EU: a quick read of "ESMA's Guidelines on enforcement [meaning "supervision" in this case!] of sustainability information" to help issuers get it right

 Enforcement = Supervision!

The European Securities and Markets Authority (ESMA) has delivered final guidelines under the CSRD to ensure consistent enforcement of sustainability information. 

The key thing to note when approaching these guidelines is that “enforcement” in fact means “supervision”! This is stated by the definition in 2.3  (which is explained as being consistent with the use of enforcer as supervisor in an earlier set of ESMA guidelines related to the enforcement of financial information). 

The goal of the guidelines is to support a consistent and robust approach to how national authorities monitor sustainability disclosures. It is anticipated that this will facilitate connectivity between the reporting of listed companies' sustainability and financial information.

Scope of guidelines

These guidelines, effective from 1 January 2025, apply to all competent authorities undertaking supervision of sustainability information under the Transparency Directive. This encompasses all sustainability information provided by EU issuers with securities admitted to trading on a regulated market, and third country issuers using the European Sustainability Reporting Standards or their own equivalent reporting requirements.

Mainly for national competent authorities, but useful for issuers to read too

Although mainly of use to national competent authorities in standardising their supervisory approach, the guidelines are of interest to issuers producing sustainability disclosures to understand how that content will be reviewed, what can happen if supervisors disagree with it, and how pre-clearances may be obtained to avoid the need for corrections after the event:

1.Enforcement and Compliance

Competent authorities ("enforcers") are responsible for examining whether sustainability information is prepared in line with the ESRS and taking action when infringements are identified. Enforcers can require restatements or corrections depending on the materiality and nature of deviations.

2. Pre-Clearance for Issuers

The guidelines also allow issuers to seek pre-clearance, enabling them to get an “enforcement decision” on their sustainability disclosures before publication. Pre-clearance should only occur after the issuer and its auditor have finalised their position on the relevant disclosures. The process must follow formal procedures and should be based on specific disclosures, so as not to become routine guidance or vague interpretations of the sustainability standards.