EU Sustainability Reporting Standards for 2023

The European Union (EU) has introduced new sustainability reporting standards for 2023, aimed at enhancing transparency, accountability, and corporate responsibility in the business world. These standards are part of the EU’s broader efforts to combat climate change, promote environmental sustainability, and ensure social responsibility. At Proxima Investment, we break down these new standards and provide insights into how they impact businesses and investors.

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• Introduction of EU-SRS: The EU Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) have introduced the EU Sustainability Reporting Standards (EU-SRS) for 2023. These standards are designed to harmonize sustainability reporting across the EU, ensuring consistency and comparability of reported data. The EU-SRS provide a standardized framework for companies to report on their environmental, social, and governance (ESG) performance. They cover a wide range of topics, including greenhouse gas emissions, resource efficiency, employee diversity, supply chain management, and corporate governance. Companies are required to disclose quantitative and qualitative data, as well as narrative descriptions of their sustainability efforts. The introduction of EU-SRS is part of the EU’s commitment to achieving its climate targets under the Paris Agreement and the European Green Deal. By mandating consistent and transparent reporting, the EU aims to foster a more sustainable and resilient economy.
• Scope and Applicability: The EU-SRS apply to large public-interest entities, including listed companies, banks, insurance companies, and large private companies with more than 500 employees. These companies are required to report annually on their sustainability performance, starting from 2024. Smaller companies, including SMEs, are not required to adopt the full EU-SRS but are encouraged to voluntarily report on sustainability matters. The EU aims to gradually extend the scope of these standards to cover more companies, promoting a broader culture of sustainability across the business sector. Companies operating outside the EU but with significant operations or subsidiaries within the EU are also subject to these reporting requirements. This ensures that the standards apply uniformly to all entities within the EU market, regardless of their geographic location.
• Key Performance Indicators (KPIs): The EU-SRS mandate the use of specific KPIs to measure and report on sustainability performance. These KPIs are designed to provide a comprehensive view of a company’s environmental, social, and governance impacts. Environmental KPIs include metrics such as carbon emissions, water usage, waste production, and energy consumption. Social KPIs cover areas like workforce demographics, employee training, diversity and inclusion initiatives, and community engagement. Governance KPIs focus on board composition, executive compensation, and corporate governance policies. Companies are required to report on these KPIs annually, using standardized methodologies to ensure comparability. This allows investors and stakeholders to assess a company’s sustainability performance relative to its peers and industry benchmarks.

• Enhanced Transparency and Accountability: The EU-SRS emphasize the importance of transparency and accountability in sustainability reporting. Companies are required to provide detailed disclosures on their sustainability strategies, targets, and progress. This includes setting science-based targets for reducing greenhouse gas emissions and improving resource efficiency. Companies must also disclose any material risks and opportunities related to sustainability, as well as the processes used to identify, manage, and mitigate these risks. This level of transparency helps investors and stakeholders make more informed decisions and ensures that companies are held accountable for their sustainability commitments. Additionally, companies are required to undergo independent assurance of their sustainability reports. This ensures the accuracy and reliability of the reported data, fostering trust among stakeholders and investors.
• Integration with Financial Reporting: The EU-SRS encourage the integration of sustainability reporting with financial reporting. This alignment helps companies and investors better understand the relationship between sustainability performance and financial outcomes. Companies are encouraged to incorporate sustainability metrics into their financial statements, providing a more holistic view of their performance. This can include disclosing the financial impact of sustainability initiatives, such as cost savings from energy efficiency improvements or revenue generated from sustainable products and services. Integrating sustainability reporting with financial reporting also helps companies identify potential risks and opportunities that could affect their financial performance. For example, companies may disclose the financial implications of regulatory changes or shifts in consumer preferences toward sustainable products.
• Stakeholder Engagement: The EU-SRS emphasize the importance of stakeholder engagement in sustainability reporting. Companies are encouraged to engage with a broad range of stakeholders, including employees, customers, suppliers, investors, and local communities, to gather input and feedback on their sustainability strategies and performance. Engaging with stakeholders helps companies better understand the expectations and concerns of different groups, ensuring that their sustainability efforts are aligned with broader societal goals. This engagement can also help companies identify areas for improvement and opportunities for collaboration. Companies are required to disclose the methods and frequency of their stakeholder engagement, as well as the outcomes of these engagements. This transparency fosters trust and builds stronger relationships with stakeholders, contributing to long-term sustainability and resilience.

“The EU Sustainability Reporting Standards for 2023 are designed to enhance transparency, accountability, and corporate responsibility. At Proxima Investment, we help you navigate these new standards and ensure your sustainability reporting is robust and compliant.”

Manager, Proxima Investment

Final Thoughts

The EU Sustainability Reporting Standards for 2023 mark a significant step forward in promoting transparency, accountability, and sustainability in the business world. By mandating consistent and transparent reporting, the EU aims to foster a more sustainable and resilient economy. At Proxima Investment, we provide expert guidance and innovative solutions to help you stay compliant and capitalize on the opportunities presented by these new standards.

Objectivity: At Proxima Investment, we use data-driven analysis to evaluate the impact of EU sustainability reporting standards on businesses and investors. Our team assesses market trends, regulatory changes, and stakeholder expectations to ensure your strategy is aligned with your long-term goals.

Strategic Planning: Navigating the complexities of EU sustainability reporting standards requires a comprehensive approach. We help you implement strategies that ensure compliance while maximizing the potential for growth and profit.

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