ESRS: What is it ?
Summary
The ESRS (European Sustainability Reporting Standards) are European standards that guide companies in communicating their sustainability performance. They aim to standardize ESG (environmental, social, and governance) reporting to enhance the transparency and comparability of information.
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Definition of ESRS
The ESRS (European Sustainability Reporting Standards) are European sustainability reporting standards created to guide companies in communicating their environmental, social, and governance (ESG) performance. These standards, established by the European Union, aim to harmonize the way companies publish their ESG information, providing a standardized and transparent framework.
What are the main objectives of the ESRS?
The ESRS (European Sustainability Reporting Standards) have several key objectives to strengthen transparency and sustainability in businesses :
Harmonization of ESG reporting: Standardize how European companies report their environmental, social, and governance impacts.
Facilitate comparison: Make it easier to compare ESG performance between companies across Europe.
Improved transparency: Provide investors and stakeholders with clear and reliable information on companies' sustainability practices.
Encouragement of sustainability: Encourage companies to integrate more sustainable practices into their operations and long-term strategies.
The main axes of ESRS standards
The ESRS standards, developed by EFRAG and adopted in July 2023, are structured around three main pillars: environmental, social, and governance.
Environmental Pillar:
- E1 (Climate Change): Measurement of greenhouse gas emissions and climate resilience.
- E2 (Pollution): Identification and reduction of pollutants emitted by the company.
- E3 (Water and Marine Resources): Management of water consumption and pollution of marine resources.
- E4 (Biodiversity and Ecosystems): Impact of the company on biodiversity and surrounding ecosystems.
- E5 (Resource Management and Circular Economy): Use of resources and integration into a circular economy approach.
Social Pillar:
- S1 (Workforce): Working conditions, equality, and employee development.
- S3 (Affected Communities): Impact of the company on local populations.
- S4 (Consumers and Users): Transparency toward consumers about products and services.
Governance Pillar:
- G1 (Risk Management and Internal Control): Governance framework, including compensation and bonus policies.
- G2 (Business Conduct): Declaration of anti-competitive practices such as corruption or lobbying.
The benefits of ESRS for companies
The ESRS (European Sustainability Reporting Standards) offer several benefits for companies:
- Improved Transparency: The ESRS enable companies to clearly and standardizedly communicate their ESG performance, thereby strengthening investor and stakeholder confidence.
- Facilitated Compliance: By adopting the ESRS, companies can more easily comply with European regulatory requirements for sustainability.
- Enhanced Reputation: Companies that follow the ESRS demonstrate their commitment to responsible practices, which can improve their brand image.
- Access to Sustainable Financing: Compliance with ESRS can facilitate access to green and responsible financing.
How to implement ESRS in a company ?
To implement the ESRS, companies must first form a dedicated sustainability reporting team, including ESG experts. Next, they should evaluate their activities to identify areas covered by the ESRS standards and collect the necessary data.
Integrating these standards into internal reporting processes is crucial, with regular progress tracking. Companies can also use specific reporting tools to ensure compliance, such as D-Carbonize. Finally, an independent third-party review can strengthen the credibility of the published reports, ensuring transparency and compliance with the ESRS standards.
Challenges and limitations of ESRS
The ESRS present several challenges for companies:
- Complexity of Standards: The diversity of the standards can make implementation difficult, requiring significant resources in terms of time, personnel, and training.
- Data Collection: Collecting and verifying ESG data can be complex, especially for small and medium-sized enterprises (SMEs) that often lack internal capacity.
- Constantly Evolving Requirements: Companies must adapt to evolving requirements, which can lead to increased administrative burdens.
- Reputational Risks: Although ESRS improve transparency, they can also expose vulnerabilities or areas needing improvement, which may pose a reputational risk for organizations.
