EU: ESMA identifies key focus areas for issuers reporting under the CSRD

The European Securities and Markets Authority (ESMA) has recently published the Guidelines on Enforcement of Sustainability Information (GLESI), accompanied by a Statement on the first application of the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD). This initial reporting by large issuers is set to begin in 2025, as anticipated by the CSRD. However, the Statement is an extremely helpful document in indicating ESMA’s key enforcement priorities, which will be relevant to all CSRD reporting entities (and not just issuers who are caught in the first year of CSRD reporting). We recommend considering this document when thinking about key priorities in implementing CSRD.

In its press release, ESMA noted that both the GLESI and the Statement align with the recommendations made in ESMA Position Paper “Building More Effective and Attractive Capital Markets in the EU.” These recommendations focus on promoting EU capital markets as a centre for green finance and enhancing supervisory consistency among EU national authorities. The press release also includes helpful resources such as an explainer video and visual aids.

Statement

The Statement specifically addresses large listed issuers and does not relate to the reporting obligations under Article 8 of the Taxonomy Regulation. 

ESMA emphasised that the sustainability statements to be published in 2025 represent a significant milestone in the learning curve for issuers and all stakeholders involved in the sustainability reporting ecosystem. Nonetheless, this learning curve does not exempt issuers from their duty to comply with the ESRS. 

ESMA underscores several crucial focus areas for preparing CSRD reports:

• Establishing governance frameworks and internal controls to support high-quality sustainability reporting. ESMA insists that clear, robust processes and internal controls enhance the credibility and quality of sustainability statements. ESMA has stressed that even companies that have experience with sustainability reporting under prior regulatory systems should assess if their existing systems are still fit-for-purpose under the CSRD.
   
• Conducting a thorough and transparent double materiality assessment.

It is crucial for issuers to meticulously carry out each step of their double materiality assessment: firstly, identifying the material sustainability-related Impacts, Risks and Opportunities (IROs) and the relevant sustainability matters for reporting; and secondly, choosing the material information linked to these IROs.

ESMA requires complete transparency in the materiality assessment process. This transparency aids in better understanding the assessment outcomes particularly because, apart from climate change, issuers are not obligated to justify the non-materiality of a sustainability topic.

ESMA reminds issuers that, for policies, actions and targets relating to the material sustainability matters identified, all related disclosure requirements and datapoints are mandatory for each material sustainability matter. Furthermore, if no policies, actions, or targets have been established for a particular sustainability matter, issuers must disclose this and may also provide a timeline for addressing these gaps.

• Being open about the use of transitional reliefs.

ESMA clarifies that the ESRS typically do not accommodate situations where data unavailability justifies omitting material information disclosure. Regarding value chain disclosures, issuers should consider the transitional provisions in the ESRS during the first three years of reporting, notably: (i) explaining any gaps in information about upstream and downstream value chains and plans to address these gaps; (ii) limiting information on policies, actions, and targets concerning value chains to data available internally or from public sources; and (iii) excluding value chain information from metrics disclosures except for metrics derived from EU law (e.g., Scope 3 GHG emissions).

ESMA also notes that if an issuer adopts phase-in reliefs for undertakings not exceeding 750 employees, they must still disclose whether the topics are material to the issuer and if so, provide certain de minimis information.

• Preparing a well-structured and digitisation-ready sustainability statement. Following the structure of the ESRS will facilitate future digital tagging, regardless of specific tagging requirements that the Commission may later adopt. 
   
• Ensuring connectivity between financial and sustainability information. 

Issuers should be able to report relevant connections and reconciliations within the sustainability statement, particularly regarding the current or anticipated financial effects of their sustainability practices, as well as other related disclosures (e.g., significant CapEx/OpEx for implementing specific actions).

ESMA emphasises the responsibility of issuers’ administrative, management, and supervisory bodies, as well as the crucial oversight role of the audit committee and other relevant committees, to: 

• ensure the overall internal consistency of the sustainability statement and its coherence with the rest of the annual financial report;
• oversee and manage internal controls; and 
• contribute to a high-quality sustainability statement.

GLESI

Under the CSRD, ESMA is mandated to issue guidelines on the supervision of sustainability reporting by national competent authorities. From December 2023 until 15 March 2024, ESMA consulted on the draft GLESI. The guidelines articulate the enforcement of sustainability information under the Transparency Directive, characteristics of enforcers, recommended selection techniques, other enforcement methodologies, and the types of enforcement actions enforcers should utilise, as well as coordination of enforcement activities with ESMA.

The GLESI will apply to the supervision of the first ESRS sustainability statements published in 2025. These guidelines apply to entities whose securities are traded on regulated markets within the EU. 

In drafting the GLESI, ESMA aimed to align them closely with the Guidelines on Enforcement of Financial Information (GLEFI), ensuring that sustainability information enforcement is as robust as financial information enforcement and helping to elevate sustainability information to the same standard as financial information.

Next Steps

Annex VI of the GLESI will be translated into all official EU languages and published on ESMA’s website. This will initiate a two-month period during which national competent authorities must notify ESMA whether they comply or intend to comply with the guidelines.

ESMA will continue to monitor sustainability reporting practices and the application of the GLESI in 2025. Additionally, ESMA plans to release in Q4 recommendations concerning the sustainability statements of listed companies in its 2024 Public Statement on the European Common Enforcement Priorities.

For more information on the ESRS and the CSRD, see our CSRD Demystified materials.