ESRS: How to apply European Sustainability Reporting Standards

The European Sustainability Reporting Standards (ESRS) represent a significant advance towards the standardisation and transparency of environmental, social and governance (ESG) reporting.

Integrated within the Corporate Sustainability Reporting Directive, the ESRS look to widen the reach of sustainability reporting and provide a detailed and specific framework that companies should follow.

This article explores ESRS in depth, including its strategic importance for companies and how it can be applied effectively whilst complying to regulatory and stakeholder expectations, aligning itself with the EU’s Green Deal objectives.

Index

What is ESRS and why are they important

The ESRS (European Sustainability Reporting Standards) are a collection of developed regulations to standardise the way in which European countries report their environmental, social and governance (ESG) impact.

The ESRS are an integral part of the CSRD (Corporate Sustainability Reporting Directive), designed to strengthen and standardise EU sustainability reporting. The CSRD widens the reach of sustainability reporting, requiring more companies to report in detail their ESG impact.

The ESRS provide a framework and specific standards that companies should follow to carry out their reports, ensuring the coherency, comparability and trustworthiness of information for investors and stakeholders.

They’re important because they improve the transparency and comparability of sustainability information, helping investors, consumers and other stakeholders to make informed decisions. Furthermore, the reporting standards help the EU Green Deal objectives, promoting sustainable corporate practices and the transition towards a sustainable and low carbon economy.

ESRS Structure

The ESRS standards are divided into 12 documents covering different fields:

General aspects:

ESRS 1 – General Requirements
ESRS 2 – General Content

Environmental (E):

ESRS E1 – Climate change
ESRS E2 – Pollution
ESRS E3 – Water and marine resources
ESRS E4 – Biodiversity and ecosystems
ESRS E5 – Resource usage and the circular economy

Governance (G):

ESRS G1 – Business Conduct

Social (S):

ESRS S1 – Own Workforce
ESRS S2 – Works in the value chain
ESRS S3 – Affected communities
ESRS S4 – Consumers and end-users

Furthermore, specific ESRSs are expected to be published for 40 different sectors. If you want more details on these standards and how they can affect your company, continue reading.

Which companies are affected by ESRS

The affected ESRS companies are those under CSRD obligation.

The CSRD provisions apply to all large companies, whether they are listed on stock exchanges or not, and publicly listed SMEs (except micro companies) that comply with at least two of the following criteria:

Balance sheet total of more than 25 million euros.
Net turnover of more than 50 million euros.
Average number of employees during the financial year of more than 250.

Also non EU companies with substantial EU activity (with a net turnover greater than 150 million euros within the EU) are included that have at least one subsidiary (large or listed) or branch (net turnover greater than 40 million euros) in the EU.

It’s estimated that more than 50,000 EU companies should publish sustainability information under ESRS.

ESRS implementation schedule

The application of these sustainability reporting standards will be progressive. The standards will be enforced between 2024 and 2028 in the following format:

From the 1st of January 2024 for companies that are already subject to the Non-financial Reporting Directive (reporting in 2025 on data from 2024).
From the 1st of January 2025 large companies that are currently not subject to the Non-financial Reporting Directive (reporting in 2026 on data from 2025)
From the 1st of January 2026 publicly listed SMEs and other companies (reporting in 2027 on data from 2026); SMEs can opt out until 2028.
From the 1st of January 2028 for non EU companies with significant activity in the EU (reporting in 2029 on data from 2028).

What changes do the ESRS bring with them

The ESRS introduce significant changes to sustainability reporting for affected companies. We see here in detail the main effects.

Double Materiality

The focus of double materiality requires companies to report not only on how sustainability affects financial performance (financial materiality), but also on how a company’s operations impact society and the environment (materiality of impact). This provides a deeper understanding of a company’s integral sustainability.

Topics and layers of information

ESRS reports should be structured around the principles of double materiality, covering environmental, social and governance (ESG) aspects.

They should include information on strategy and governance, sustainable impact, and how sustainability topics affect the company.

The detailed structure should vary given the specific necessities of each company and industry, but in general, it should offer a clear vision on the company’s sustainability, including policies, objectives, and performance metrics.

External verification

CSRD requires sustainability reports to be verified by a third party. This increases the credibility of the reports, ensuring that for stakeholders the information is precise and trustworthy.

Digitalisation

The implementation of a single electronic format (ESEF) for sustainability reports permits the access, analysis and comparability of the information. You can read more about this format here.

How to prepare your company for ESRS

To prepare your company for the European Sustainability Reporting Standards (ESRS), it’s fundamental to follow a series of oriented steps to guarantee your organisation effectively complies with these new reporting requirements.

Here you have a practical guide based on the information provided by the CSRD and ESRS documents:

1. An Understanding of the Requirements of the ESRS

Familiarise yourself with the standards and understand how they can affect your company. Carry out a double materiality evaluation to identify which topics are material from a societal and environmental impact perspective as well as from their influence on the financial performance of the company.

