Europe’s financial markets watchdog said companies shouldn’t anticipate that the complexity of new ESG reporting requirements will excuse sloppy disclosures.
The European Securities and Markets Authority acknowledged that complying with the new European Sustainability Reporting Standards creates “challenges” for companies, and the first reports, due next year for the largest firms, will constitute a “milestone in the learning curve of issuers,” according to a statement on Friday.
Still, ESMA said that “acknowledging this learning curve does not relieve issuers from the responsibility to ensure compliance with ESRS.”
Companies will have to report and get audits on hundreds of environmental, social and governance metrics, including climate transition plans, water use, pollution and gender pay gaps. The disclosures are part of the Corporate Sustainability Reporting Directive, which is a major plank in the EU’s arsenal of initiatives to green its economy. Ultimately, roughly 50,000 companies will have to comply with CSRD by the time its rollout is completed in the coming years.
Back in March, ESMA and national authorities were urged by a stakeholder group advising the markets watchdog to show “a certain degree of flexibility regarding the enforcement model.”
Making sure companies comply should be done “with a good sense of proportion, as the ESRSs are complex, implementation must be done under significant time pressure, and considering that audit standards and usances are still under development,” the group said.
The unprecedented scope and novelty of the disclosure requirements has spawned a pushback by corporates, which won some concessions last year. That includes the ability to determine which of the hundreds of metrics are important enough to report on (known as materiality).
In its statement on Friday, ESMA told companies they must methodically explain their process for such decisions. That includes disclosures on value chains where the standards “do not envisage cases in which the lack of data justifies the omission of disclosure of material information.” The authority also said companies should be prepared to report in full when transition provisions run out.
Topics Europe
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