The introduction of the European Sustainability Reporting Standards (ESRS) as part of the Corporate Sustainability Reporting Directive (CSRD) marks a significant step towards more transparent and standardized sustainability reporting in the EU.
In this practical guide, we answer the most important questions about ESRS and guide you through the most important steps for implementing the reporting obligation.
What are the ESRS?
The ESRS are a set of standards and guidelines developed as part of the European Union's CSRD. They serve to establish uniform and comparable standards for corporate sustainability reporting.
These ESRS standards include guidelines and requirements on how companies should report on their impact on environmental, social and governance (ESG) opportunities and risks. The ESRS have been developed to help companies present their sustainability performance in an accurate and comparable way, which is increasingly important for investors, customers and other stakeholders. They are an essential part of the EU framework for promoting transparency and accountability in relation to corporate sustainability practices.
Who does the ESRS apply to?
The ESRS is relevant for all companies that are required to prepare a sustainability statement in accordance with the CSRD. Companies that are already subject to the provisions of the NFRD (Non-financial Reporting Directive) must introduce reporting in accordance with the CSRD from the 2024 financial year. For large companies and parent companies of large groups that are not covered by the NFRD, the CSRD reporting obligation will begin from the financial year 2025. Under current law, companies are classified as large if they have more than 250 employees, an annual turnover of more than EUR 50 million or a balance sheet total of more than EUR 25 million (see Section 267 (3) HGB). From 2026, the scope of the CSRD will be extended to listed small and medium-sized enterprises (SMEs).
How are ESRS and CSRD connected?
The CSRD is an EU directive on sustainability reporting. Its aim is to standardize and simplify sustainability reporting by combining different reporting standards and frameworks into a single sustainability statement that meets the requirements of EU regulators, investors and other stakeholders. The binding directive renews non-financial reporting (NFRD) as of January 5, 2023.
The ESRS form a central component within the CSRD. They represent the reporting standards and guidelines that companies must follow in order to meet the CSRD requirements. The ESRS define which data points, information and ESG metrics companies must report to European regulators, distinguishing between general and specific standards.
The objectives of the ESRS
- Standardization: The ESRS aim to create a uniform reporting format for sustainability information that can be used throughout Europe.
- Transparency and comparability: By providing clear guidelines and standards, sustainability reports from different companies should become easier to compare and more transparent. This enables stakeholders such as investors and customers to make informed decisions.
- Compliance with regulatory requirements: The ESRS support companies in meeting the requirements of the Corporate Sustainability Reporting Directive (CSRD).
- Improving the quality of information: The ESRS are intended to ensure that the reported sustainability information is relevant, reliable and meaningful. By implementing the ESRS guidelines, companies can identify areas for improvement and take measures to implement their ESG topics.
Thecontents of the ESRS
The ESRS comprise the general standards (ESRS 1 and ESRS 2) and topic-related standards (ESRS E1 - ESRS E5, S1 - S4 and G1).
- ESRS 1 deals with general principles and guidelines for sustainability reporting
- ESRS 2 is entitled "General Disclosure Requirements on Strategy, Governance and Materiality Assessment" and sets out specific requirements for companies, particularly those with more than 250 employees
In addition to the existing ESRS standards, sector-specific standards and standards for SMEs will be adopted in the coming years.
The first draft of the ESRS data points was published by the European Financial Reporting Advisory Group (EFRAG) in October 2023. There are a total of 1178 data points, 265 of which are to be reported voluntarily. An Excel list with all data points for Set 1 of the ESRS is available here. The double materiality analysis determines which data points must ultimately be reported on.
Which ESRS standards are mandatory?
The ten thematic standards of the ESRS (E1 to G1) are generally optional. This means that companies may omit those ESRS contents that are assessed as "not material" from their future ESG reporting as part of a mandatory materiality analysis. However, if the topic of climate change is classified as "not material", a detailed justification of this decision is required. In addition, other content classified as "not material" must not be ignored as provided for in the previous ESRS draft, but must be explicitly marked as "not material".
The most important steps for implementing the ESRS
- Conducting the materiality analysis: The dual materiality analysis forms the basis of CSRD reporting and identifies the company's material impacts on the environment and people (inside-out) and the financial impacts (risks and opportunities) of the environment and people on the company (outside-in). This systematic and integrative approach promotes a sound and robust prioritization of material ESG issues and indicators. More information on the dual materiality analysis and its implementation can be found here.
- Collect data and information: The second step in implementing the ESRS is to identify relevant key figures, those responsible for them and their storage locations. The key data for reporting, including the source systems and responsibilities, must be recorded precisely. It is also important to determine the departments responsible for ESG key figures and to assign responsibility for this data to these departments. A review of current data processing and analysis capabilities will help to identify any shortcomings and develop plans to ensure accurate and effective reporting in line with ESRS standards.
- CO₂ balance sheet: The carbon footprint is critical to the ESRS as it is a key element of environmental reporting under ESG. The accurate recording and reporting of CO₂ emissions enables companies to transparently present their impact on climate change. This is essential both for their own sustainability management and for informing stakeholders such as investors, customers and the public. A detailed carbon footprint not only helps to demonstrate the company's environmental responsibility, but also provides important data points for assessing environmental risks and opportunities. The carbon footprint thus contributes to compliance with ESRS requirements and helps companies to improve their sustainability strategies and meet increasingly stringent regulatory requirements. Software solutions such as Planted's sustainability platform help companies to record their balance sheet in a TÜV-certified and automated manner.
- ESRS reporting process: Once the KPIs and responsibilities to be reported have been defined, the focus should be on developing efficient ESRS reporting processes. This includes the optimization of data flows, the integration of supporting IT systems and the clear assignment of responsibilities for the relevant KPI areas. A critical step in this process is a thorough analysis of the current status: the methods used to record key figures, existing weaknesses and possible inconsistencies. This analysis makes it possible to identify potential for improvement and to align with industry-specific best practices. The next step is to precisely design and comprehensively document future ESRS reporting processes, from the planning phase to critical data paths and technical implementation. Close coordination with those responsible for implementing the processes is also essential. This ensures that the processes not only function effectively, but are also in line with the company's objectives and contribute to the continuous improvement of sustainability performance.
- Continuous review: Monitoring these reports is an ongoing process to ensure that the information provided is current, accurate and in line with evolving standards. Companies should regularly review and adapt their reporting methods to ensure compliance with the latest CSRD and ESRS requirements. This ongoing monitoring not only allows companies to respond to changes in the sustainability landscape, but also to effectively assess and evolve their own ESG goals and strategies.
Implementing the ESRS is a complex but essential process that requires comprehensive consideration and integration of ESG aspects into corporate reporting. With Planted, we support companies holistically in the CSRD-compliant implementation of their sustainability strategy. Book an appointment with our experts today.