ESMA’s 2024 Corporate Reporting Priorities Highlight Sustainability Statements and Transparency

The European Securities and Markets Authority (ESMA) has once again reinforced its commitment to transparency and accountability with the release of its 2024 European Common Enforcement Priorities (ECEP) for corporate reporting.

These priorities, applicable to issuers listed on regulated markets within the European Economic Area (EEA), emphasize sustainability statements and their growing importance in corporate disclosures.

ESMA's focus reflects a wider trend towards robust sustainability reporting in line with International Financial Reporting Standards (IFRS) and European Sustainability Reporting Standards (ESRS).

A Spotlight on Sustainability Statements

The integration of sustainability metrics alongside financial disclosures has emerged as essential for transparent corporate reporting. Sustainability statements are now required to be as comprehensive and relevant as traditional financial statements, a move ESMA has been advocating for since the advent of the ESRS.

Verena Ross, ESMA Chair, previously remarked that

“accurate and transparent sustainability disclosures are no longer optional; they are crucial in today’s investment environment and form the foundation for investor trust.”

For 2024, ESMA is pushing companies to further enhance the materiality, structure, and clarity of their sustainability statements.

1. Double Materiality Assessments and Stakeholder Engagement in Sustainability Statements Double Materiality assessments form a core component of sustainability statements, with ESMA emphasizing that they should address both impact and financial materiality. ESMA’s guidelines advocate for comprehensive disclosures that outline the processes companies use to identify material ESG issues. According to the ECEP document, this includes “explicitly defining how material sustainability topics are selected, how these relate to stakeholder interests, and the impact on the company’s long-term goals.” In practice, companies must now document their engagement with stakeholders, detailing how their input shapes materiality determinations. This approach builds on ESMA’s 2023 guidance, which recommended increased transparency in how materiality is assessed within sustainability reports.

   
   

2. Scope and Structural Alignment of Sustainability Statements with Financial Statements For sustainability statements to be effective, ESMA requires them to mirror the scope and structure of consolidated financial statements. This alignment allows stakeholders to compare sustainability and financial data more effectively. ESMA notes that sustainability statements should provide data covering the entire group, enabling a holistic view of a company's environmental, social, and governance (ESG) impact. Furthermore, ESMA encourages companies to use the ESRS-recommended structure to ensure sustainability statements are accessible and consistent across industries. As seen in ESMA’s review of 2023 disclosures, inconsistent or fragmented reporting undermines stakeholder confidence and the efficacy of sustainability disclosures.

   
   

3. EU Taxonomy Regulation Disclosures within Sustainability Statements Another critical aspect of the 2024 ECEP involves the EU Taxonomy Regulation’s Article 8, which outlines requirements for disclosing environmentally sustainable activities. According to ESMA, sustainability statements must now clearly separate metrics required under the regulation from supplementary information. ESMA expects that companies avoid ambiguities by using standardized templates that distinguish between “taxonomy-eligible” and “taxonomy-aligned” activities. Reflecting on its findings from 2023, ESMA noted that insufficient clarity around taxonomy disclosures often led to investor confusion and potential misinterpretation of a company’s environmental impact.

   
   
   
   

Historical Context and the Shift Toward Transparency

The focus on sustainability statements is not entirely new for ESMA but represents the culmination of a years-long shift towards integrating ESG factors into corporate reporting standards.

This began with the 2018 introduction of the Non-Financial Reporting Directive (NFRD), which set preliminary expectations for non-financial disclosures. Following this, the Corporate Sustainability Reporting Directive (CSRD), expanded the scope of mandatory sustainability disclosures to nearly 50,000 companies across the EU.

Over time, ESMA has fine-tuned its approach, moving from broad recommendations to highly specific expectations. In 2023, ESMA underscored the need for transparent disclosures in its statement on European priorities, emphasizing “the interdependence of financial and non-financial reporting” and the role of sustainability statements in depicting a company’s comprehensive impact.

The 2024 ECEP solidifies this stance, reflecting ESMA’s commitment to evolving the corporate reporting landscape in response to heightened investor and regulatory scrutiny​.

Linking Financial and Sustainability Disclosures

A key element of the 2024 priorities is the connection between financial and non-financial disclosures.

ESMA emphasizes that sustainability statements should complement financial data, showing the impact of ESG strategies on financial performance and vice versa. This connectivity addresses a historical gap, as sustainability disclosures often appeared disjointed from core financial statements.

ESMA’s 2024 guidance advises companies to illustrate how climate goals, for example, might affect their balance sheets, cash flow statements, or revenue streams. This interlinked approach encourages a more transparent view of how companies integrate ESG risks and opportunities within their business models.

ESMA’s directive on this connectivity echoes the 2022 report titled From Black Box to Open Book, where it noted that a lack of transparency in IFRS 17 disclosures hindered stakeholders’ ability to understand the link between financial statements and the sustainability actions companies were taking.

The report observed that “integrating sustainability and financial reporting through a clear narrative can enhance investor understanding and support informed decision-making.” This sentiment remains central to ESMA’s approach in 2024, pushing companies to bridge the gap between ESG ambitions and their financial implications​.

Digital Compliance Through ESEF Standards

The digital reporting landscape is another focal point in ESMA’s ECEP. The adoption of the European Single Electronic Format (ESEF) aims to streamline corporate filings, making disclosures more accessible and comparable for stakeholders.

ESMA’s emphasis on ESEF compliance for sustainability statements addresses recurring issues with reporting errors, urging companies to adopt accurate digital reporting practices. This requirement aligns with ESMA’s goal of increasing transparency and comparability in corporate disclosures across digital platforms, a trend it initiated in 2020 as part of the ESEF mandate.

Implications for Companies and the Road Ahead

The elevated standards for sustainability statements reflect ESMA’s response to growing demands for credible ESG reporting. By following ESMA’s 2024 priorities, companies not only meet regulatory requirements but also convey their sustainability commitments with authenticity and transparency. This commitment is increasingly seen as essential in attracting investment, as stakeholders prioritize companies that demonstrate clear and actionable ESG strategies.

Ultimately, ESMA’s 2024 priorities mark a pivotal moment for corporate ESG reporting. With a heightened emphasis on sustainability statements, materiality, and alignment with financial reporting, ESMA is setting a new benchmark for transparency and accountability within the EEA. By adhering to these guidelines, companies can strengthen their ESG narratives, build stakeholder trust, and contribute to a more sustainable and responsible business environment across Europe.

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