New European sustainability reporting standards (ESRS) and comparison with IFRS

In an effort to achieve international convergence in sustainability reporting and to strengthen the European Union’s objectives in sustainable finance, the Corporate Sustainability Reporting Directive (CSRD) will soon replace the Non-Financial Reporting Directive (NFRD).

Companies subject to the NFRD must implement the CSRD as of 2025 for the fiscal year 2024. Other companies will do so in 2026 for the fiscal year 2025, and listed SMEs may apply for an extension to 2028 for the fiscal year 2027.

The CSRD expands the scope and requirements of the NFRD. Affected companies will soon be required to provide enhanced and audited non-financial reports that comply with the principle of double materiality.

Double materiality is a real challenge for companies: it involves not only studying the non-financial risks and opportunities that may affect the company’s development, performance and results, but also the impacts of the company’s activities on sustainability factors.

Companies affected by the CSRD must align themselves with the new European Sustainability Reporting Standards, which have been developed for this purpose. The first version of the European Sustainability Reporting Standards (ESRS) was published in November 2022 by the European Financial Reporting Advisory Group (EFRAG).

This first version covers 12 draft standards.

• Two cross-cutting standards, ESRS 1 (general requirements) and ESRS 2 (general disclosures) apply to all sustainability topics.
• Ten thematic standards address the three ESG pillars:

To contribute to the global effort to standardise non-financial reporting, EFRAG has relied on the first two IFRS Sustainability 1 General Sustainability-related Disclosures and IFRS Sustainability 2 Climate-related Disclosures published by the International Sustainability Standards Board (ISSB), the non- financial standard-setting office of the IFRS Foundation.

EFRAG has published two reconciliation tables between ESRS and IFRS Sustainability standards (1).

• The first table details the equivalence between the cross-cutting standards ESRS 1 & 2 and IFRS Sustainability 1 General Sustainability-related Disclosures. According to EFRAG, a company preparing ESRS compliant reporting should be de facto compliant with the requirements of IFRS S1.

•  The second table details the equivalence between ESRS E1 Climate Change and IFRS Sustainability 2 Climate-related Disclosures. According to EFRAG, a company preparing a report in accordance with ESRS E1 should be de facto in compliance with the requirements of IFRS S2. The reverse is not entirely true: the requirements of IFRS S1 and S2 do not entirely cover those of the ESRS.

The IFRS Sustainability standard aims to satisfy the needs of investors in terms of non-financial data.

• Its IFRS definition of materiality is therefore closer to financial materiality: the information to be provided is that which is likely to be useful to investors.
• The impact of the company’s activities on the environment or society is taken into account indirectly, only in the case where this impact can affect an investor’s decision making.
• This standard is based on the company’s materiality analysis.

The ESRS is based on a double materiality analysis: the impact of the company’s activities on sustainability factors is a key element of this reporting standard.

• The ESRS text, therefore, includes mandatory reporting elements regardless of the outcome of the company’s materiality analysis.
• The reconciliation table also includes many disclosures required by ESRS E1 that are not required by IFRS S2.

The ISSB has not yet published a similar equivalence table between IFRS Sustainability Standards and ESRS. However, to improve the interoperability of these standards with other international standards, the ISSB established a dedicated working group in April 2022, of which EFRAG is a member.

The final version of the ESRS and the IFRS Sustainability Standards is expected to be adopted in mid-2023.

(1) EFRAG specifies that these tables do not take into account the deliberations of the ISSB following the publication of the first versions of the IFRS Sustainability Standards in March 2022.

At Positivéco, we see new national and international CSR regulations as vectors for positive growth.

Our job: to improve the readability of your activities for better valuation.

Since 2009, we have been supporting financial institutions, public players, and listed and unlisted companies in the evaluation of their CSR policies, the production of their extra-financial reporting and the implementation of their climate investment and aid projects. Development.

Make an appointment today and find out how to meet the new requirements of economic transparency while serving the project of your company.