This is the latest addition to a fast-moving and fragmented global-policy landscape. The ESRS presents businesses operating in the European Union with the operational detail required to meet the objectives of the Corporate Sustainability Reporting Directive (CSRD) that raised the ambition bar for sustainability reporting when it was adopted last year.
Following draft standards submitted by the European Financial Reporting Advisory Group (EFRAG), and modified by the European Commission, the ESRS consists of twelve standards covering the full range of environmental, social and governance (ESG) issues, including: climate; pollution; water and marine resources; biodiversity and ecosystems; resource use and circular economy; own workforce; workers in the value chain; affected communities; consumers and end users; and business conduct. As required under CSRD, the ESRS framework adopts a double-materiality approach that requires reporting on a company’s impacts on people and the environment as well as reporting on how social and environmental issues create financial risks and opportunities for the company (1).
It is not only EU companies that will be affected. EU-based subsidiaries of a non-EU company, which meet certain criteria, are required to report against the ESRS, to the same timeline as if they were a European company. From 2028, a non-EU company meeting certain criteria must report for its consolidated global group. One analysis on the potential scale of reporting points to at least 10,000 non-EU companies being required to report, with around a third of those being based in the US (2).
Efforts have been made to better align the ESRS requirements and those of the International Sustainability Standards Board’s (ISSB) first two finalised International Financial Reporting Standards (IFRS®) Sustainability Disclosure Standards, which were published in June this year. Despite attempts to streamline reporting requirements to avoid duplication, differences in the scale and scope of requirements remain. This makes the sustainability disclosure landscape confusing and adds uncertainty for businesses keen to successfully navigate a dynamic and still-evolving regulatory terrain. Mapping the policy that matters to your global organisation is no easy task.
This is not the only challenge business leaders face. Additional uncertainty is emerging from governments flip-flopping on climate-related policy and sending mixed signals to businesses about future direction of travel. In the US, firms must prepare for the long-awaited final Securities and Exchange Commission (SEC) ruling on climate-related disclosures, despite it being postponed until autumn.
Business decisions are being played out against a global backdrop of severe weather events that are remarkable in terms of both severity and geographical footprint, as witnessed recently in Canada, the United States, Europe, and APAC, and are already causing disruption to supply-chains operations and outputs.
These regulatory, political and climate dynamics generate the perfect storm and cannot be ignored. Decision makers must find a way for their organisations to thrive despite the challenging and changing environment.
Risilience recommends assessing the risks and opportunities to develop a strategy that enables a business to thrive rather than just survive and has developed a Transition Risk Series of reports and briefing papers to offer business leaders practical steps and science-led insights that help to future-proof strategy in the age of climate disruption.
Download our Transition Risk Series of policy briefing papers: