The European Commission has adopted the European Sustainability Reporting Standards (ESRS), which affect more than 50,000 companies subject to the EU's Corporate Sustainability Reporting Directive.
Widely seen as a watershed for corporate environmental reporting and fiscal planning, the ESRS will from next year require tens of thousands of European companies — as well as non-EU-based companies with a large presence in the bloc — to report on their environmental impacts so as to help investors understand the sustainability credentials of the companies they invest in.
Mairead McGuinness, European commissioner for financial services, financial stability and capital markets union, described the new standards as an ambitious and important tool underpinning the EU's wider sustainable finance agenda.
"They strike the right balance between limiting the burden on reporting companies while at the same time enabling companies to show the efforts they are making to meet the Green Deal agenda and accordingly have access to sustainable finance," she said in a statement.
Climate reporting platform CDP said more than half the companies disclosing information on their environmental performance through its platform are already reporting in line with key elements of the new standards.
According to figures from CDP, most of the 18,700 companies voluntarily disclosing via the nonprofit's system for companies, cities, states and regions are already compliant with much of the new standard.
For example, more than 18,000 organizations report on board-level oversight with 55 percent of companies already having a process in place to assess climate risks and opportunities.
However, while levels of preparedness for the new reporting standards are thought to be relatively high, it remains to be seen how firms fare once the new standards come into force in 2024. CDP has consistently revealed how substantial numbers of corporates continue to defy investors calls for them to provide more detailed and accurate information on their environmental performance.
Mirjam Wolfrum, policy engagement director for Europe at CDP, said that the much-anticipated adoption of the ESRS marks the dawn of a "new age of environmental responsibility" for business and financial planning. "With approximately 50,000 companies now obligated to report on sustainability, these standards are a critical stepping-stone towards making high quality environmental reporting a business norm," she said.
However, she added that "compromises were made to ensure successful adoption," meaning that all disclosures, including climate related, were subject to companies' own materiality assessments.
"In addition, certain disclosures including Scope 3 emissions and all of biodiversity-related disclosures have been phased in," she added. "Understanding why companies disregard certain topics will be essential to ensure comparable and meaningful information for investors, auditors and regulators."
The adoption of the new standard comes just weeks after almost 100 asset managers, banks, funds and other financial firms called on the European Commission to amend its environmental, social and governance (ESG) reporting rules, warning they are not strong enough given escalating environmental risks.