The “Summer of CSRD” series – reporting time horizons

The EU’s Corporate Sustainability Reporting Directive will have broad impact. Approximately 50,000 undertakings are expected to have a reporting obligation. The recently finalized European Sustainability Reporting Standards specify the information required to be reported under CSRD.

As we recently posted, this summer’s ESG must-read is ESRS 1, which contains the general requirements applicable to CSRD reporting. The objective of ESRS 1 is to provide an understanding of the architecture of the ESRS, the drafting conventions and fundamental concepts used and the general requirements for preparing and presenting sustainability information in accordance with CSRD.

Understanding ESRS 1 is therefore critical to preparing for CSRD reporting. It will drive not only disclosure, but also the underlying processes and controls. As a threshold matter, understanding ESRS 1 also is important for developing the project plan for CSRD readiness.

Posts in this “Summer of CSRD” series discuss selected aspects of ESRS 1, in a bite-sized read, in more or less the order presented in ESRS 1.

In the last post, we discussed the value chain.

In this post, we discuss reporting time horizons, which are addressed in ESRS 1, chapter 6.

Reporting period

The reporting period for the undertaking’s sustainability statement is required to be consistent with that of its financial statements.

Linking past, present and future

Undertakings are required to establish appropriate linkages in the sustainability statement between historical and forward-looking information, when relevant, to foster a clear understanding of how historical information relates to future-oriented information. ESRS 1 specifically addresses the scenarios below.

Reporting progress against the base year

The undertaking is required to present a comparison to the base year when reporting developments and progress toward a target, unless the relevant ESRS Disclosure Requirement already defines how to report progress.

The undertaking also may include historical information about achieved milestones between the base year and the reporting period if relevant.

Definition of short-, medium- and long-term for reporting purposes

When preparing its sustainability statement, the undertaking is required to adopt three time horizons:

• short-term: the reporting period in the financial statements;
• medium-term: from the end of the short-term reporting period up to five years; and
• long-term: more than five years.

If a different medium- or long-term time horizon is indicated in an ESRS, that time horizon is instead required to be applied.

In addition, the undertaking must further break out the long-term time horizon if necessary to provide relevant information to users of sustainability statements.

If the medium- or long-term time horizons indicated above will result in information that is not relevant because the undertaking uses a different definition for (1) its processes of identifying and managing material impacts, risks and opportunities or (2) its actions and setting targets, the undertaking may adopt different medium- and/or long- term time horizons. 

By way of example, ESRS 1 notes that this may be due to industry-specific characteristics, such as cash flow and business cycles, the expected duration of capital investments, the time horizons over which the users of sustainability statements conduct their assessments or the planning horizons typically used in the undertaking’s industry for decision-making.

Next up: preparation and presentation of sustainability information.

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