solutions and in some markets will also be able to act as the auditor of your CSR Directive reports as one single provider supporting you from your early preparations all the way through to audit of submission.
And finally, we've also partnered with ESG Playbook, a leading SaaS reporting solution provider, bringing in one tool all required data collection, aggregation and tracking reporting for ESG.
For more information on any of these, please visit intertek.com/assurance/eu-csrd.
So this concludes today's podcast. Thank you for listening, and please watch out for further CSRD episodes to help you with your journey to compliance.