"Putting the European Sustainability Reporting Standards into Practice", August 2023

Throughout August and September, Shift will be releasing weekly primers on key aspects of the European Sustainability Reporting Standards (ESRS). These standards help meet the purpose of the EU’s Corporate Sustainability Reporting Directive (CSRD) in ensuring greater rigor, completeness and comparability in companies’ reporting on their sustainability performance across environmental (including climate), social (primarily human rights) and governance issues...

THE ESRS ARE SET TO APPLY TO MORE THAN 50,000 COMPANIES IN THE EU AND AT LEAST 10,000 COMPANIES OUTSIDE. To say the advent of the standards has generated a flurry of activity would be an understatement; companies are now bringing together parts of their organizations that rarely met before – finance and internal audit, compliance and legal, environmental teams and human rights specialists. There are questions about who should lead and whether and how these different experts might work together to apply the standards. And many companies are spending significant amounts of money on hiring consultants to guide them through the process...

Clarity is greatly needed. The European Financial Reporting Advisory Group (EFRAG), which was responsible for drafting the standards, will be developing some key guidance over the coming weeks and months...

In the meantime, we hope this series of primers will help to answer some of the most frequently asked questions we hear on key aspects of the standards, with a particular focus on social issues and their connections with international standards on human rights due diligence. The series will cover: “double materiality” – and the links between impact materiality and “salient human rights issues”; the novel people-centered architecture of the Social standard; the risk-based approach to identifying material impacts in the “value chain”; and much more...

It is no accident that the ESRS align closely with the UN GUIDING PRINCIPLES ON BUSINESS AND HUMAN RIGHTS and the OECD GUIDELINES FOR MULTINATIONAL ENTERPRISES – the international standards of conduct on corporate respect for human rights. This ensures that reporting requirements tally with international expectations of how companies identify and address risks to people in their operations and value chains...

The coming months and years will be a litmus test for whether the ESRS can re-solidify this relationship between action and reporting on sustainability matters, including on material social issues that have too long been ignored or downplayed. If not, this pioneering European initiative will in good part have failed. Now is the time to make sure that it succeeds. We hope that this series of primers can help you play a part in helping ensure that it does.