What ESRS means for US businesses

By now most US-based businesses, especially those operating globally, have heard of the European Sustainability Reporting Standards (ESRS) – the new disclosures required under the EU’s Corporate Sustainability Reporting Directive (CSRD). What might they mean for your company?  

Your US-based business could well fall into the ESRS scope if your operations qualify as a “significant undertaking” in the EU—having an EU subsidiary, or generating a certain threshold of revenue, for example. Even without these criteria though, companies that maintain any form of regulatory reporting must take note that the ESRS is emerging as the global standard for environmental, social and governance (ESG) reporting. Preparing for ESRS means readying your business for reporting requirements likely to emerge across markets over time.  

So, if ESRS matters, what does it entail and how can your business prepare? 

This year, the SEC climate rule formalised climate risk reporting requirements for a broad set of organisations, elevating the role of ESG on US companies’ strategic agendas. Many of these companies also adjusted reporting under the SEC’s 2023 enhanced human capital disclosures, and continue to manage a patchwork of state-level ESG requirements.   

Given an already complex landscape, incorporating ESRS considerations into reporting may seem like an unnecessary step. However, both regulatory and consumer trends indicate a growing focus on ESG, and the comprehensive nature of the ESRS makes it an impactful tool to guide reporting strategy in several ways:  

• Bringing ESG vision to life: laying the groundwork for ESRS compatibility now can help companies build long-term ESG capability. As a comprehensive ESG framework, the ESRS encourages an integrated approach to reporting that will help companies align internally on ESG strategy.   
• Comprehensive insights: investing in ESRS-compliant capability can give companies better insight into how ESG strategy is performing across operations, and prepare for future risk mitigation.
• Setting and maintaining a competitive edge: using ESRS principles to inform reporting and operational changes helps US-based companies compete with EU peers who already comply with the regulation. It can also give US-based organisations an edge with global consumers and investors, as transparent risk assessments and commitment on ESG increasingly create a competitive advantage across global markets.  

An opportunity for greater impact  

So how does ESRS differ from your current disclosures? While the SEC climate rule established a clear connection between climate risk and financial risk, the ESRS framework extends this conversation, using a ‘double materiality’ approach. Double materiality applies the concepts of both material risk and impact to include your company’s “inside-out” influence on society and the environment, not just the “outside-in” impact of these elements on a company’s internal operations.  

This means that efficiently and accurately reporting on a double materiality basis requires disclosure of external impacts, such as the asset exposure to climate-driven risk like fires or floods, and internal impacts like levels of natural resources use. For a typical company, this can comprise concepts including labour conditions, workforce diversity, and manufacturing decisions, and could require sourcing up to a thousand distinct data points from across multiple geographies and functions.  

Though the execution is complex, using the ESRS framework provides an immense and timely opportunity for US companies tell an accurate, future-focused ESG story. It also helps organisations to reimagine what “good” looks like for ESG strategy, and consider reshaping business practices or addressing areas in need of improvement.

Looking ahead  

So how can you incorporate ESRS considerations into existing ESG reporting activity? Four foundational steps stand out: