The first set of reports under the Corporate Sustainability Reporting Directive (CSRD) are due on January 1, 2025. The European Securities and Markets Authority (ESMA) will be monitoring these reports closely. The regulator recently released its enforcement priorities for the 2024 reporting period and sustainability statements are one of three focus areas. Among several other issues are companies’ materiality assessments and disclosures surrounding the methodologies used to determine the materiality of specific topics. The ESMA states:
“ESMA underlines the importance for issuers to carefully consider the materiality regime associated with the ESRS disclosures. ESMA notes that Section 3.2 of ESRS 1 defines the materiality regime attached to the different types of [Disclosure Requirements] which is further illustrated in Appendix E of ESRS 1. More specifically, ESMA emphasises the fact that, irrespective of materiality, all DRs and their datapoints in ESRS 2 are mandatory. This includes all DRs and datapoints related to DR IRO-1 in topical standards, whether or not the related topics are eventually found to be material as a result of the materiality assessment process.”
The CSRD is a massive reporting framework listing over 1000 individual data points. The catch is that companies typically must only report on data points for topics they deem material. However, the ESMA will be looking to bring enforcement actions against companies that do not adequately disclose the processes and methodologies of their materiality assessments, even if those assessments ultimately determine that a topic is not material. We are expecting to learn a lot from the first round of CSRD reporting. The massive law is unprecedented so the first round of disclosures – and how the ESMA responds to those disclosures – will teach about the future of sustainability reporting in the EU – and for those US-based companies caught in the CSRD net.
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