ESRS standards breakthrough in ESG reporting, significant impact on the real estate sector

In a groundbreaking step towards a more sustainable future, the European Union has definitively established the European Sustainability Reporting Standards (ESRS). The new standards will bring about profound changes in the way companies, including real estate firms, deal with sustainability and ESG (Environmental, Social, and Governance) factors. This is a milestone that will make sustainability reporting within the EU more accurate, consistent, and transparent.

The ESRS were finalized at the end of July 2023 to make sustainability and ESG factor reporting within the EU more accurate and consistent. They apply to all companies that fall under the Corporate Sustainability Reporting Directive (CSRD), which ensures the reliability of sustainability reporting.

CSRD encompasses all parties in the chain, including suppliers and customers, involved in the process. In other words, even if you do not have to report yourself today, you may be involved as a customer of another party. The same strict rules apply to this involvement.

Test, verify, certify

In addition to reporting, the ESRS are intended for transformation, and they are expected to bring about profound changes in the way companies handle sustainability. They are a crucial step towards ESG accounting, which helps in identifying, measuring, and reporting ESG performance. This process requires careful collection, analysis, documentation, and verification of data according to certain standards and guidelines. Independent assurance may also be used to ensure reliability.

In ESG Accounting, an independent third party, such as an accountant, gives an opinion on the presented ESG information according to the principle of testing, verifying, and certifying.

Companies must describe their sustainability strategy, policy, implementation, and performance indicators. The first companies to experience the ESRS will be large enterprises with specific characteristics. Listed companies with more than 500 employees must report on sustainability starting from the fiscal year 2024, while large companies are obligated from 2025.

Not lagging behind competitors

It is crucial for real estate companies to prepare for the implementation of the ESRS to ensure compliance with the new reporting requirements and to prevent lagging behind competitors. Real estate firms must be aware of the new reporting requirements and prepare to collect and report data on sustainability and ESG factors.

The ESRS consist of two generic standards (ESRS 1 and ESRS 2) and three topical standards (ESRS E1 to E5, S1 to S4, and G1). The generic standards deal with concepts such as double materiality, reporting on the value chain, and how information should be gathered. The topical standards cover specific subjects such as climate change, pollution, and the circular economy.

Double materiality concerns the impact of the company on the environment and how the environment affects the company. Companies must provide information on governance, strategy, risk management, and internal control systems relating to sustainability goals and risks. They must also carry out a materiality assessment process.

The sustainability report must include comparative information for all metrics disclosed in the reporting period and explain any estimates or assumptions.

The ESRS were developed in conjunction with the CSRD and other sustainability legislation. The goal is more transparency regarding sustainability performance and the enhancement of strategies and policies in the field of sustainability. They are an important step towards a sustainable future and ensure that companies take responsibility for their impact, provide transparency, and contribute to a better world.