What is CSRD ESRS 1?
ESRS 1 is a set of guidelines for companies on how to create clear and accurate sustainability reports. It doesn’t specify exact details they must report but gives a structure for deciding what is important to share, especially around environmental, social, and governance (ESG) topics and conducting the double materiality assessment.
The ESRS (European Sustainability Reporting Standards) were introduced as part of the CSRD (Corporate Sustainability Reporting Directive), which aims to improve the quality and consistency of sustainability reporting across the EU.
ESRS provides a structured approach for companies to disclose their sustainability practices across three main areas: environmental, social, and governance. Each area covers specific topics, such as environmental impact, social responsibilities, and governance practices within the company.
In addition to these three areas, there are two overarching standards, ESRS 1 and ESRS 2, which apply to all parts of the reporting. ESRS 1 establishes the general guidelines and structure for reporting. Meanwhile, ESRS 2 defines the specific disclosures that all companies are required to include in their reports.
What are key areas of ESRS 1?
Information on conducting a double materiality assessment
One of the main components of ESRS 1 is information on how to conduct a double materiality assessment. Double materiality is a concept central to sustainability reporting under the CSRD. Double materiality requires companies to assess and disclose sustainability issues from two perspectives: impact materiality and financial materiality.
Impact materiality examines how a company’s activities affect people and the environment, capturing both positive and negative impacts across its operations and value chain. Financial materiality, on the other hand, considers how sustainability issues could influence the company’s financial health and performance.
Outlining all the disclosure requirements
Another area within ESRS 1 is the general reporting requirements section, which provides a consistent framework for companies to follow in their sustainability disclosures. ESRS 1 sets out principles for how companies should approach reporting. This also includes the level of detail required for each data point, ensuring clarity, reliability, and comparability of information.
ESRS 1 details all the data points within ESG topics, ensuring companies know how to report in alignment with specific standards. For example, it provides additional guidance on how companies should assess and disclose information about resource use.
Quality and organization of sustainability data
The structure of sustainability information is another crucial element of ESRS 1, guiding companies on how to organize and present their sustainability data. This includes guidance on time horizons, requiring companies to report on short-term, medium-term (up to five years), and long-term (beyond five years) impacts and goals.
To ensure the quality and reliability of sustainability information, ESRS 1 also specifies qualitative characteristics of information. Companies must ensure that their data is relevant, reliable, comparable, verifiable, and understandable.
Information on how to report on the value chain
A further area covered in ESRS 1 is information on the value chain of CSRD, which recognizes the importance of a company’s entire supply chain in assessing sustainability impacts. ESRS 1 outlines information on how companies should include material sustainability information related to both upstream and downstream parts of their value chain.
When direct data collection from all suppliers or customers is not feasible, companies are encouraged to use sector averages or proxies to estimate this information. By extending reporting requirements to the value chain, ESRS 1 helps capture a fuller picture of a company’s sustainability impacts.
How to prepare for CSRD-reporting?
1. Understand the requirements of the CSRD
Research and comprehend the key requirements and standards set by the CSRD. Identify which sustainability topics your company must report on by conducting a double materiality assessment. This is also outlined in CSRD ESRS 1.
The CSRD mandates more comprehensive and standardized disclosures than previous directives. Companies should review the official guidelines and seek expert advice if needed to understand reporting scope and timelines.
2. Assess your company’s current reporting status
Evaluate your existing sustainability reporting processes and data collection methods. Determine the gaps between your current practices and CSRD requirements.
Conduct an internal audit to identify which data is already available and which areas need improvement. This helps outline steps for data collection and ensures alignment with CSRD standards.
This review can identify technology needs, such as advanced data management systems or analytics tools, to facilitate accurate and efficient reporting. Implementing these findings helps build a more resilient reporting framework that supports transparency and demonstrates compliance with evolving sustainability standards.
3. Develop a data collection strategy
Create a strategy to gather accurate and relevant data across all necessary sustainability metrics. Assign clear responsibilities for data collection within your organization. Leverage sustainability software to make streamline this process even further.
Ensure that your data strategy includes both quantitative and qualitative information. Integrate technology tools where possible for more efficient data management and verification.
4. Build a cross-functional reporting team
Form a team that includes members from various departments like finance, operations, and HR. This ensures a comprehensive approach to sustainability reporting.
Each team member should contribute their specific expertise to meet the CSRD’s broad range of reporting requirements. Regular coordination will help maintain consistent and accurate data submissions.
5. Implement robust reporting processes
Set up clear processes to compile, analyze, and review the collected data. Use established frameworks like the Global Reporting Initiative (GRI) you might already have, and compare it to the CSRD framework. Also look at information at current systems, such as your ERP or risk management software.
These processes help maintain the reliability and consistency of your reporting. Regular reviews by an internal committee or third-party audits can further improve reporting accuracy.
6. Integrate sustainability into business strategy
Align your sustainability goals with your overall business strategy to demonstrate commitment. This can improve reporting outcomes and stakeholder trust. Strategic integration helps show that sustainability is not just a reporting requirement but a core part of the company’s vision and operational plan.
This alignment ensures that sustainability initiatives contribute directly to the company’s competitiveness and resilience, making them relevant to both operational and strategic decisions.
Demonstrating this integration can foster greater trust among stakeholders by showcasing that the company’s commitment extends beyond regulatory compliance and reporting obligations. It also facilitates better resource allocation, as sustainability becomes embedded in the company’s decision-making framework, leading to more impactful and authentic outcomes.
