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CESGA: ESG Regulation, Reporting Standards and Stewardship

CESGA · Work through your exam, one topic at a time.

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ESG Regulation, Reporting Standards and Stewardship

This domain tests the regulatory architecture: who must report, under which standard, on what materiality basis, and how investors exercise stewardship. Expect questions that compare ESRS and ISSB and test SFDR and CSRD scope.

Core rules

  • CSRD/ESRS. The EU Corporate Sustainability Reporting Directive requires large EU undertakings and listed SMEs, with phased application, to report under the European Sustainability Reporting Standards: ESRS 1 and 2 (general), E1–E5, S1–S4 and G1. ESRS uses double materiality-financial materiality plus impact materiality-and requires limited assurance and digital tagging.
  • ISSB. IFRS S1 and S2 use financial materiality and focus on enterprise value. S2 covers climate, incorporating TCFD structure and SASB industry metrics. ISSB is not identical to ESRS; ESRS is broader on impacts and stakeholders.
  • SFDR. Article 6 funds disclose sustainability risk; Article 8 funds promote environmental or social characteristics; Article 9 funds have a sustainable investment objective. SFDR is a disclosure regime, not a label of quality.
  • Stewardship. Engagement, escalation, voting and reporting are core. SRD II requires engagement policies and say-on-pay in the EU; the UK Stewardship Code sets reporting expectations for asset managers and owners.

Worked example

An EU company has 400 employees, €60m turnover and a €30m balance sheet. Under the Accounting Directive/CSRD large-undertaking test, it must exceed two of three thresholds: >250 employees, >€50m turnover, >€25m balance sheet. It exceeds all three, so it is in scope for CSRD and must report under ESRS once its phase applies. Reasoning: employee count and both financial thresholds matter; a company cannot avoid CSRD merely by being unlisted. If it were a non-EU parent, the test would instead focus on EU turnover above €150m and an EU subsidiary or branch.

Traps that cost marks

  • Treating ESRS and ISSB as interchangeable; they differ on materiality and impact reporting.
  • Assuming SFDR Article 8 means the fund is “sustainable” or taxonomy-aligned.
  • Confusing CSRD scope with the EU Taxonomy’s eligibility criteria.
  • Describing stewardship as engagement only; voting and escalation also count.
  • Ignoring phase-in dates and value-chain reporting reliefs.
  • Assuming global companies face one uniform reporting regime.