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 serves as a cornerstone of the EU’s comprehensive strategy to enhance corporate transparency, integrate sustainability into core business strategies, and foster long-term growth.

At the heart of this directive are the European Sustainability Reporting Standards (ESRS), which are designed to standardise how companies report on environmental, social, and governance (ESG) factors, ensuring that sustainability disclosures are consistent, comparable, and actionable across the EU.

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 an inclusive, multi-stakeholder process that incorporates insights from industry experts, policymakers, non-governmental organisations (NGOs) and academics. This approach guarantees that the standards are robust and practical for diverse industries and sectors.

The ESRS reflects the EU’s commitment to embedding sustainability in its economic model, aligning closely with the objectives of the European Green Deal, which sets a roadmap for Europe to achieve climate-neutrality by 2050 and promote inclusive, sustainable growth.

By establishing a common language and quantitative metrics for sustainability reporting, the ESRS addresses key policy goals, including advancing sustainable finance, strengthening investor confidence through transparency, and encouraging companies to align with the transition to a low-carbon, circular economy.

How Does the ESRS Align with Global Standards?

The standards are designed to address the EU’s sustainability goals and harmonise with global frameworks that guide corporate sustainability reporting. This alignment reduces the reporting burden for multinational companies and ensures consistency in sustainability disclosures worldwide.

Key global frameworks integrated within the ESRS include:

• TCFD: developed by the Financial Stability Board, the framework provides guidelines for companies to disclose how climate risks and opportunities affect their financial health. ESRS incorporates TCFD-aligned climate risk disclosure requirements, ensuring companies address governance, strategy, risk management, and metrics related to climate change.
• GRI: a globally recognised framework for reporting on a wide range of sustainability topics.  ESRS integrates GRI principles into its social and environmental disclosure requirements, enabling comprehensive and detailed reporting that is consistent with international best practices.
• ISSB: recently formed by the IFRS Foundation, the ISSB focuses on financially material sustainability disclosures. The ESRS draws on ISSB standards to address material sustainability-related financial information, ensuring disclosures meet investor expectations for clarity and comparability.

At its core, the ESRS framework establishes a comprehensive, unified methodology for reporting sustainability metrics, enabling companies to communicate their performance effectively to stakeholders.

ESRS and Double Materiality

The ESRS framework’s "double materiality" principle is a defining feature that sets it apart from traditional financial reporting standards. Double materiality requires companies to evaluate two dimensions of their sustainability impact:

• Financial materiality: how ESG factors influence a company's financial performance.
• Impact materiality: how the company's operations, products, or services affect broader societal and environmental outcomes.

This dual perspective broadens the scope of corporate accountability, urging companies to consider not only shareholder value but also responsibilities to the planet and society.

Implementation timeline

The implementation of ESRS is structured in phases to allow companies sufficient time to adapt to the new requirements.

Initial sets of general and topical standards have already been adopted, while sector-specific standards are being developed with a phased rollout planned through 2026. These sector-specific standards will address unique sustainability challenges and opportunities within industries like energy, agriculture, textiles and finance.

Understanding the ESRS and its purpose

The ESRS framework is structured into four broad categories: General, Environmental, Social, and Governance. Each category encompasses specific themes with detailed disclosure requirements designed to capture the nuances of sustainability performance.

1. Cross-cutting standards

These standards set the foundational approach for CSRD reporting and apply uniformly across all ESG topics. They define key structural elements such as reporting boundaries, materiality assessments, and governance disclosures.

Reporting obligations: mandatory cross-cutting standards include:

• ESRS 1: General Requirements - Outlines overarching principles for sustainability reporting, including governance, materiality and strategic alignment.
• ESRS 2: General Disclosures - Provides guidelines for key disclosures, including the roles of governance bodies, due diligence and performance metrics.

2. Topical standards

In contrast, topical standards address specific and well-defined themes within the ESG spectrum, providing detailed and actionable guidelines for reporting on particular issues such as climate change, biodiversity, social equity, and governance practices. These standards align with the European Union’s Corporate Sustainability Reporting Directive (CSRD) framework, ensuring harmonisation and compliance.

Each topical standardises into the details of a specific sustainability area, requiring metrics and disclosures that are both qualitative and quantitative, tailored to the unique materiality of the topic. This ensures relevance and consistency in reporting.

