What are the CSRD ESRS?
The ESRS (European Sustainability Reporting Standards) for the CSRD (Corporate Sustainability Reporting Directive) are a set of guidelines created to help companies in the European Union report on their sustainability practices.
The ESRS is part of the CSRD and serves as a framework for companies to comply with CSRD requirements. The ESRS is divided into a list of nearly 1,200 data points (requirements) that companies must report on based on their materiality assessment.
By establishing a common set of guidelines, the ESRS ensures that companies disclose comprehensive and reliable information. This information concerns their environmental impacts, social responsibilities, and governance practices.
Why have the CSRD ESRS been developed?
The primary aim of the ESRS is to bolster the transparency of corporate activities. This enables stakeholders, including investors, customers, regulators, and the wider community, to make informed decisions based on the sustainability performances of companies.
This enhanced visibility is crucial for promoting sustainable development. It encourages companies to adopt responsible and environmentally conscious operational practices.
Moreover, the adoption of the ESRS is intended to address existing shortcomings in sustainability reporting. Historically, companies have provided sustainability information that was often insufficient or difficult to compare with other firms. This has led to a lack of trust and reliability in the reported data.
The ESRS will standardize reporting practices. This makes information more comparable and verifiable across different entities.
How do the CSRD ESRS work?
The structure of the ESRS is a blend of cross-cutting, thematic, and sector agnostic standards. Each of them is designed to address broad and specific sustainability issues, respectively.
Layer 1: Cross-cutting standards
At the foundation of the ESRS framework are the cross-cutting standards (ESRS 1 & 2), which set the stage for all other detailed reporting. These include general requirements and general disclosures that outline what companies need to report and how they should structure this information.
These standards ensure that sustainability reports across various companies and industries maintain a consistent quality and structure. This makes it easier for stakeholders to compare and analyze data effectively.
Layer 2: Thematic standards
Building on this foundation, the ESRS also includes thematic standards that address specific aspects of sustainability. These thematic standards are divided into three different categories, also known as the ESG-standards:
- Environmental standards: Focus on issues such as climate change, pollution, and biodiversity.
- Social standards: Delve into the treatment of employees, impacts on communities, and consumer relations.
- Governance standard: Covers corporate behavior, including policies on ethics and integrity.
These thematic standards provide a deeper dive into how companies manage and mitigate their direct impacts on the environment and society. In the sections below you can read about these thematic standards and learn how they work.
Companies don’t have to report on all the requirements in this layer. The double materiality assessment indicates which topics are material and therefore need to be reported on.
Layer 3: Sector-specific standards
Alongside the sector-agnostic standards that apply to all companies, the ESRS framework is also developing sector-specific standards. These are tailored to the unique challenges and impacts of various industries.
These standards are crucial for industries with significant environmental or social impacts, such as oil and gas, agriculture, and pharmaceuticals. They provide these industries with specific guidance that reflects their operational realities.
The development of these sector-specific standards is ongoing. The aim is to cover a broad range of sectors including textiles, food and beverages, energy production, healthcare, and more.
This tailored approach allows companies within these sectors to report on sustainability issues that are most relevant and critical to their specific operations. This ensures that their reports are both meaningful and accurate.
CSRD ESRS cross-cutting standards
The cross-cutting standards, ESRS 1 and ESRS 2, provide the foundational framework for all sustainability reporting under the CSRD.
These standards are designed to ensure consistency and comparability across the diverse range of sustainability reports. They are produced by companies operating in various sectors and regions.
The purpose of these standards is to establish the general principles and disclosure requirements that apply universally. This is regardless of the specific environmental, social, or governance topic being addressed.
They act as an anchor for all other specific reporting standards. This ensures that every aspect of sustainability reporting is grounded in a common set of rules and guidelines.
ESRS 1: General Requirements
ESRS 1 lays out the overall requirements for sustainability reporting. This is setting the stage for how companies should prepare and present their sustainability information.
This standard emphasizes the importance of reporting transparency, accuracy, and consistency. It guides companies on how to integrate sustainability reporting into their annual reports. This ensures that the disclosed information is both comprehensive and understandable.
ESRS 2: General Disclosures
ESRS 2 focuses on the specific disclosures that companies must make, outlining the types of information that should be included in every sustainability report. This standard ensures that stakeholders have access to a complete picture of a company’s sustainability performance.
ESRS ESG-standards overview
The CSRD ESRS standards are the bases of reporting, aiming to standardize how companies throughout the European Union report their sustainability activities. These standards are crafted to enhance the transparency of corporate practices across environmental, social, and governance (ESG) domains.