2. Gap Analysis and Planning

Carry out a GAP Analysis to determine the differences between what you are currently reporting and what ESRS require.

Then develop an action plan that tackles how you will approach these gaps, including changes to internal processes, data gathering and the implementation of new policies or sustainability strategies.

3. Data Management and Information Systems

Ensure you have the adequate systems to gather, store and manage necessary data for compliance to ESRS.

Implement processes to guarantee the precision, integrity and consistency of gathered data.

4. Integration and Reporting

Integrate the ESRS requirements into the sustainability strategy and operations of your company.

Develop the sustainability report in line with the standards, including both the required quantitative and qualitative information.

5. Verification and external assurance

Prepare your report for external verification. The ESRS require a reasonable level of assurance, which implies a deeper review by independent third parties.

6. Training and Awareness

Train your team on the ESRS and the importance of sustainability. Including sustainability personnel as well as top management and employees of all levels.

7. Continuous monitoring and improvement

Implement a continuous review process to monitor compliance to the standards and carry out improvements as standards or your company strategy change.

8. Stakeholder Communication and Participation

Maintain an open dialogue with your stakeholders with regards to your sustainable focus and progress, including how you are approaching the ESRS.

Starting the process as soon as possible will help ensure that your company complies to new requirements and can position itself as a sustainability leader.

FAQs on the ESRS

How are ESRS compared to other sustainability reporting standards like GRI or SASB?

The ESRS, GRI (Global Reporting Initiative) and SASB (Sustainability Accounting Standards Board) are all sustainability reporting frameworks designed to help organisations communicate their sustainable performance. However, there are some key differences on their focus and application:

ESRS: Designed specifically to comply with EU regulatory requirements under CSRD, the ESRS have a focus on double materiality, meaning that companies should report on both their operational impact on sustainability as well as the impact of sustainability on the company. The ESRS are obligatory for a wide range of large companies, including listed SMEs, within the EU.
GRI: Provides a global framework for voluntary reporting that’s centred on an organisation’s impact on the environment, society and the economy. GRI is highlighted for its focus on transparency and accountability, allowing organisations to choose which aspects are material for reporting.
SASB: Centred on financial materiality, providing specific standards for industry on environmental, social and governance (ESG) topics that are the most relevant for investors. SASB is principally led by investors’ requirements for information.

How do the ESRS affect SMEs

The ESRS affect publicly listed SMEs in markets regulated by the EU, requiring them to comply with reporting standards by the fiscal year 2026 with the possibility of opting for a delay till 2028. To help SMEs in this process, standards will be developed specifically for them, allowing a more manageable implementation without compromising the integrity of the information reported.

The non-listed SMEs can also be affected if they’re part of the supply chain of companies subject to CSRD.

How do you carry out a double materiality assessment according to ESRS?

The ESRS double materiality evaluation involves identifying and evaluating both the company’s significant impacts on the environment and society (materiality of impact) as well as the significant risks and opportunities related with sustainability for the financial performance of the company (financial materiality)

If you want to find out more details, you can access our Double Materiality Guide here.

How are indirect supply chain impacts reported?

Indirect supply chain impacts are reported by identifying firstly the supply chain links where the company has a significant impact on sustainability or is exposed to significant risks and opportunities.

Followed by, gathering and reporting specific information on these impacts, risks and opportunities, ensuring transparency and responsibility throughout the supply chain.

What Key Performance Indicators (KPIs) are obligatory according to the ESRS

The obligatory KPIs under the standards vary given each company’s sector and materiality. The KPIs cover a wide range of ESG topics, from greenhouse gas emissions and the use of resources to labour policies and corporate governance. The specific ESRS standards provide a detailed list on the required KPIs for each reporting topic.

How should data be gathered and managed to comply with the ESRS?

To comply with the standards, companies should establish robust data management systems that allow for the efficient and precise gathering, verification and analysis of ESG data. This includes developing internal procedures to gather data from diverse sources, ensuring their quality and reliability, and systemising the consolidation and reporting.

ESG software can help you to gather and manage this data correctly.

How should a sustainability report be presented according to the ESRS (format, structure)?

The sustainability report according to the ESRS should be presented as a segment of a company’s management report and should be in XHTML format (XBRL labelling), compatible with the European Single Electronic Format (ESEF).

The reports should be structured according to the specific ESRS requirements, including dedicated sections for sustainability strategy, double materiality evaluations, significant impacts, risks and opportunities, and KPIs, ensuring clarity, coherence and ease of access for readers of the report.

Conclusion

Preparing companies for ESRS can be a challenge, however also an opportunity. The sooner you start, the sooner you can go from compliance to leadership within sustainability.

Furthermore, you should take into account whether you need to report on your data in 2025, these data points are from 2024, hence you have to gather data from 2024. For this you need to decide what type of data to gather and how you want to do it.

APLANET software can help you gather and manage this data and our team of experts can assist you: schedule a demo here.

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