This targeted approach allows companies to report on each sustainability aspect with specificity, ensuring that stakeholders receive granular, relevant information about a company's impact and performance in critical areas.

Reporting obligations: based on double materiality analysis except for ESRS E1, which operates under the rebuttable presumption principle. Under this principle, an organisation is required to demonstrate that it is not significantly affected by climate-related issues. Failing this, the organisation is obligated to report on climate concerns, aligning with ESRS guidelines.

Environmental criteria

• ESRS E1: Climate Change - requires granular disclosures on climate change mitigation efforts, adaptation strategies, and greenhouse gas (GHG) emissions (Scope 1, 2, and 3). This also includes climate risk management aligned with frameworks such as TCFD (Task Force on Climate-related Financial Disclosures).
• ESRS E2: Pollution - addresses pollution control measures, action plans, and impacts of pollutants (e.g., air, water, soil, and noise pollution) on the environment.
• ESRS E3: Water and Marine Resources - focuses on water stewardship, including withdrawal, consumption, recycling, and wastewater management, alongside conservation strategies for marine ecosystems.
• ESRS E4: Biodiversity and Ecosystems - encompasses biodiversity net gain strategies, habitat conservation efforts, and monitoring of ecosystem services to ensure sustainable development.
• ESRS E5: Resource Use and Circular Economy - details practices promoting sustainable resource utilisation, life-cycle assessments, waste reduction, and initiatives fostering a circular economy.

Social criteria

• ESRS S1: Own Workforce - details policies and practices impacting the workforce, including engagement, diversity, equity, inclusion, health and safety measures.
• ESRS S2: Workers in the Value Chain - reports on labour conditions, wage fairness, and workplace rights across the supply chain, ensuring alignment with ILO standards.
• ESRS S3: Affected Communities - requires companies to assess their socio-economic impact on communities, focusing on cultural heritage, resettlement, and community well-being programs.
• ESRS S4: Consumers and End-Users - focuses on consumer relations, product safety, data privacy and the ethical implications of product and service delivery.

Governance criteria

Reporting obligations: based on double materiality analysis

• ESRS G1: Business Conduct - addresses corporate governance practices, anti-corruption frameworks, lobbying activities, and supplier risk management. This includes adherence to international standards like the UN Global Compact.

These themes collectively provide a structured framework to ensure that sustainability reports across different companies are materially relevant, comparable, and transparent, aligning with CSRD compliance requirements.

Don't miss out on the specifics and implications of each standard of ESRS!

Access the full details of the disclosure requirements for each theme of ESRS with our guide, designed to provide your organisation with insights to better navigate CSRD reporting. Click here to claim your copy.

Sustainability Reporting in EU: Expansion of ESRS with Sector-Specific Criteria

Sector-specific standards are being developed to complement the general and topical ESRS, with around 40 sectoral criteria expected to be published by the European Financial Reporting Advisory Group (EFRAG).

By early 2025, EFRAG will introduce the first draft of sector-specific standards. These are expected to be adopted by the European Commission by 2026 to guide companies in high-impact industries, such as oil, gas, mining, and coal, followed by the financial, apparel, and agriculture sectors.

Examples of sector-specific disclosure include:

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.
• Disclosures on carbon capture, storage technologies, and energy efficiency measures.

Health and safety:

• Worker safety statistics and measures for minimising occupational hazards in energy production facilities.

ESRS Disclosure Requirements for Financial Services Sector

Sustainable Finance:

• Proportion of green investments, alignment with EU Taxonomy, and disclosure of ESG criteria in asset management practices.

Climate Risk:

• Assessment of climate-related financial risks and stress-testing scenarios.

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 and environmental standards, including certifications.
• Due diligence processes to ensure fair labor practices and human rights.

Sustainable Materials:

• Breakdown of natural versus synthetic fibers, percentage of recycled content, and certifications like GOTS (Global Organic Textile Standard).

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, methane management, and climate-smart agriculture initiatives.

How to prepare for CSRD reporting with the ESRS framework

Assess your company’s standing

Assess whether your company already tracks the necessary data required for compliance with CSRD regulations. Is your data collection comprehensive and reliable? For instance, do you have clear metrics for carbon emissions, energy consumption, water use, waste management or social initiatives? If your data is incomplete or scattered across various departments, now is the time to establish a centralised and scalable data management system.

