EFRAG sustainability reporting e ESRS volontario

The European Financial Reporting Advisory Group (EFRAG) and CDP (formerly the Carbon Disclosure Project) announced a collaboration to align CDP's environmental and sustainability reporting system with the European Sustainability Reporting Standards (ESRS). The collaboration also includes the study of measures to facilitate market adoption of the new reporting rules. In this context, EFRAG, on 8 November 2023, published a draft on the voluntary sustainability reporting standard "Voluntary ESRS" for micro enterprises and unlisted SMEs.

Voluntary ESRS removes any doubts about the voluntary adoption of adequate sustainability reporting along with corporate financial statements, even for companies not subject to the obligation of the EU Directive 2022/2464, Corporate Sustainability Reporting Directive (CSRD), effective 5 January 2023. This directive is in line with the general principles and objectives of the EU CSRD Directive itself. Although it is a draft, the document is a useful reference point for companies and practitioners to prepare a proportionate sustainability reporting, from the fiscal year 2024 onwards, for all companies operating within the value chain of large enterprises. The principle provides for a simplified modular reporting system for micro enterprises, which does not require materiality analysis.

The aim of the voluntary ESRS is to support micro, small and medium-sized enterprises in achieving the following objectives: contribute to a more sustainable and inclusive economy; improve sustainability management on the issues they face, such as environmental and social challenges, e.g. pollution and occupational health and safety; provide information to meet the data demands of lenders and investors, helping enterprises in their access to targeted long-term financing; provide sustainability information to their suppliers, already from FY2024.

The voluntary ERS is aimed at companies that do not fall under the obligation of the Sustainability Reporting Directive. According to Article 3 of Directive 2013/34/EU, there are three categories of small and medium-sized enterprises, namely: micro enterprises that do not exceed two thresholds: EUR 350,000 balance sheet total, 700.000 net turnover and 10 employees; small enterprises that do not exceed two specific thresholds: EUR 4 million balance sheet total, EUR 8 million net turnover or an average of 50 employees; medium-sized enterprises that do not exceed the following thresholds: EUR 20 million balance sheet total, EUR 40 million net turnover and 250 employees.

The ESRS (European Sustainability Reporting Standards) offers three modules that companies can choose as the basis for their sustainability reporting. The basic module represents the basic approach for micro enterprises and is the minimum requirement for other companies. A materiality analysis is not required. The Narrative Policies, Actions and Objectives (PAT)module defines the narrative information related to the Policies, Actions and Objectives (PAT) that the enterprise must report if it has implemented them. The Business Partners Module (BP) which requires additional data that may be requested by investors, corporate customers and lenders. A materiality analysis is required to focus sustainability reporting only on data relevant to the company. Companies after choosing the form must comply with it in full.

Micro-enterprises and SMEs prepare the sustainability report annually at the same time as the annual report. It is possible to present the sustainability report in a separate section of the management report. If the regulations do not provide for it, the company may present the sustainability report in a separate document. The sustainability statement has mandatory application requirements (such as ESRS 1 for large companies) as a principle. In addition, these principles must be applied when drafting the forms (PAT narrative or Business Partner Module, BP).

When preparing the sustainability report, the company applies the following time horizons: short-term (one year); medium-term (two to five years); long-term (more than five years). In addition, if the company also prepares financial statements, the disclosure in the sustainability report also shows the aspect of consistency with what is reported in the financial statements for the same year as the sustainability statement. In addition, the sustainability statement sustainability can be presented with the financial statement disclosures highlighting the various links.

The company is required to report on its environmental, social and business conduct issues, including comparative information from the second year of reporting. The reporting obligation requires disclosures of environmental metrics according to specific disclosures covering practices for the transition to a more sustainable economy; energy and greenhouse gas emissions; air, water and soil pollution; biodiversity; water; resource use, circular economy and waste management. The social metrics based on specific disclosures covering the following topics: workforce; workforce (health and safety); pay, collective bargaining and training. Finally, the corporate conduct with disclosure on issues concerning convictions, fines for bribery and corruption. The information must be reported and no materiality assessment is required.

SMEs should map the sustainability information they already know or could obtain, focusing on information elements relevant to corporate sustainability. These information elements include energy consumption, material used in products and packaging, vehicle use, water use and consumption, waste management and recycling, gender diversity, workplace accidents, remuneration policies, structure and leadership, and alignment with the General Data Protection Regulation (GDPR). Once this information is collected, SMEs should structure internal systems and tools to regularly collect and monitor sustainability information. In addition, they should assess opportunities for efficiency improvement and sustainability-related risks, using tools such as the B Impact Assessment questionnaire and the Circularity Check of Ecopreneur.eu.

It is important for the SME to develop realistic goals and key performance indicators (KPIs) to assess the sustainability of the company and regularly monitor progress towards the ESG goals. To help in this process, appropriate tools exist. For example, the Science Based Targets (SBTi) initiative supports organisations in setting science-based emission reduction targets. In this context, 3Bee stands out in the field of environmental technology and is actively engaged in biodiversity protection. It is dedicated to realising concrete and measurable projects for the regeneration of biodiversity, in accordance with ESG (Environmental, Social, and Governance) objectives and in line with new European regulations such as the CSRD.

Article by Angelina Tortora