The European Union has approved standards for climate/ESG reporting
The European Commission adopted the European Sustainability Reporting Standards on July 31. The ESRS will standardise how European Union corporations report on climate change and other ESG-related measures. They are scheduled to take effect on January 1, 2024.
The requirements are derived from the European Green Deal, which requires enterprises to examine their sustainability performance. The European Financial Reporting Advisory Group developed the standards to meet the reporting obligations of the EU’s Corporate Sustainability Reporting Directive and Sustainable Finance Disclosure Regulation. The draft standards were first submitted to the commission in November 2022, but EFRAG (European Financial Reporting Advisory Group) Has since made significant adjustments based on comments from stakeholders and the commission. The commission’s final guidelines are less stringent and reclassify several areas from mandatory to voluntary.
While the term sustainability appears in the title, the ESRS (European Union Sustainability Reporting Standards) encompasses the broader environmental, social, and governance reporting standards. Non-financial aspects are taken into account in ESG investment. The emergence of ESG has necessitated the development of reporting standards.
The ISSB developed the IFRS Standards as the global standard for reporting on sustainability and climate change. IFRS is not used in the United States, but it is in 132 countries, including member nations of the European Union. Now that the standards are public, it is up to the individual jurisdictions to adopt all or a portion of them. The environmental ESRSs are intended to supplement and integrate the IFRS Sustainability Disclosure Standards. However, because the ESRS is not as complete as the IFRS, not all of the IFRS Standards will be applicable. This makes sense because model standards should be established to account for every possible scenario, while specific jurisdictions decide which standards toapply.
