The ESRS provides a clear and detailed framework for reporting, covering a wide range of environmental, social, and governance (ESG) topics.
The standards have been developed by the European Financial Reporting Advisory Group (EFRAG).
The EU Commission and EFRAG recognize the differences between the ESRS and the standards of the International Sustainability Standards Board (ISSB) and they have worked to increase interoperability between both frameworks for example, by making the financial materiality definition unified for the two. The three entities also believe there is “a high degree of climate-disclosure alignment.”
Timeline for corporate sustainability reporting
On July 31st, 2023, the European Commission finalized the adoption of the European Sustainability Reporting Standards through a delegated act. The European Sustainability Reporting Standards have recently been approved and have applied since 1 January 2024 as required by the CSRD. Therefore, organizations previously subject to the Non-Financial Reporting Directive (NFRD) are required to start corporate sustainability reporting, per the CSRD, in accordance with the ESRS starting from the reporting period of 2024.
According to PwC, “The ESRS will apply to companies within the scope of the CSRD. First-time application (as defined by the CSRD) varies, starting from FY 2024 (reporting in 2025). Determining when a company needs to start reporting will depend on many different factors (including size, whether listed or not, and whether the parent entity is EU-based).”
To sum up the corporate sustainability reporting deadlines:
What are the 12 standards of ESRS?
There are 12 standards companies must follow under the ESRS to ensure that all facets of environment, social issues, and governance are reported. The idea is to create a legal imperative for human rights, environmental care, climate targets in line with the Paris Agreement, prevention of greenwashing, clarity for investors on the financial front, and due diligence to stakeholders.
What is more, when companies collect data that is necessary to report, they are able to reflect on the big picture with granular data that can pinpoint what needs to be improved. This is optimal for strategizing for best practices in the future and proactivity across the value chain.
2 Cross-cutting standards of the ESRS:
These apply to all sustainability matters and all entities included must adhere to the cross-cutting standards.
ESRS1 - General requirements - ESRS1 sets the foundation for the entire ESRS framework by outlining the overarching principles, reporting requirements, and guidelines that apply to all organizations subject to the CSRD. These general requirements are designed to ensure that sustainability reports are consistent, reliable, and meaningful, facilitating better understanding and decision-making by stakeholders.
ESRS2 - General disclosures - There are four main criteria determined to disclose on topical standards that include:
Governance - the governance protocols and procedures used to assess and manage impacts, risks and opportunities
Strategy - how the undertaking’s strategy and business model(s) align with its material impacts and how those address them
Impact, risk and opportunity management - how these are identified and managed
Metrics and targets - how the entity measures its performance and progress towards its goals
These criteria are replicated from the four pillars of the TCFD/ISSB to enable international framework alignment. They are also utilized by the U.S. for the SEC Climate Disclosure.
ESRS E1 - Climate change* - Companies are required to be transparent about GHG emissions by disclosing detailed data reporting, their strategies for lowering their impact on climate change, and in turn, how that would impact their potential investors’ decision-making. This requires organizations to explain their climate-related risks and opportunities over the short-, medium-, and long-term, and how these impact their business model and strategy. They will also need to disclose benchmarks and targets that have been achieved over time to communicate successful carbon management strategies. These requirements can be done best with emissions management systems that produce CSRD-compliant reporting that is audited and verifiable.
ESRS E2 - Pollution - This standard aims to provide stakeholders with clear, detailed, and comparable insights into how organizations manage and mitigate their pollution impacts. ESRS E2 requires companies and their value chains to report on various types of pollution for which they are responsible, including air emissions, water discharge, waste production, soil contamination, and noise pollution, among others. This involves outlining the policies, practices, and technologies adopted to reduce pollution at its source and throughout the product life cycle. Additionally, they must also disclose any violations, fines, or enforcement actions taken against the company they may have incurred in regards to pollution.
ESRS E3 - Water and marine resources - This standard includes providing stakeholders with detailed information on how companies assess, manage, and mitigate their impact on water bodies and marine ecosystems. ESRS E3 requires companies to report on their water usage, including the total volume of water withdrawn, the sources of water, and the efficiency of water use and reuse within their operations. Businesses should also report on physical risks from water scarcity or flooding, regulatory risks related to water use and quality standards, and opportunities for improving water efficiency and contributing to water stewardship. Targets set for improving water management and reducing negative impacts should be included in reporting as well. For companies operating in or near marine and coastal environments, ESRS E3 includes provisions for reporting on their impacts on these ecosystems, which encompasses discharges into marine environments, impacts on marine biodiversity, and measures taken to protect and preserve marine and coastal ecosystems.
