Filenews 13 August 2023 - by Andri Dimitriadou
The European Union (EU), through the set of policy initiatives included in the European Green Deal, is committed to transforming itself into a modern and competitive economy, ensuring net-zero carbon by 2050 and economic growth that is decoupled from resource use.
This fact de facto reinforces the need for the availability of the necessary sustainability information by companies as well as the reporting and disclosure of their relative performance, through reporting means based on specific reporting standards.
After all, as is well known, if something cannot be measured, it cannot be improved.
In this context, in December 2022, the EU Corporate Sustainability Reporting Directive (CSRD) was adopted, making annual sustainability reporting mandatory by a significantly increased number of companies (around 50,000 at EU level).
This Directive will also affect the Cypriot market, as larger companies will be called upon to implement it. The implementation of the CSRD requires public disclosures by affected companies about their impacts, risks and sustainability opportunities in their annual results based on mandatory sustainability reporting standards.
Therefore, the European Commission on 31 July 2023 adopted as a delegated act the first set of European Sustainability Reporting Standards (ESRS), which are an integral part of the CSRD.
These standards have been developed by the European Financial Reporting Advisory Group, which is the Commission's technical adviser. Also, in 2024, the second set of standards per sector of activity is expected for small and medium-sized enterprises (SMEs).
The ESRS standards aim to provide appropriate guidance and guidelines to affected companies in reporting their relative performance in their sustainability reports.
It is expected that these standards will have a significant positive impact on improving the uniform and common reporting and disclosure of companies' sustainability performance. They will also enhance the reliability and quality of the data that will be disclosed. At the same time, they will provide information to investors to understand the sustainability impact of the companies in which they invest.
The first ESRS package includes 12 specialized standards and provides a comprehensive coverage of the entire spectrum of sustainability issues. Specifically, they are based on the pillars of environment (E), society (S) and governance (G) (ESG) and include:
- Two general/horizontal standards that apply regardless of the material issue.
- Five environmental standards (climate change, pollution, water and marine resources, biodiversity and ecosystems, resource consumption and circular economy).
- Four social norms (company employees, value chain workers, affected communities, consumers and end users).
- A model of governance (entrepreneurship).
The ESRS adopts the principle of double materiality as the basis for sustainability reporting.
Essentially, this approach guides companies to report their performance according to the risks and opportunities that may affect their operation, but also according to the impact that their operation has on people and the environment.
The implementation of such an approach may require the use of modern tools both to collect the necessary information and to exploit it, in order to achieve continuous improvement of sustainability performance.
In passing, global standards are also available, such as the International Sustainability Standards Board (ISSB) reporting standards and the Global Reporting Initiative (GRI) standards for sustainability reporting.
With this in mind, the European Commission has worked methodically to ensure a very high level of alignment and interoperability between the above standards and the ESRS, so as to avoid duplication of reporting efforts by businesses.
What's next in the coming years?
The delegated act will be formally sent to the European Parliament and the Council for scrutiny in mid-August and companies will have to start reporting under the ESRS as follows:
- Reference report in 2025 (for financial year 2024) for large listed companies, large banks and insurance companies, large non-EU listed companies with more than 500 employees.
- Report in 2026 (for financial year 2025) for other large companies and other large non-EU listed companies.
- Reporting in 2027 (for financial year 2026) for listed SMEs, including listed SMEs outside the EU. Please note that listed SMEs can be exempted from reporting until 2029 (for financial year 2028).
- Reporting in 2029 (for financial year 2028 at group level) for third country companies with a net turnover of more than €150m. in the EU, if they have either a branch in the EU with a turnover of more than €40 million. either a subsidiary which is a large company or a listed SME.
POINT OF VIEW
There is no room for complacency
Based on the above recent development and the strict timetables that have been set, it is understood that the noose is tightening for the affected businesses and there is no room for complacency.
These companies should immediately mobilise their resources to establish appropriate data collection, reporting and control mechanisms and governance arrangements in a timely manner.
The Cyprus Employers and Industrialists Federation (OEB), realizing the importance of current developments and as a helper of the sustainable development of the business world, informs its members directly about the latest events and will use the communication channel it has firmly established with its members to provide relevant information, information, guidance and support.
