The EC’s adoption of the ESRS

This week we want to share our view on the recent adoption of the European Sustainability Reporting Standards (ESRS) by the European Commission (EC). These standards will play a crucial role in the Corporate Sustainability Reporting Directive (CSRD) and are designed to enhance ESG reporting by companies in Europe. But we believe they will also have a ripple effect on investors’ expectations for sustainability reporting elsewhere.

The ESRS were approved by the European Financial Reporting Advisory Group. They outline the ESG reporting requirements for corporates and are expected to come into force for the 2024 reporting year (with the first submissions due in 2025). The standards cover various ESG issues, including climate change, biodiversity, human rights, among other things. The EC aimed to achieve a high level of interoperability between EU and other existing global standards, preventing unnecessary double reporting by companies.  

While the adoption of ESRS has been seen as a positive step, the EC did water down some reporting requirements in the announcement. Some indicators have been downgraded from mandatory to voluntary, and companies are allowed to decide what information is material based on a materiality assessment. Some people think this is a step back, others think it is the way to move forward with a broader acceptance. We are part of the second group, as we think the first step is to get everyone reporting on a reasonable set of indicators, and then push the bar higher (but always consider materiality first).

The reporting requirements will be phased in gradually for different companies. The first sustainability statements will be published in 2025 for certain large companies, followed by other large companies in 2026. Finally, listed SMEs will either publish their sustainability statements in 2027 or can choose to opt out for a further two years. While this may sound far, it is not that far when considering that you ideally first need to work on your materiality assessment and start gathering ESG information if you are a first time reporter.

We would expect that Mexican companies that have big operations in Europe (there are many large caps in this group) will have to pay significant attention to these standards to be aligned with the rest of their regional peers. As sustainability reporting becomes a global trend, Mexican companies seeking to attract international investors and align with global reporting standards will benefit from adopting these rigorous sustainability reporting practices.

For Mexican investors, ESRS-compliant companies will offer more reliable and comparable sustainability information, enabling better assessments of financial risk and investment opportunities. This could be relevant when they develop their due diligence questionnaires, if they want to have indicators that can be benchmarked globally.

I hope you found this interesting. As usual, if there is anything we can help you with, or if there is an ESG topic you would like to know more about, please let us know.

Best,

Marimar

CEO, Miranda ESG

PS. If you want to get the 101 on these standards, we believe this short document published by EY is quite helpful.