ESRS and CSRD: What you need to prepare for now

Image Source: Vadim Starling, shutterstock

The European Commission had adopted the first 12 European Sustainability Reporting Standards (ESRS) on 31 July 2023 . The ESRS will have a massive impact as a central component of the Corporate Sustainability Reporting Directive (CSRD). In our article, we highlight the most important aspects for you. We show you which ESRS are mandatory and what reporting content is required, how ESRS are related to other standards and what companies need to do now to be prepared for the new political requirements.


What are the ESRS standards?

The European Sustainability Reporting Standards (ESRS) are uniform European standards for sustainability reporting.

  • They are developed by the European Financial Reporting Advisory Group (EFRAG). EFRA is an independent, non-profit expert group that supports the European standard-setting process. It prepares recommendations and opinions on financial reporting, considering the interests of the European business community.
  • The ESRS standards are an integral part of the Corporate Sustainability Reporting Directive (CSRD).
  • The new ESRS standards require companies to conduct a very detailed analysis of their sustainability performance, some of which extends into supply chains and to the end of product life cycles.
  • A separate sustainability report according to ESRS is not intended for companies affected by the Corporate Sustainability Reporting Directive (CSRD). Nevertheless, ESRS reporting can be useful for marketing or communication reasons.


How are CSRD and ESRS related?

  • With the CSRD, sustainability information becomes part of the group management report and is subject to an external audit requirement. Sustainability indicators are thus on a par with other reportable information from financial reporting.
  • The ESRS are the core of the CSRD, they define what and how a company must report.
  • In future, companies must be able to explain how certain ESG data was collected and ESRS KPIs were arrived at.


Who has to report according to CSRD and/or ESRS and when?

The CSRD foresees staggered phasing-in periods for the reporting obligations. For example (link):

  • Companies that are already subject to the Non-Financial Reporting Directive (NFRD) will have to report according to ESRS/CSRD from 2025 for the annual report 2024.
  • Other large corporations (250 employees or more & €40m turnover) will be affected from 2025 (Annual Report 2026), whereas
  • smaller companies (under 250 employees) will have to report from 2026 or 2027.
  • A transitional phase is foreseen.


What ESRS are there?

Currently, there is a so-called “first set” of 12 ESRS standards, including two overarching and ten topic-specific standards. The standards cover a wide range of sustainability topics, from climate change to social responsibility. Our table provides a concise overview. Further standards are under development and are expected during 2023 and 2024.


Overarching standard ESRS 1

  • ESRS 1 is a basic standard that sets out the principles for the preparation and disclosure of sustainability statements in accordance with the CSRD, without specifying concrete report content.
  • The standard covers reporting areas, due diligence, consideration of the value chain and timelines.
  • It also defines how sustainability information should be collected and presented.
  • ESRS 1 requires all other standards, apart from ESRS 2, to be subject to a materiality analysis.
  • The materiality analysis serves to determine the relevant report contents. It follows the principle of dual materiality. Dual materiality requires companies to examine their sustainability aspects from two perspectives: “impact materiality” (inside out) and “financial materiality” (outside in). This forces companies to analyse both positive and negative impacts on the environment and society while considering external influences on their financial profitability.
  • If certain aspects are classified as non-material, this classification must be explained in detail.


Overarching standard ESRS 2

  • ESRS 2 is the only standard that must be reported in full and is not subject to materiality.
  • ESRS 2 sets out general characteristics and information such as policies, measures, and targets.
  • In addition, ESRS 2 provides the structure and content for the topic standards.
  • ESRS 2 defines a total of four disclosure areas:
    • Governance
    • Strategy
    • Management of impacts, risks and opportunities
    • Key figures and targets


The ESRS theme standards

The ten ESRS theme standards take a holistic view of ESG (environmental, social and governance) issues and address different report contents for which they define detailed sustainability information and data.

  • ESRS E1-E5 address environmental issues such as climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy. The reporting requirements also partly include how the transition to sustainable business models is to be managed and how the own contribution to achieving the environmental goals of the EU Green Deal looks like.
  • ESRS S1-S4 relate to social aspects and enable structured reporting on the workforce, workers in the value chain, affected communities and consumers. These standards require qualitative disclosures, not quantitative data.
  • The Governance Standard ESRS G1 requires basic information on corporate policy and culture. It is intended to provide a better understanding of an entity’s strategy, processes, and performance. To this end, it requires, for example, information on the role of the administrative, performance and supervisory bodies and specifies report contents in relation to impacts, risks, opportunities, and corporate culture. ESRS G1 also covers topics such as corruption prevention, relationships with suppliers and political influence.


Overlaps with existing frameworks and standards

The ESRS build on existing sustainability standards and frameworks such as the GRI standards, TCFD (Task Force on Climate-Related Financial Disclosures), Science-based Targets and GHG Protocol (Greenhouse Gas Protocol) and CDP (Carbon Disclosure Project). Companies that already work with and are familiar with these standards have clear advantages in ESRS sustainability reporting.


Where to find the ESRS documents

The ESRS are available as Annex C to the CSRD delegated act. All documents and language versions can be viewed on the website of the European Commission and obtained in the download area: ESRS Standards Download German


Our recommendations for companies

The CSRD makes sustainability reporting more complex. This is because it addresses pretty much every already known and new sustainability topic. In particular, the ESRS Climate Change Standard (ESRS E1) defines high requirements. In addition, reporting must be in line with the EU Taxonomy Regulation. Therefore:

  • Don’t waste time, take care of your CSRD compliance now.
  • First, conduct a CSRD-compliant materiality analysis that also includes external stakeholders. This is how you define your reporting scope.
  • Based on this, carry out a CSRD gap analysis.

To reduce your stress level and guarantee the quality of the analyses, you can rely on our support. We accompany you reliably on the way to your ESRS-CSRD compliance. Contact us.

    You have questions about this article?

    Avatar photo

    Your contact person

    Jenny Walther-Thoß