European Sustainability Reporting Standards (ESRS)

The European Sustainability Reporting Standards are not about reporting, but about transformation.

What do the ESRS entail?

The Corporate Sustainability Reporting Directive (CSRD) requires companies to report on sustainability. In doing so, they must provide detailed information on the impact of corporate activities on the environment, society and good governance (ESG).

On 31 July, the European Commission (EC) adopted the final text of the European Sustainability Reporting Standards (ESRS). The EC will adopt the ESRS in the form of a delegated act. The ESRS are designed to make reporting on sustainability and ESG factors of companies within the EU more accurate, common, consistent, standardised and comparable. The disclosure requirements from the first set of ESRS, which are sector-agnostic, apply to all companies within the scope of the CSRD. EFRAG will soon publish its draft version of the second set of ESRS, which contain sector-specific disclosure requirements, for consultation.

Generic and topical ESRS standards

The first set of ESRS consists of:

Two generic standards

  1. ESRS 1 contains general requirements and explains key concepts of dual materiality, value chain reporting and how sustainability information should be collected and presented.
  2. ESRS 2 contains general disclosure requirements relating to governance, strategy, impact, risk and opportunity management and metrics and targets.

Three topical standards

  1. Environmental standards (ESRS E1 to E5) address climate change, pollution, water and marine resources, and resource use and circular economy.
  2. Social standards (S1 to S4) deal with own employees, employees in the value chain, affected communities, and customers and end-users.
  3. Governance standard (G1) deals with business conduct.

The sustainability report

In a sustainability report, the company provides insight into its strategy and policy on sustainability, how it implements it and how it scores on the relevant performance measures. The company must include the following information in its sustainability report:

  • Description of the strategy and business model with regard to sustainability issues. Including related risks and opportunities;
  • Time-bound sustainability targets and their progress;
  • Description of the role of the management board and supervisory board with regard to sustainability issues, and policies on sustainability issues.
  • Companies should provide information on their governance, strategy, risk management and internal control systems in relation to sustainability goals and risks, including the composition and skills of their management and supervisory boards, and the integration of sustainability goals into their remuneration policies.
  • Materiality assessment process to identify material ESG themes, issues, risks and opportunities.
  • Performance indicators.

Companies are required to provide limited assurance on their reported sustainability report. This is less far-reaching than reasonable assurance, but still requires cooperation with an accountant/assurance provider. Furthermore, the sustainability report must be in XHTML format and certain data points must be tagged according to a digital categorisation system. A European Single Access Point (ESAP) is currently being developed to give stakeholders insight into both financial and sustainability information.

Systematic ESRS standards

Double materiality

The ESRS rely on a double materiality assessment to identify material impacts, risks and opportunities for sustainability reporting. The materiality assessment is the starting point for identifying key sustainability issues on which data should be collected. Double materiality has two dimensions: impact materiality (how the company affects the environment) and financial materiality (how the environment affects the company). More about double materiality can be found on our glossary page.

Sustainability due diligence process

Engagement with stakeholders is crucial to identify material sustainability issues. When identifying potential negative impacts, it is important that the company focuses on its various business activities, including identifying suppliers and other business partners (upstream) and buyers of products and services (downstream). This process is ongoing and reacts to changes in the company’s strategy, business model, operations and (business) relationships to prioritise actions based on the severity and likelihood of consequences. The due diligence process should therefore not be seen as a separate part of the company’s reporting processes, but as a source of feedback. The process should therefore be initiated as early as possible.

Reporting areas

ESRS 1 requires the disclosure requirements in ESRS 2, the topical ESRS and the sector-specific ESRS to include the following reporting areas:

  • Governance: the governance processes, controls and procedures used to monitor and manage impacts, risks and opportunities.
  • Strategy: how the company’s strategy and business model interact with material impacts, risks and opportunities. Includes the strategy to address impacts, risks and opportunities.
  • Impact, risk and opportunity management: the process by which impacts, risks and opportunities are identified, assessed and managed through policies and actions.
  • Metrics and targets: how the company measures its performance, including the progression of its target.

Schematic illustration:

Regardless of the outcome of the materiality assessment, all companies are required to disclose certain information (including certain data points) based on ESRS 2 (including Appendix C).).


The sustainability report aims to provide insight to stakeholders. These are individuals who are or can be influenced by the company. ESRS 1 categorises stakeholders into two different groups:

  1. Financial stakeholders: primary users of general financial reporting. These include existing and potential investors, lenders and other creditors. But these may also include other users, including trade unions, governments and analysts. The sustainability report provides information that contributes to understanding the company’s sustainability risks and opportunities.
  2. Affected stakeholders: individuals or groups whose interests – positive or negative – are or could be affected by the company’s activities and its direct and indirect business relationships in the value chain. Examples include employees, customers, local residents and interest groups focusing on environmental and human rights issues.

Preparation and presentation of sustainability report

Companies must include one year of comparative information for all measures disclosed in reporting period. They must also explain any estimates or assumptions and describe how they are used in preparing sustainability information (including scenario or sensitivity analysis). Information on the metrics the company uses to evaluate its performance and effectiveness in relation to material impacts, risks and opportunities, as well as measurable, outcome-oriented targets it has set to assess progress, must also be included in the sustainability report.

The sustainability report will cover the same reporting period as the financial statements. However, a company may use a different definition of medium- or long-term time horizon if required due to sector-specific characteristics or value chain estimates

Coherence with other sustainability legislation

The ESRS in conjunction with the CSRD are the capstone of the existing European sustainability framework. In particular, the Principal Adverse Impacts (PAI) indicators of the Sustainable Finance Disclosure Regulation (SFDR) have been included in the ESRS. Furthermore, the existing terms and classification of the Taxonomy Regulation have been aligned as much as possible. There is also an overlap between the due diligence obligations in the proposed Corporate Sustainability Due Diligence Directive (CSDDD) and the Sustainability due diligence process from the ESRS. The CSDDD and ESRS S2 (employees in the value chain) both require companies to identify social impacts within their value chains. Although ESRS S2 may be broader than the CSDDD, as its scope covers a wide range of sustainability-related impacts, risks and opportunities, while the CSDDD focuses only on adverse human rights and environmental impacts. In addition, the CSDDD, which will apply to many of the same companies covered by the CSRD, requires companies to prepare and publish a climate transition plan.

What can we do for you?

The impact of the ESRS will be huge for many companies. First reporting companies do not have a lot of time remaining to figure out what organisational changes are needed and what data needs to be collected. Companies will have to make major organisational changes and invest in information, risk management and control systems. A ‘reassuring’ thought here is that EFRAG itself has stated that sustainability is a journey, not a destination an sich…

Although ‘sustainability’ is a vast term, EFRAG has outlined a framework for sustainability reporting in Europe with the first set of ESRS. However, it remains challenging to fully capture the complex issues surrounding sustainability. To comply with ESRS, companies’ sustainability reports must therefore be comprehensive and consider the full impact of their activities on economic, social and environmental issues. It is therefore advisable to start implementing the ESRS standards within your own company.

Our articles explain CSRD/ESRS compliance in more detail. Want to keep up to date with developments in the CSRD and other ESG laws and regulations? Our monthly Risk & Compliance newsletter will keep you informed.