What are the European Sustainability Reporting Standards (ESRS)?

Corporate responsibility within the European Union has taken a significant leap forward with the implementation of the Corporate Sustainability Reporting Directive (CSRD).

This directive is a cornerstone of EU’s comprehensive strategy to enhance transparency and promote sustainable growth among enterprises.

At the heart of this directive are the European Sustainability Reporting Standards (ESRS), designed to standardise how companies report on environmental, social, and governance (ESG) factors.

Let's delve into the specifics of ESRS and examine their implication.

Overview of key themes in ESRS reporting standards

The European Financial Reporting Advisory Group (EFRAG) develops the ESRS standards through comprehensive consultations with a wide range of stakeholders, including industry experts, regulatory bodies, and civil society organisations, ensuring that the standards are robust and applicable across diverse sectors.

Each standard is meticulously crafted to comprehensively and holistically capture critical aspects of sustainability that a company might influence or be impacted by, aiming to reflect both its current sustainability performance and future commitments.

At its core, the ESRS framework establishes a uniform methodology for reporting sustainability metrics.

Implementation

The implementation of ESRS is structured in phases.

Initial sets of general and topical standards have already been adopted, and sector-specific standards are expected to follow.

Although the European Commission initially planned to adopt these sector-specific standards by June 2024, the deadline has been extended to 2026 to ensure thorough development and consultation.

Understanding ESRS and its purpose

The ESRS framework is structured into 12 key themes, distributed across four broad criteria: General, Environmental, Social, and Governance.

Each theme addresses specific aspects of sustainability with detailed disclosure requirements.

Disclosure requirements refer to the specific pieces of information that companies are mandated to provide in their sustainability reports under the ESRS framework.

General criteria

Reporting obligations: mandatory

• ‍ESRS 1: General Requirements - sets out foundational principles for sustainability reporting, including governance structures, strategic relevance, and performance metrics.
• ESRS 2: General Disclosures - covers broad preparation basics for sustainability reporting, detailing roles of administrative bodies and due diligence processes.

Environmental criteria

Reporting obligations: based on double materiality analysis except for ESRS E1, which operates under the rebuttable presumption principle; the organisation is required to demonstrate that it is not affected by climate-related issues, otherwise it is required to report on climate concerns.

• ‍ESRS E1: Climate Change - involves detailed requirements for reporting on climate change mitigation, adaptation strategies, and greenhouse gas emissions.
• ESRS E2: Pollution - addresses pollution control measures, action plans, and impacts of pollutants on air, water, and soil.
• ESRS E3: Water and Marine Resources - focuses on water and marine resource management, including consumption, impacts, and conservation strategies.
• ESRS E4: Biodiversity and Ecosystems - encompasses impacts and management of biodiversity, including conservation efforts and interaction with ecosystems.
• ESRS E5: Resource Use and Circular Economy - covers sustainable resource use, recycling initiatives, and circular economy practices.

Social criteria

Reporting obligations: based on double materiality analysis

• ‍ESRS S1: Own Workers - details policies and practices impacting the workforce, including engagement, diversity, and health and safety measures.
• ESRS S2: Workers in the Value Chain - reports on the treatment and conditions of workers throughout the supply chain, emphasising fair labour practices.
• ESRS S3: Affected Communities - requires disclosures on impacts and engagement with local communities, ensuring transparency in operations and community interactions.
• ESRS S4: Consumers and End-Users - focuses on consumer relations, product safety, and the impacts of products and services on end-users.

Governance criteria

Reporting obligations: based on double materiality analysis

• ‍ESRS G1: Governance, Risk Management, and Internal Control - covers governance structures, risk management processes, and internal controls.
• ESRS G2: Business Conduct - addresses ethical business conduct, including anti-corruption practices, political influence, and supplier management.

These themes collectively provide a structured framework to ensure that sustainability reports across different companies are comparable, transparent, and comprehensive.

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Sustainability reporting in EU: Expansion of ESRS with sector-specific criteria

Sector-specific standards are being developed to complement the general and topical ESRS. Around forty sectoral criteria should soon be published, covering various sectors.

These standards will ensure that disclosures are relevant and material to the specific contexts of different industries, thereby enhancing the relevance and comparability of the information disclosed by companies within the same sector.

Examples of sector-specific disclosure requirements

ESRS disclosure requirements for energy sector

Climate change and emissions:

• Detailed reporting on Scope 1, 2, and 3 greenhouse gas (GHG) emissions.
• Strategies for transitioning to renewable energy sources and reducing carbon footprint.
• Impact of energy production on local ecosystems and biodiversity.

Health and safety:

• Worker safety statistics and measures for ensuring safe working conditions in energy production facilities.

ESRS disclosure requirements for financial services sector

Sustainable Finance:

• Proportion of investments in green or sustainable finance products.
• Criteria and processes for integrating ESG factors into investment decisions.

Climate Risk:

• Assessment and management of climate-related financial risks.

Social Impact:

• Impact of lending and investment decisions on social issues, such as community development and affordable housing.

ESRS disclosure requirements for apparel and textile sector

Supply Chain Transparency:

• Geographic locations and compliance of suppliers with labour standards.
• Due diligence processes to ensure fair labor practices and human rights.

Sustainable Materials:

• Percentage of materials sourced sustainably or recycled.

Water and Chemical Usage:

• Data on water consumption and management practices, including efforts to reduce hazardous substances in production.

ESRS disclosure requirements for agriculture and food sector

Sustainable Farming Practices:

• Use of sustainable farming techniques and reduction of chemical inputs.
• Impact on soil health, water resources, and biodiversity.

Nutritional Quality and Food Safety:

• Efforts to improve the nutritional quality of food products.

Greenhouse Gas Emissions:

• Emissions related to agricultural practices and initiatives to reduce them.

In conclusion…

The Directive’s impact is poised to be profound. If your company must comply with the CSRD, you should begin immediately.

The deadline is rapidly approaching, and the consequences of noncompliance can be significant.

At Apiday, we understand the complexities and challenges involved in the reporting process.

That's why our platform is designed to simplify and streamline it by:

• Identifying your specific reporting requirements
• Pre-populating ESRS templates
• Highlighting any data gaps that need to be addressed
• And providing you with a fully compliant CSRD reporting pack, complete with digital tagging and EU Taxonomy alignment, ready for audit and seamless integration into your annual reporting

So you can focus on what matters the most: driving change in your company rather than fetching and crunching data!

Take the first step towards CSRD compliance now, book a no obligations session with one of our experts!