The new European Sustainability Reporting Standards (ESRS) have brought significant changes to the reporting landscape. These standards underpin the Corporate Sustainability Reporting Directive (CSRD) and aim to elevate sustainability reporting to the level of financial reporting, making detailed ESG disclosure a central feature for companies operating in the European market. For UK (and other non-EU) businesses, understanding these standards and anticipating their implications is essential, particularly given the UK's extensive commercial ties with the EU. 

What Are the ESRS? 

The ESRS are the core reporting standards set by the EU to align with the objectives of the CSRD, which has been in effect since January 2023. On 31 July 2023, the European Commission (EC) adopted the final delegated act of the ESRS, establishing 12 detailed standards that cover essential aspects of sustainability: 

• Two Cross-Cutting Standards: These general standards apply to all companies within the scope of the CSRD, setting the foundational principles for sustainability reporting, including double materiality and comprehensive reporting boundaries. 
• Ten Topical Standards: The remaining standards address specific ESG areas, such as pollution, biodiversity and ecosystems, and affected communities. Companies are required to disclose their impacts, risks, and opportunities related to environmental, social, and governance matters. 

For companies, these new requirements mean a shift towards more structured and comparable sustainability reporting, where detailed and standardised disclosures are mandated. 

How Could This Impact UK Businesses? 

For UK businesses with operations, clients, or investors in the EU, ESRS compliance could become a de facto requirement. Here's why: 

• Alignment with EU Standards: Although based outside the EU, UK companies might need to align with ESRS standards to maintain their EU market links. This could apply to UK companies operating in the EU, with EU supply chains, or seeking investment from EU financial institutions. 
• Enhanced Global Interconnectivity: The ESRS are designed to align with International Financial Reporting Standards (IFRS) and the Global Reporting Initiative (GRI). This international compatibility makes it easier for UK businesses to adhere to globally recognised standards, though some ESRS disclosures may differ. 
• Additional Reporting Layers: UK companies may need to include phased-in or voluntary disclosures to align with their EU counterparts. As the guidance from EFRAG, the European Financial Reporting Advisory Group, becomes available, UK businesses will gain support on key areas like materiality assessments and value chain reporting. 
• Competitive Advantage: Staying proactive with ESRS compliance could offer UK companies a competitive edge, positioning them favourably with EU stakeholders and helping them anticipate future regulatory shifts. 
• Increased Compliance Costs: For UK firms meeting certain EU activity thresholds, ESRS compliance might entail additional compliance costs, both for reporting and resource allocation. 

What's Next? 

The road to full ESRS implementation is ongoing, with further requirements expected over the coming years. UK businesses need to prepare to meet the new reporting standards, which are more stringent than even before. Luckily, we are here to help you. Here are the critical next steps for companies to consider: 

• Know your impact: Identify the most relevant sustainability issues for your business. This involves analysing how your company impacts the environment and society, and how those factors impact your financial performance.  
• Upskill your team: Identify stakeholders responsible for compliance and map out roles and responsibilities for the reporting process. We can support you by providing carbon management training to your team. 
• Measure and monitor: Collecting good data is the first step to any successful ESG project. Create robust systems to track and measure your performance, including consumption of energy, materials, waste, and supply chains. This may involve integrating new software solutions or providing staff training.  
• Use the insights gained: Use the insights from the reporting process to identify areas for improvement and transformation. This could involve a range of projects, for example a scope 1, 2, and 3 baseline and reduction plan, building decarbonisation plan, or ecology and biodiversity improvement plan. 
• Monitor EU Decisions: Over the 18-month national transposition period, EU Member States will finalise their approaches to ESRS implementation, making it essential for companies to stay informed of any changes. 

The ESRS represent a transformative approach to sustainability reporting, and for UK and other non-EU businesses, early action and engagement will be key to navigating this complex landscape. By preparing now, you can strengthen your position as a competitive business in the EU market and stay ahead of evolving requirements. We're here to guide you through the process, ensuring that when the new standards come into effect, your business is ready to lead in sustainability compliance. Get in touch today for a free consultation to discuss how we can support you on your ESG journey: info@tomsonconsulting.co.uk