The final, official version of the ESRS introduced changes at a time when sustainability reporting must strive to remain an enabler rather than a barrier for businesses. Set against the backdrop of the European Green Deal and the Sustainable Finance Agenda, current efforts aim to transform reporting challenges into opportunities for organisations. Following a period of volatility driven by the introduction of the Corporate Sustainability Reporting Directive (CSRD) and the sudden escalation of reporting obligations, the ESRS evolved significantly through multiple draft iterations.
This article gives a timeline for ESRS updates, exploring the key elements of the official ESRS across its cross-cutting and topical standards. While the primary focus will be on how EFRAG shaped the final version of the ESRS, we’ll also revisit the updates from June 2023 and November 2022. These updates brought crucial amendments and, in some cases, surprising changes, providing essential context to many foundational aspects of the ESRS.
- The ESRS: An Evolving Part of the CSRD
- ESRS Updates Reflect Market Feedback
- Additional Changes to the ESRS: EU Laws, Interoperability and Editorial Changes
The ESRS: An Evolving Part of the CSRD
The Corporate Sustainability Reporting Directive (CSRD), enacted on January 5th, 2023, broadened the scope of previous regulations, requiring companies to disclose their environmental and societal impacts and undergo an assurance process.
In pursuit of standardised ESG reporting, the European Financial Reporting Advisory Group (EFRAG) was tasked by the EU Commission to formulate mandatory European Sustainability Reporting Standards (ESRS). These standards intend to establish uniformity in ESG reporting.
The process began with the initial ESRS draft in April 2022, followed by a more debated draft on June 9, 2023. This June draft followed EFRAG’s recognition of the need to reduce the reporting burden and the EU Commission’s request to ease requirements by 25%. The goals of this update were to provide organisations with greater adaptability and additional time to approach sustainability reporting effectively.
On July 31, 2023, the first set of ESRS was completed and adopted, later published officially as Delegated Regulation (EU) 2023/2772 in the Official Journal of the European Union in December 2023.
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The ESRS Structure
The first set of European Sustainability Reporting Standards (ESRS), also known as the sector-agnostic ESRS, contains specific disclosure criteria across 12 documents or standards. The standards are categorised into Cross-cutting standards, which apply to all CSRD subjects, and Topical standards covering environmental, social, and governance aspects. The existing standards encompass approximately 1,200 data points.
The sector-agnostic ESRS are not the only standards that the EU Commission has requested. In the coming years, EFRAG will develop sector-specific standards, two standards for SMEs, and standards for non-EU companies.
Read this article to learn more about what the ESRS are.
ESRS Updates Reflect Market Feedback
The ESRS went through several versions, each with substantial changes, before arriving at the standards we know today. The most significant changes were concentrated in three key areas: materiality, phase-ins, and voluntary disclosures.
These areas underwent substantial revisions, shaping the core of the new reporting framework and impacting how companies will approach sustainability disclosures. The changes reflect the evolving stakeholders' expectations for transparency, flexibility, and compliance, making them crucial for understanding the broader direction of the ESRS.
Double Materiality: A New Concept in CSRD’s ESRS
Double materiality is a foundational concept in both the CSRD and the ESRS. Unlike traditional financial materiality, which considers only the impact of external factors on a company, double materiality introduces a second perspective: the impact of the company on the external environment.
Until June 2023, companies were required to disclose the cross-cutting standards as well as select topical ESRS, regardless of the outcomes of the Double Materiality Assessment. Additionally, all ESRS contained mandatory data points derived from EU laws—such as the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR). Companies were also expected to disclose all ESRS they deemed material and to explain any ESRS they did not.
As of June, however, only the cross-cutting standards—ESRS 1 and ESRS 2—remained mandatory, as their foundational nature precludes them from materiality assessment. All other ESRS, including indicators linked to other EU legislation, were now subject to materiality assessment. Companies were no longer required to justify why an ESRS was deemed immaterial, though they may opt to provide this explanation. This framework remained consistent up to the final version, with some additional provisions.
The infographic below illustrates changes in the scope of materiality. The left side depicts the original ESRS materiality requirements, while the right side represents the final approach to materiality in the ESRS.
Once a company determines that an ESRS is not material, three possible scenarios apply.
- If Climate Change (ESRS E1) is concluded to be non-material, the company must explain its reasoning.
- For data points tied to other EU legislation that are considered non-material, the company must label them as "not material" and include a table listing all relevant indicators.
- For other topics within the ESRS, companies are not obligated to explain why something was deemed not material, although they may choose to provide this explanation if desired.
Refining ESRS Phase-in Requirements
The ESRS include several phase-ins to ease the transition for companies in meeting reporting requirements. These phase-ins provide additional time for companies, particularly smaller ones, to comply with the full reporting obligations.
