The trend of green transformation and sustainable business towards the goal of Net Zero emissions is reshaping the economy. Europe is at the forefront of efforts to promote green, low-emission production trends. Join GREEN IN Vietnam to explore the European Sustainability Reporting Standards through the perspective of Lawyer Truong Tu Long - Policy and Law Expert - GREEN IN.
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1 - Definition

The European Sustainability Reporting Standard (ESRS) is a regulation issued by the European Union to implement the Corporate Sustainability Reporting Directive (CSRD) by enhancing and standardizing the content of companies' Sustainability Reports.

The ESRS was proposed by EFRAG - an advisory body established to assist the European Commission on matters relating to financial reporting and accounting standards.

2 - Why was ESRS issued?

Enterprises have been required to prepare Sustainability Reports in accordance with the NFDR (Non-Financial Reporting Directive) since 2014. However, through the implementation process, the European Commission has realized that the quality of the reports still has many shortcomings and has not met the expectations of stakeholders. Important information is often ignored or not reported by companies. Stakeholders cannot compare the content and quality of reports of companies with each other. This leads to the lack of reliability of the content of the companies' sustainability reports.

Meanwhile, stakeholders are increasingly concerned about issues related to corporate sustainability, so the need for reliable and comparable information is increasing.

Therefore, the Corporate Sustainability Reporting Directive (CSRD) was issued to standardize the content of sustainability reports. And to implement this regulation, the EU continued to issue the ESRS to provide a unified standard framework for sustainability reporting by entities covered by the CSRD.

3 - Who must do ESG reporting according to ESRS standards?

Subjects subject to CSRD regulation will have to base on ESRS to prepare Sustainable Development Report:

  • Business established and based in the EU

i. Large enterprises subject to the NFRD: are companies listed on the stock market, have more than 500 employees, have a balance sheet value of more than 50 million Euros or have a net turnover of more than 25 million Euros.

ii. Other large enterprises (not belonging to NFRD) if they have at least 02 out of 03 of the following conditions: the company has more than 250 employees, the value of assets on the balance sheet is over 25 million Euros or has net revenue over 50 million Euros.

iii. A small and medium-sized enterprise is listed if it meets at least 02 out of the following 03 conditions: the company has more than 50 employees, the value of assets on the balance sheet is over 5 million Euros or has net revenue over 10 million Euros.

  • Non-EU businesses will be subject to CSRD if it has a net turnover of over 150 million Euros in the last 02 financial years and:

i. Having at least 01 subsidiary located in the EU is considered as a Large Enterprise

ii. Have at least 01 subsidiary listed on a financial market regulated by the EU

iii. Has a branch in the EU with a net turnover of over 40 million Euros in the previous financial year

4 - Mandatory effective period

i. 2024: Large enterprises are subject to NFRD regulation

ii. 2025: Other large enterprises (not in NFRD)

iii. 2026: Listed SMEs

iv. 2028: Non-EU businesses

5 - What is the content of ESRS?

ESRS consists of two components: General Standards and Topic Standards.

(Source: CSRD Institute)

Specifically:
  • ESRS 1: General Principles
i. Outline the general principles, reporting requirements and regulatory scope of the ESRS
ii. Establish a common approach
iii. Principles to ensure consistent, comparable and reliable reporting
iv. Stipulate key concepts and common understanding of language when disclosing information on sustainable development
  • ESRS 2: General Disclosures
i. Regulations on establishing policies, objectives, assessment indicators, management processes, control and assessment of ESG practices
ii. Mention the contents required to be reported
  • Environmental Standards. Number: ESRS E1 to E5
i. ESRS E1 specifies disclosure requirements related to climate change adaptation and response and energy use.
ii. ESRS E2 provides for disclosure requirements relating to activities that cause soil, water and air pollution; pollution of living environments and food sources; risks from the use of toxic chemicals and microplastic pollution.
iii. ESRS E3 prescribes disclosure requirements relating to the extraction, use and disposal of water, particularly from nature and the ocean.
iv. ESRS E4 provides for disclosure requirements relating to direct impacts on biodiversity loss; impacts on animal habitats and the ecological environment.
v. ESRS E5 regulates the requirements for disclosure of information related to the use of input resources in production, business activities and output stages of products and services, as well as waste treatment issues.
  • Social Standards. References: ESRS S1 to S4