The research team at Integrum has identified a distinct shift in both the scope and nature of ESG information being disclosed by companies during this year’s reporting season.

So, what is causing this change?   

The driver behind this trend is the European Sustainability Reporting Standards (ESRS) framework, which is transforming corporate sustainability reporting and accountability in Europe.  

The ESRS aims to enhance transparency, accuracy, and comparability by requiring companies to report on their “material impacts, risks, and opportunities” relating to ESG matters.  

Who has been affected?

Only those companies subject to the Corporate Sustainability Reporting Directive (CSRD) must comply with the ESRS.       

The CSRD applies specific thresholds to various companies, but the rollout for mandatory reporting is phased. The first phase came into force this year (reporting on the 2024 financial year), and only Large EU companies already subject to the Non-Financial Reporting Directive and which have 500 or more employees (other EU companies to follow in the subsequent years) are in scope.

Below, we discuss the key trends we've observed so far - both the progress made and the areas of concern - as companies adapt to this new era of sustainability disclosure. 

The advantages:

Integrated Reporting Structure: 

Many companies are now publishing a single, integrated report that combines financial and non-financial information. These reports are generally well-structured and include a dedicated sustainability statement encompassing all ESG topics covered by the company.

Enhanced Historical Disclosure: 

A number of companies that previously did not disclose quantitative data for key ESG indicators are now providing figures not only for the current year but also for previous years. This aligns with the ESRS requirement for year-on-year (YoY) data, marking a significant step forward in transparency.

Improved Data Quality and ESG Performance: 

There has been a noticeable improvement in the quality of ESG data, which allows investors to better track improved performance across different sustainability objectives. For example, Tecnotree - a Finland-based telecom company, improved its own Integrum ESG score from an E to a B. 

The drawbacks:

Reduced Reporting on SDGs: 

A growing number of companies are no longer reporting comprehensively on the Sustainable Development Goals (SDGs). This kind of limited disclosure not only results in lower 'Impact Scores' on our platform for the companies involved but also risks undermining the entire European region’s alignment with the Sustainable Development Goals as their target deadline rapidly approaches.  

Subjective Interpretation of Standards: 

The interpretation of ESRS requirements and the assessment of materiality appears to vary significantly between companies.  

For instance, Amadeus Fire AG chose to discontinue disclosure of its GHG emissions after determining - based on its Impacts, Risks, and Opportunities (IRO) analysis - that such disclosures are immaterial to its business. 

This is a reg flag for investors as it will lead to inconsistent & unreliable data, greater due-diligence burden, as well as obscured risks and opportunities.

Discontinuation of Voluntary Metrics: 

Several companies have stopped reporting on ESG metrics they had previously disclosed voluntarily. An unintended effect of this change has been reduced comparability and benchmarking across sectors.  

Overall, the above drawbacks will make it harder for stakeholders to assess whether their values align with the long-term goals of a company, as well as comparing whether companies are making improvements YoY, in relation to their sector peers and across industries. However, once the sector-specific ESRS standards are introduced and the subsequent rollouts, this should help standardise reporting expectations across industries.  

Due to the phased rollout across companies and other delays and challenges like those due to the proposed Omnibus legislation, there is time before we see uniformity across companies and sectors. Developing a robust and reliable ESG dataset suitable for effective benchmarking will require time and effort, but the long-term benefits will make the investment worthwhile.

Conclusion

While we’ve seen encouraging progress in the integration of financial and non-financial data, enhanced data quality, and improved transparency - particularly through historical disclosures and more structured reporting - there are also challenges.  

Notably, inconsistencies in the interpretation of materiality and the scaling back of SDG reporting raise concerns about comparability and continuity.  

The introduction of sector-specific standards in the future is expected to bring greater clarity and uniformity, potentially addressing many of the current gaps. As the regulatory landscape continues to evolve, close monitoring and proactive engagement will be essential to ensure meaningful and decision-useful sustainability reporting.