The European Sustainability Reporting Standards: a Phase-in Journey to Sustainability Alignment

Updated in September 2024

The Corporate Sustainability Reporting Directive (CSRD) is a regulation introduced by the European Union to enhance and standardise sustainability reporting by companies. It expands on the existing Non-Financial Reporting Directive (NFRD) and aims to provide greater transparency on Environmental, Social, and Governance (ESG) matters. The CSRD requires large companies and listed small- and medium-sized enterprises (SMEs) to disclose detailed sustainability data, impacting around 50,000 entities. This promotes comparability and improves the quality of sustainability information provided to stakeholders.

To ensure the comparability and transparency of the data reported, the CSRD introduced the European Sustainability Reporting Standards (ESRS). The ESRS are the specific reporting standards that companies must follow under the CSRD. These standards, developed by the European Financial Reporting Advisory Group (EFRAG), outline the requirements for reporting on sustainability topics, such as climate change, human rights, and biodiversity. 

In contrast to the Non-Financial Reporting Directive (NFRD), which mandated separate sustainability reports, the CSRD requires that sustainability information be integrated into a distinct and clearly identifiable section within the management reports. This approach reflects the European Commission’s commitment to a digitalised reporting framework, enhancing data accessibility, and fostering a closer alignment between financial and sustainability reporting.

What are the European Sustainability Reporting Standards (ESRS)?

The European Sustainability Reporting Standards (ESRS) are the guidelines that outline the reporting requirements under the Corporate Sustainability Reporting Directive (CSRD). These standards establish the structure and specific disclosure requirements for companies, banks, and insurance firms that fall within the directive's scope.

The first set of ESRS was introduced in April 2022, and until 2023 EFRAG worked on several versions of the standards. This first set is known as the sector-agnostic ESRS. The European Commission officially adopted the first set of ESRS on July 31st, 2023. The standards were published in the Journal of the European Union in December 2023. 

The development of reporting standards will not end with the sector-agnostic ESRS, they are just the first set. The CSRD outlines several sets of standards, including sector-specific standards, standards for non-EU companies, and standards for SMEs.

Structure of Sector-Agnostic ESRS

The first set of ESRS contains 12 distinct standards. The standards are divided into two “cross-cutting standards” and ten “topical standards”.

The cross-cutting standards define the general disclosures and requirements that apply to all the topics subject to the CSRD, regardless of materiality. The topical standards provide the obligations for the environmental, social and governance aspects of the CSRD.

The topical standards comprise the following sections: Governance; Strategy; Impacts, Risks, and Opportunities; Metrics and Targets. The structure is largely inspired by the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)and aligns with the broader framework of international sustainability reporting standards.

Cross-cutting standards 

1. ESRS 1 - General requirements
2. ESRS 2 - General disclosures
   ‍

Topical standards

3. ESRS E1 - Climate Change
4. ESRS E2 - Pollution
5. ESRS E3 - Water and marine resources
6. ESRS E4 - Biodiversity and ecosystems​​
7. ESRS E5 - Resource use and circular economy
8. ESRS S1 - Own workforce
9. ESRS S2 - Workers in the value chain
10. ESRS S3 - Affected communities
11. ESRS S4 - Consumers and end-users
12. ESRS G1 - Business conduct
    ‍

The Evolution of the ESRS 

On April 29, 2022 the initial exposure draft of the ESRS was published by ERFAG and opened a 100-day public consultation period. The initial exposure drafts set reporting requirements for 13 standards. The consultation period saw feedback from stakeholders who submitted 290 position papers and 702 responses.

The responses gave EFRAG guidance on the market’s common concerns. These included: time and cost of collecting data, value chain approach, alignment with global standards and policies, criticism of the rebuttable presumption concept, not comprehensive definitions and assurance challenges. Following the feedback, the ESRS were updated to include a higher scope of the materiality assessment to get rid of the need to justify and explain the omission of specific information under the rebuttable presumption, a reduction in the number of disclosure requirements as well as phase in timeframes to reduce compliance costs, and the value chain also included a phase-in period and further clarifications focused on materiality.

After the initial consultation from April 2022, the ESRS went through numerous modifications: one in November 2022, one in June 2023, and the final delegated act was adopted in July 2023. 

By July 2023 the changes included: 

• All topical standards were now subject to materiality
• Additional phase-ins and a division between phase-ins that apply to all companies and those that apply under certain conditions
• Increasing the number of voluntary datapoints
• Increased interoperability with global standards 
  ‍

Alignment with International Rules

EFRAG worked closely with international bodies to ensure a high degree of interoperability between the ESRS and international standards to reduce the burden of compliance with sustainability reporting, and avoid double reporting. EFRAG and several international frameworks have already released official documents containing interoperability mappings between the frameworks. Among these standards are the Global Reporting Initiative (GRI; Task-force Climate Financial Disclosure (TCFD); the International Sustainability Standards Board (ISSB); etc.

EFRAG in combination with many of these frameworks, has already released interoperability tables. In the case of ISSB, EFRAG worked closely with the IFRS to ensure greater harmonisation through sharing defined terms, aligning on the definition of financial materiality, etc.

Discover more about the interoperability between the ISSB and ESRS in our dedicated article.

How Can Greenomy Help 

Seeking assistance with your CSRD reporting? The Greenomy solution is specifically designed to help companies overcome ESG reporting challenges by providing support at every step of the compliance journey. 

Discover Greenomy's innovative CSRD/EU Taxonomy solution to streamline data collection and reporting for long-term efficiency. Additionally, explore our Sustainability Advisory services, where our experts will help you initiate your CSRD reporting journey. Book a call for further details.