In another step towards the goals of its Green Deal, the European Commission has announced it will implement a uniform set of sustainability reporting standards for companies in the EU in the hopes that a common system will help investors and other important stakeholders better evaluate the performance and activities of businesses, as well as clarify green financing possibilities.
A new system called the European Sustainability Reporting Standards (ESRS) is being put in place by the European Commission (EC) for use by all companies that are required to report certain sustainability information to authorities.
CLARITY FOR INVESTORS AND COMPANIES
The existing system has had its issues. Stakeholders, including potential investors, often aren’t privy to a consistent overview of “sustainability information” due to the multiple voluntary standards currently in existence.
“There is ample evidence that the sustainability information that companies currently report is not sufficient,” read the EC’s report. “They often omit information that investors and other stakeholders think is important. Reported information can be hard to compare from company to company, and users of the information, such as investors, are often unsure whether they can trust it.”
The new system should help companies to “communicate and manage their sustainability performance more efficiently” as well as ascertain if sustainable or “green” financing could be available to them.
The aim of these common standards is to guarantee companies across the EU report uniform and reliable sustainability information, as well as to save them costs in the medium- to long-term by reducing the volume of voluntary reporting standards they are expected to abide by today.
The new set of standards will oblige companies to report on their environmental impact as well as on how their practices affect people, and there are 12 topics covered in the ESRS, ranging from climate, pollution, biodiversity and water resources to business conduct, circular economic practices, workforce and consumers.
“The ESRS take a “double materiality” perspective – that is to say, they oblige companies to report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for the company,” read the report. “High quality and reliable public reporting by companies will help create a culture of greater public accountability.”
As reporting will be mandatory, there will be a phase-in period, notably for smaller companies with less than 750 employees, to decrease initial costs.
The system was developed with the input of investors, auditors, civil society, trade unions, academics, EU authorities and companies concerned by the new guidelines.
To read the full report, please click here.
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