ESRS E4 - Biodiversity and ecosystems** - Companies are expected to assess and disclose their direct and indirect impacts on biodiversity. This includes impacts on ecosystems, species, and genetic diversity, both from their operations and through their value chain. Reports should also include conservation efforts and restoration activities, if any. The standard mandates the disclosure of specific, measurable targets related to biodiversity conservation and restoration, along with performance indicators that track progress towards these targets.
ESRS E5 - Resource use and circular economy - This standard aims to provide stakeholders with comprehensive information regarding a company's efforts to minimize resource extraction, waste, and environmental impacts through the adoption of circular economy practices. This includes information on the types and amounts of waste generated, as well as the methods used to dispose of or valorize waste. ESRS E5 mandates reporting on efforts towards sustainable product design, aiming to reduce environmental impacts from the design stage through to end-of-life. This includes considerations for material selection, energy efficiency, and extending product lifespans.
Companies with less than 750 employees may exclude scope 3 emissions* their first year and biodiversity** their first two years.
Social: Sector-specific
ESRS S1 - Own workforce*** - This standard addresses the reporting requirements regarding the employment practices, working conditions, and rights of an organization's employees including types of employment contracts and work arrangements. This aspect also focuses on the organization's health and safety practices. Companies need to disclose their policies and practices regarding remuneration and benefits, detailing how they ensure fair compensation, including information on wage levels, bonus schemes, and non-financial benefits.
ESRS S2 - Workers in the value chain - ESRS S2 focuses on how organizations ensure fair labor practices and protect workers' rights throughout their supply chain and business relationships. Companies must report on the specific risks to workers in their value chain, including risks related to child labor, forced labor, unsafe working conditions, unfair wages, and lack of freedom of association. Organizations should detail how they prioritize and manage these risks.
ESRS S3 - Affected communities - This standard focuses on the reporting requirements related to the organization's impact on local communities and how these communities are considered and engaged within the company's operations and activities. This encompasses economic, environmental, and social impacts, including impacts on local employment, infrastructure, health, and cultural heritage. Companies should disclose their contributions to community development, including investments in local infrastructure, education, health services, and economic development initiatives.
ESRS S4 - Consumers and end-users - ESRS S4 requires organizations to disclose information on their practices and measures to ensure the safety and quality of their products or services. This includes compliance with relevant safety standards, product testing procedures, and mechanisms for tracking and addressing product safety concerns. This involves reporting on how services are marketed in line with local laws. Additionally, if disadvantaged communities have access to services such as utilities.
The first-year companies with less than 750 employees may exclude their own workforce*** and for the first two years exclude the other 3 topics.
Governance: Entity-specific
ESRS G1 - Business conduct - ESRS G1 requires organizations to disclose their policies and practices related to ethical business conduct. This includes information on the company's code of ethics, anti-corruption policies, and how these principles are communicated and enforced among employees and business partners.
What is double materiality?
Double materiality for the ESRS covers two distinct purposes: impact and financial. Performing a double materiality assessment will examine the criteria regarding the sustainability information that has been collected.
Impact materiality - This perspective looks at the company's impact on people and the environment in the short- and long-term. It involves reporting on the social and environmental consequences of the company's actions, irrespective of whether these impacts have a direct financial implication on the company itself. This includes the organization's contribution to climate change, pollution, human rights issues, and other societal concerns. The goal here is to offer transparency about the company's sustainability practices and their effects on the world.
Financial materiality - This aspect focuses on how sustainability issues can affect the financial performance, position, or value of a company. The aim is to provide investors and other stakeholders with information on how sustainability-related factors can impact the company's financial health and future performance. It emphasizes quantitative and qualitative data focusing on growth, performance, and capital in the short- and long-term.
How Net0 can help
Net0 is a comprehensive carbon emissions management software that calculates business’ carbon emissions data and converts it into measurable CO2 tonnage making carbon data trackable and empowering companies to manage strategic climate action plans in the short- and long-term.
Book a demo and see how Net0 enables you to communicate CSRD-compliant carbon reports with confidence.
Written by:
Kristin Irish
As a content writer for Net0, Kristin harnesses her expertise and enthusiasm for carbon emissions reduction, merging it with her other passion: the B2B SaaS industry. Her global outlook and dedication enrich the sustainability sector with insightful perspectives.