In November 2022, the draft allowed companies to delay full reporting on some specific areas. For instance, they could provide only basic, qualitative information on certain environmental risks for three years, and some items in social disclosures could be skipped in the first year. The idea was to ease companies into more complex requirements step by step.
By June 2023, the rules expanded, creating separate requirements for all companies and for those with fewer than 750 employees. Smaller companies gained more flexibility and could delay reporting on specific environmental and social topics, for up to two years. In some cases, the phase-ins include entire standards. However, all companies received more time to address certain financial impacts.
In addition to the split, an additional provision was added to ESRS 2 on the Use of phase-in provisions in accordance with Appendix C of ESRS 1, to ensure that companies employing the phase-ins still report some key information if any of the particular Disclosure Requirements or datapoints omitted was material.
The final version of the ESRS maintained most of these changes, with some additional flexibility for companies in their first year. For example, all companies could start by providing simpler, narrative information in specific areas and gradually add detail over three years. An extra provision also ensured that even if companies delayed certain details, they would still report basic information on essential topics like policies, actions, metrics and targets.
Making some Disclosures Voluntary
As mentioned in the first section of the article, the ESRS were subjected to a reduction of mandatory data points in June due to pressure coming from the Commission president to ease the reporting burden. The June draft incorporated numerous modifications that transformed previously mandatory disclosure requirements into voluntary ones. Some examples include biodiversity transition plans, many “non-employee” data points, and the justification for deeming a topic as not material.
The final version of the ESRS has even more voluntary disclosures to further reduce the burden of reporting. However, the reduction of mandatory data points is nowhere near the number we saw in the draft released in June.
An example of the newly voluntary disclosures can be found within the environmental ESRS. If we look at E4-3 on disclosing biodiversity and ecosystems-related actions and the resources allocated to their implementation paragraph 28 has been modified so that the use of the mitigation hierarchy in regards to its actions can be disclosed but it is not required, while the rest of the disclosures remain mandatory.
Additional Changes to the ESRS: EU Laws, Interoperability and Editorial Changes
In addition to the most substantial updates around materiality, phase-ins, and voluntary disclosures, the official ESRS also introduced a series of less drastic, yet still important, changes. These include improvements in interoperability with other international standards, various editorial adjustments, and steps to ensure coherence with existing EU law.
While these changes are not as heavy in terms of content, they play a critical role in refining the standards for clearer communication and alignment within the broader regulatory framework.
Coherence with EU Legal Framework
Numerous disclosure requirements were modified in June to better address EU legal requirements, making it easier for companies to meet both sets of requirements.
Companies in EU countries can skip detailed revenue breakdowns by activity and location, as allowed by the Accounting Directive. Pollution metrics have been simplified to match EU standards, with E2 now focusing only on key pollutants listed under the European Pollutant Register.
In addition, companies covered by the EU Whistleblower Directive can simply confirm their compliance with it, simplifying whistleblower policy reporting. Updates to S1’s pay data also align with the EU’s Pay Transparency and Shareholder Rights Directives, changing “male-female pay gap” to “gender pay gap” and “compensation” to “remuneration.” Overall, these changes make ESRS reporting easier for companies already following EU rules.
ESRS Interoperability and Global Standards
The ESRS has been significantly updated to better align with global standards like the GRI, ISSB, and TCFD, making sustainability reporting simpler and more consistent for multinational corporations. With the ISSB standards released in June 2023, efforts between the IFRS and EFRAG focused on aligning climate-related disclosures to promote consistent reporting across frameworks.
Not all differences were resolved, but important progress was made: most ESRS climate definitions now match those in IFRS S2, except for carbon credits. Financial materiality in ESRS E1 and ESRS 2 was also adjusted to align with IFRS, making it easier for companies to report using common indicators for impacts, risks, and opportunities. These updates enhance comparability and support a globally cohesive approach to sustainability reporting.
Editorial and Presentational changes
Every version of the ESRS saw editorial and presentational changes to improve the clarity, usability, and coherence of the standards. The editorial changes ranged from the introduction of the now-boldened defined terms and the correction of missing spaces across the ESRS, to the the correction of inconsistencies across the structure of the documents and the amendment of the documents to avoid the term “shall consider”, which many sensed rendered a data point both mandatory and optional.
How Can Greenomy Help?
The ESRS are expected to grow stronger and stricter over time, as the EU Commission adopts the rest of the standards and reporting becomes a requirement for all companies in scope. Greenomy helps corporates, credit institutions, and asset managers measure, disclose, and improve their sustainability according to new EU sustainable finance standards.
Collaborating with sustainability experts like Greenomy offers valuable guidance and support, ensuring your organisation meets regulatory requirements and utilises its sustainability reporting as a strategic asset. Discover Greenomy's innovative CSRD solution to streamline data
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