By adhering to these standards, companies provide stakeholders with clear, detailed, and reliable information. This facilitates informed decision-making and promotes sustainable business practices.
Environmental standards (E1-E5)
The environmental standards outlined in CSRD ESRS E1 to E5 focus on comprehensively detailing a company’s impact on the planet. These standards are designed to ensure businesses assess and disclose their environmental footprint. They cover crucial areas such as climate action, pollution control, and resource management.
The aim is to encourage companies to mitigate their environmental impact through better resource management and innovative practices. Specific areas of focus include:
- Climate change (E1): Companies are required to report on aspects like greenhouse gas emissions, energy consumption, and initiatives aimed at reducing their carbon footprint.
- Pollution (E2): This includes the necessity for disclosures on waste management, emissions to air and water, and practices aimed at minimizing environmental contamination.
- Water and marine resources (E3): Companies need to detail their use and conservation of water resources and their impacts on aquatic ecosystems.
- Biodiversity and ecosystems (E4): Reporting focuses on how operations impact biodiversity locally and globally, and what measures are being taken to protect and preserve ecosystems.
- Material use and circular economy (E5): Companies should outline how they manage materials from sourcing to end-of-life, promoting recycling efforts and sustainable practices within the circular economy.
Social standards (S1-S4)
CSRD ESRS S1 to S4 are the social standards. These standards address how a company interacts with and impacts people both within and outside the organization. These standards emphasize the ethical treatment of all stakeholders, including employees, supply chain workers, local communities, and consumers.
The goal is to promote fairness, safety, and well-being through transparent reporting and responsible business practices. Key reporting areas include:
- Employees (S1): Companies must detail their practices related to employee well-being, working conditions, health and safety, and adherence to labor rights.
- Supply chain workers (S2): This focuses on the rights and treatment of workers in the supply chain, ensuring that all labor practices meet ethical standards.
- Affected communities (S3): Reports should cover how company activities impact local communities, including economic contributions, social interactions, and health-related outcomes.
- Consumers and end-users (S4): Companies need to report on how their products and services affect consumers, ensuring that their practices uphold consumer safety, fairness, and transparency.
Governance standards (G1)
Governance standards under ESRS G1 focus on ensuring that companies are governed and managed with a high degree of integrity and accountability. These standards require companies to provide detailed information on how they are managed.
They also detail how companies interact with various stakeholders and how they ensure ethical behavior throughout their operations. The governance standards are pivotal in building stakeholder trust and promoting a culture of ethical corporate behavior. Areas covered include:
- Corporate behavior and culture: Disclosures should reflect the company’s commitment to ethical conduct, detailing policies that guide business behavior and influence corporate culture.
- Supplier and partner relations: Transparency is required in how companies manage their relationships with suppliers and partners, ensuring that these relationships are conducted ethically.
- Corruption and bribery: Companies are expected to report on their strategies for preventing, detecting, and responding to corruption and bribery within their operations.
- Political influence: Reporting on lobbying activities and political contributions is essential to demonstrate that these engagements are conducted transparently and ethically.
How to prepare for the CSRD ESRS?
Effective preparation is critical for accurate and comprehensive reporting under the CSRD ESRS. This section outlines a structured approach to preparing for CSRD compliance. It details essential steps to ensure your organization meets regulatory requirements and enhances its sustainability practices.
Develop a CSRD roadmap
Creating a detailed CSRD roadmap is a foundational step in your preparation process. This roadmap should outline all the necessary requirements and deadlines specific to CSRD reporting. It serves as a strategic plan that identifies key milestones, allocates resources, and sets a timeline for implementation.
By understanding what is mandatory, you can prioritize efforts. This ensures that your approach to CSRD is both efficient and compliant.
Conduct a double materiality assessment
Under the CSRD ESRS, conducting a double materiality assessment is not only beneficial but also a mandatory requirement (refer to ESRS 2). This type of assessment enables organizations to systematically identify which sustainability topics are significant to their business operations and stakeholders.
The assessment helps in determining the impact of the business on the environment and society, as well as how sustainability issues could affect the company. The findings from this assessment are crucial as they lay the groundwork for targeted sustainability reporting.
Perform a GAP analysis on ESRS requirements
Once you have identified your material topics through the materiality assessment, the next step is to pinpoint the specific ESRS data points that your company needs to report. This involves a detailed review of the ESRS requirements to understand the scope of data collection.
A GAP analysis helps identify what relevant data is currently available within your organization and where there are gaps that need to be addressed. Addressing these gaps ensures that you are fully prepared to meet all reporting requirements under CSRD.
