ESMA calls on companies to put in place data systems to meet new CSRD sustainability reporting requirements

The European Securities and Markets Authority (ESMA), the EU’s markets regulator, has announced the publication of a public statement on the first application of the European Sustainability Reporting Standards (ESRS), aimed at helping companies prepare for new sustainability reporting and monitoring requirements under the EU’s Corporate Sustainability Reporting Directive (CSRD), with first reporting expected to begin next year.

The CSRD is a major update to the EU’s Non-Financial Reporting Directive (NFRD), the EU’s previous sustainability reporting framework. It significantly increases the number of companies required to provide sustainability information to over 50,000 from around 12,000, and introduces more detailed reporting requirements on companies’ environmental, human rights and social impacts and sustainability risks. The CSRD came into force in early 2024 for large public-interest companies with more than 500 employees, with the first reports due in 2025, followed by companies with more than 250 employees or €40 million in revenue the following year, and listed SMEs a year later.

The CSRD also introduces a “double materiality” approach to sustainability reporting, which includes reporting on the risks and impact of sustainability issues on a company, as well as the company’s impacts on the environment and society.

The new publication highlights key areas of relevance for companies preparing to publish their first CSRD reports, including establishing governance and internal controls, designing and conducting materiality assessments, ensuring transparency on transitional reliefs provided by the regulation in the first years of application, preparing a digital-ready sustainability statement and creating connectivity between financial and sustainability information.

In several parts of the report, ESMA highlights the importance of preparing data collection and management systems to meet the requirements of the CSRD. In the report, ESMA states:

“ESMA recognises that it may be difficult to meet the data availability and quality requirements arising from the ESRS requirements when first applying the ESRS. These requirements will require the development or strengthening of their sustainability data collection and monitoring infrastructure.”

Among the key guidance provided in the report is a call for issuers to “carefully implement their data collection and analysis systems and internal controls” to meet the ESRS’s detailed reporting requirements and to conduct dual materiality assessments. The regulator stressed that even companies with experience in sustainability reporting under previous regulatory systems should assess whether their existing systems are still fit for purpose under the CSRD.

The CSRD provides transitional reliefs for the first three years of reporting for companies that are unable to obtain information on their upstream and downstream value chains. In the report, ESMA encourages companies to carry out gap assessments on value chain information to enable continuous improvement as they start reporting, and reminds issuers that “the ESRS do not consider cases where a lack of data justifies the omission of material information.”

Other areas of guidance highlighted in the report include the need for companies to reconsider the materiality process, in particular to meet the needs of the CSRD’s dual materiality requirements, and to ensure full transparency on the materiality process. ESMA also noted the need for sustainability reports to be clearly structured and ready for digitalisation, and for companies to ensure the connectivity of financial and sustainability information, including by being able to report linkages within the sustainability statement as part of the information on current and anticipated financial impacts.

In addition to the ESRS report, ESMA also published its final report on the Guidelines on the Application of Sustainability Reporting (GLESI), establishing guidelines for supervisory bodies on the application of sustainability reporting regulations.

Click here to access the reports.