Additionally, evaluate your internal capacity: does your team have the expertise to handle the complexities of CSRD requirements, or will additional resources or training be necessary? Consider integrating cross-departmental ESG training programs to ensure alignment across all levels.

Double materiality analysis

The CSRD introduces the concept of double materiality, requiring companies to assess not only the financial materiality of ESG issues but also their environmental and social impacts.

Start by gathering data from both internal and external sources, carefully analysing stakeholder expectations, regulatory obligations, and industry-specific impacts. For example, consider conducting stakeholder surveys or using external ESG data providers to validate your assessments. Through discussions with relevant departments and key stakeholders, identify and prioritise ESG issues, mapping how these intersect with their operations and strategic objectives.

After evaluating both financial and impact materiality, rank the issues based on their significance. This ranking will help you focus on the most material sustainability topics for your reporting. Issues scoring highly in both dimensions require particular attention, although even those ranking highly in only one may still warrant inclusion in your disclosures.

Once you have a clear view of your company’s most material ESG issues, determine which ESRS apply to your report. This step can be challenging, as companies may struggle to keep track of the connections between various disclosure requirements, leading to confusion and inefficiencies in reporting.

At Apiday, we simplify this by automatically identifying the applicable ESRS standards based on your materiality assessment and generating custom ESRS questionnaires, enabling seamless data collection and compliance.

Understand ESRS requirements

To effectively align data collection and reporting practices with regulatory expectations, it’s essential for companies to fully comprehend the scope and depth of these requirements, ensuring no critical information is missed.

Begin by gaining a thorough understanding of ESRS 2, which defines the “Minimum Disclosure Requirements” (MDRs) that all companies must follow.

ESRS requires both qualitative and quantitative data. For qualitative disclosures, you should detail the contents, objectives, and implementation scope. If any policy or action is missing, it should be noted transparently. Quantitative data requirements range from simple percentages to more complex, detailed tables. These tables must follow standardised formats outlined by the ESRS for consistency.

Additionally, ensure alignment with EU Taxonomy objectives and sector-specific ESRS requirements, where applicable, to provide a comprehensive sustainability picture. This includes linking ESG metrics to financial performance and integrating scenario analyses, such as those recommended by the TCFD.

Prepare early for third-party verification

The CSRD requires limited assurance initially, escalating to reasonable assurance audits over time, ensuring credibility and alignment with ESRS standards. Similar to financial audits, third-party auditors will verify that ESG data is accurate, complete, and follows ESRS and EU Taxonomy alignment requirements.

Engage with auditors early to better understand their expectations, align processes, and avoid delays in the verification process. Establish a clear audit trail by documenting methodologies and maintaining organised records of all data sources and calculations.

Prepare for data collection and reporting

Mapping where each type of data is stored and ensuring each department understands its role in the reporting process is crucial. If you rely on third-party providers for data like emissions or supply chain management, coordinate with them for timely and accurate information.

Assign a data owner for each key data point—a person or team responsible for collecting, maintaining, and verifying it.

Establish proper controls to prevent errors or duplications, and use a centralised data management system with  built-in ESG reporting capabilities to minimise mistakes and maximise efficiency.

Perform a gap analysis

Conducting a gap analysis helps identify areas where your company may be falling short and offers direction for improvement.

Review ESRS disclosure requirements and assess each data point to confirm whether it’s currently being collected and reported by your company. Pay special attention to new requirements introduced under ESRS, such as mandatory reporting on biodiversity impacts, supply chain emissions, and social equity.

This analysis should be an ongoing practice, not a one-time task. Even after closing initial gaps, it's important to continually reassess your reporting to stay aligned with evolving requirements.

Draft your report

Make sure that each key performance indicator (KPI) in your report is linked back to its original data source.

Provide clear documentation of the methodologies used to calculate each metric, whether it's emissions measurements or social impact assessments.

A key requirement is machine-readable digital tagging using XBRL (eXtensible Business Reporting Language), which standardises your report, making it easier for regulators and auditors to process, compare, and verify the information. Failure to adopt digital tagging could lead to regulatory scrutiny or non-compliance. .

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 provide an end-to-end solution for CSRD compliance, from conducting materiality assessments to generating fully compliant reports. Our platform ensures you stay ahead of the curve while minimising the resource burden on your team.

Take the first step towards CSRD compliance now—book a no-obligation session with one of our experts to explore how we can support your journey.

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