The European Sustainability Reporting Standards (ESRS) emerged as a cornerstone of sustainability reporting in Europe. They are a set of guidelines created to standardise sustainability reporting across the European Union. The first set of ESRS was adopted in 2023 to guide companies in reporting their sustainability impacts.
The Corporate Sustainability Reporting Directive (CSRD) entered into force on January 5th, 2023, and requires companies to report according to the ESRS. The CSRD will affect almost 50,000 companies, so the time to get familiar with the ESRS is now, to achieve compliance. Continue reading to learn more about the ESRS and the essential steps to take to prepare for these standards.
The European Sustainability Reporting Standards explained
The European Sustainability Reporting Standards (ESRS) were developed by the European Financial Reporting Advisory Group (EFRAG), an independent body bringing together a range of stakeholders. These standards take a ‘double materiality’ approach in that companies are obliged to report both their impacts on the environment and on people and how environmental and social issues create financial opportunities and risks for the organisation.
There are a total of 12 ESRS, including two cross-cutting standards. The cross-cutting standards include General Requirements (ESRS 1) and General Disclosures (ESRS 2). The ESRS 1 sets general principles to be applied when reporting according to the ESRS and does not itself set specific disclosure requirements.
On the other hand, the ESRS 2 standards specify essential information that must be disclosed irrespective of which sustainability matter is being considered. All the other standards and the individual data points and disclosure requirements within them are subject to a materiality assessment. Of the other ten standards, there are five on the environment, four on social matters, and one on governance.
Below are the other standards:
- E1 Climate change
- E2 Pollution
- E3 Water and marine resources
- E4 Biodiversity and ecosystems
- E5 Resource use and circular economy
- S1 Own workforce
- S2 Workers in the value chain
- S3 Affected communities
- S4 Consumers and end-users
- G1 Business conduct
How does the ESRS framework link to the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) mandated the adoption of these standardised sustainability reporting standards. They were created with the aim of ensuring consistency and comparability across reports.
The ESRSs represent the first corporate sustainability reporting standards in the EU and are a key part of the CSRD of the European Parliament and European Council. This means the standards are mandatory and must be used by all companies subject to the CSRD.
Steps to prepare for the ESRS
Below are some steps to help you prepare for the ESRS to ensure compliance with the CSRD.
Understand the ESRS and the wider CSRD
Before you embark on your CSRD reporting journey, it is best to address any potential knowledge gaps you may have. The CSRD strives to help more businesses become responsible, but with that, it is a complex framework, and the ESRS requires some demystifying.
It is vital to understand the ESRS, their requirements, and how they influence your business. This is where a CSRD training course would be particularly useful in helping teams upskill in not only the CSRD but also the ESRS. The Institute of Sustainability Studies Certificate in CSRD course offers foundational insights into the CSRD as well as learning the essential steps for achieving CSRD compliance.
Conduct your double materiality assessment
Following gaining a robust understanding of the ESRS, you should initiate ESRS implementation at your chosen reporting level and determine the reporting boundary. For instance, this could be the understanding of the breadth and scope of your value chain.
Once you have chosen your reporting level and identified the reporting boundary, conduct a double materiality assessment to determine which ESRS topics are necessary to report. Establish data models, responsibilities, and governance structures required to fulfil the reporting demands of the ESRS.
Set your strategy
Identify any gaps in your company’s data collection processes to determine what existing processes you can build on and where you may need to make changes. Comprehend the distribution of responsibilities and roles, as well as capacity and knowledge, to allow for effective data collection for CSRD reporting.
Prepare for assurance
Ensure the availability and quality of your documentation and data are sufficient to enable assurance. Moreover, problems should be addressed proactively before the formal assurance process commences.
Summary
The ESRS act as the foundation for CSRD compliance. They present a structured approach for companies to communicate their sustainability impacts and initiatives.
Reporting under the ESRS may seem challenging, but with some preparation, you can manage it smoothly and efficiently. Doing so will not only ensure compliance but also strengthen the organisation’s commitment to sustainability and responsible business practices.
