ESRS (European Sustainability Reporting Standards) - IM
What is ESRS? (European Sustainability Reporting Standards)
The European Sustainability Reporting Standards (ESRS) is the framework that supports the Corporate Sustainability Reporting Directive (CSRD). It is a comprehensive ESG reporting standard introduced by the European Union to improve the quality and consistency of sustainability disclosures for companies operating in the EU.
How Does ESRS Relate to ESG?
The ESRS is structured around the same Environmental (E), Social (S), and Governance (G) principles but introduces a more detailed structure with:
- Topical standards
- Sector-specific standards
- Entity-specific disclosures
ESRS emphasizes double materiality, meaning companies must report both:
- Impact Materiality: Their effect on the environment and society.
- Financial Materiality: How sustainability factors affect their business.
ESRS Structure Overview
The ESRS standards are organized into cross-cutting standards and topical standards.
Cross-Cutting Standards (General Requirements)
- ESRS 1: General requirements (explains the fundamental concepts for ESG reporting).
- ESRS 2: General disclosures (governance, strategy, and business model).
Topical Standards
Environmental Standards (E)
| Code | Topic | Description |
|---|---|---|
| ESRS E1 | Climate Change | Greenhouse gas emissions (Scope 1, 2, and 3), energy efficiency, and adaptation strategies. |
| ESRS E2 | Pollution | Air, water, and soil pollution, plus reduction strategies. |
| ESRS E3 | Water & Marine Resources | Water management, consumption, and impacts on aquatic ecosystems. |
| ESRS E4 | Biodiversity & Ecosystems | Impact on ecosystems, deforestation prevention, and conservation efforts. |
| ESRS E5 | Resource Use & Circular Economy | Material efficiency, waste reduction, and circular economy practices. |
Social Standards (S)
| Code | Topic | Description |
|---|---|---|
| ESRS S1 | Own Workforce | Workforce diversity, working conditions, and equal opportunity. |
| ESRS S2 | Workers in the Value Chain | Labor rights, fair wages, and working conditions throughout the supply chain. |
| ESRS S3 | Affected Communities | Impact on local communities and social investment. |
| ESRS S4 | Consumers & End Users | Product safety, data privacy, and consumer protection. |
Governance Standards (G)
| Code | Topic | Description |
|---|---|---|
| ESRS G1 | Business Conduct | Ethics, anti-corruption, and governance structures. |
Key Differences Between ESRS and Traditional ESG Standards
| Aspect | ESRS | Other ESG Frameworks (e.g., GRI, SASB) |
|---|---|---|
| Approach | Mandatory for CSRD-covered companies | Voluntary (for non-CSRD markets) |
| Scope | Emphasis on double materiality | Focuses primarily on financial materiality |
| Granularity | Highly detailed with mandatory disclosures for key ESG topics | Often more flexible and principle-based |
| Sector-Specific | Expanding with dedicated sector standards | Industry-specific standards exist but are less integrated |
| Digital Format | Requires data in machine-readable format (XBRL) | Digital integration is encouraged but not mandatory |
Who Must Follow ESRS?
- Companies operating in the EU that meet CSRD thresholds.
- Large non-EU companies with significant EU business presence (starting 2028).
- Initially applies to large listed companies; will expand to SMEs in future phases.
Key Takeaway
The ESRS framework aligns with ESG but introduces a more structured, mandatory approach for companies in the EU, ensuring consistent, comparable, and transparent sustainability reporting.
