European Sustainability Reporting Standards (ESRS) are a set of guidelines developed to standardize and enhance the quality of sustainability reporting by companies within the European Union. These standards are part of the CSRD framework, which aims to improve transparency and accountability on environmental, social, and governance issues.
Objectives of ESRS
Standardization: ESRS provides a consistent framework for companies to report on sustainability issues, facilitating comparability and reliability of the reported data.
Transparency: Enhances the visibility of companies' impacts on and dependencies related to ESG matters, thereby helping stakeholders make informed decisions.
Compliance: Ensures that companies meet the EU’s sustainability disclosure requirements, aligning with broader environmental and social goals
Key Components of ESRS
ESRS are divided into several key categories, each focusing on different aspects of sustainability:
Environmental Standards: Cover areas such as climate change mitigation, pollution, water and marine resources, biodiversity, and resource use.
Social Standards: Focus on social issues like workforce conditions, human rights, and community impacts.
Governance Standards: Address corporate governance issues, including business ethics, anti-corruption measures, and organizational governance
ESRS Reporting Requirements
Under the CSRD, companies are required to report on specific ESRS based on their relevance and impact. Here’s a breakdown of the key ESRS companies need to consider:
General Disclosure Requirements (ESRS 1 and ESRS 2)
ESRS 1 (General Requirements): Provides the overall guidelines for sustainability reporting, including double materiality assessment and stakeholder engagement.
ESRS 2 (General Disclosures): Requires disclosures on the company's governance, strategy, policies, and risk management related to sustainability issues
Topic-Specific Standards
Climate Change (ESRS E1): Covers disclosures on greenhouse gas emissions, climate risks, and mitigation strategies.
Pollution (ESRS E2): Involves reporting on pollutants, waste management, and measures to prevent and reduce environmental impact.
Water and Marine Resources (ESRS E3): Requires disclosures on water usage, marine impact, and water conservation efforts.
Biodiversity and Ecosystems (ESRS E4): Focuses on the impact of company activities on biodiversity and ecosystems.
Resource Use and Circular Economy (ESRS E5): Encompasses reporting on resource consumption, efficiency, and circular economy practices.
Workforce (ESRS S1): Includes disclosures on employee conditions, diversity, and human rights within the workforce.
Communities (ESRS S2): Involves reporting on the impact of company activities on local communities and measures to enhance social well-being.
Consumers and End-users (ESRS S3): Requires disclosures on product safety, consumer rights, and customer relations.
Governance (ESRS G1): Covers disclosures on governance structures, business ethics, and anti-corruption measures.
Determining Which ESRS to Report On
Companies must conduct a double materiality assessment to determine which ESRS are relevant to their operations. This involves:
Financial Materiality: Identifying which ESG issues could significantly affect the company’s financial performance.
Impact Materiality: Assessing how the company’s activities impact the environment and society.
Based on this assessment, companies must report on the ESRS that are deemed material. This ensures that the reporting is comprehensive and relevant to the company’s specific context and operations.
For more detailed guidelines, companies can refer to the full ESRS documentation available through EFRAG’s website.