The European Union has adapted existing reporting standards for sustainability information. To work towards the European Green Deal, new reporting standards are introduced, such as the CSRD and the ESRS, involving stricter reporting obligations and affecting four times as many companies as before. 

This article gives an overview of both standards, who they apply to and their general frameworks. 

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CSRD and the Green Deal

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To align with the European Green Deal, the EU Commission adopted new sustainability reporting standards in 2021. The Corporate Sustainability Reporting Standards (CSRD) amends and replaces the pre-existing Non-Financial Reporting Directive (NFRD) originally released in 2014. 

The CSRD increases reporting obligations for companies, with an emphasis on sustainability-related information. These new standards will apply to around 49,000 companies, instead of the 11,700 originally stated under the NFRD. This will be the case for large corporations from 2024 onwards. Listed SMEs will have to comply starting from 2026 and unlisted SMEs will follow. The CSRD is constructed to help mitigate any shortcomings from the existing NFRD, create a comprehensive reporting framework and improve the assessment of sustainability impacts within an organisation. The CSRD includes a so-called double materiality assessment, meaning companies will be required to identify both their impact on people and the environment (impact materiality) and how sustainability efforts impact the business on a financial level (financial materiality). The directive also mandates a disclosure of targets, baselines and progress. The reports need to be in line with the EU Taxonomy and the Task Force on Climate Related Financial Disclosures (TCFD). 

The CSRD introduces the mandatory reporting requirements, in short: who needs to report and what is to be reported. Further elaboration on what these measures entail and how they need to be implemented is described in the European Sustainability Reporting Standards (ESRS), in short: the ESRS describes how companies need to report their sustainability-related information and when they are obligated to do so. 

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ESRS - Structure

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The European Sustainability Reporting Standards (ESRS) were recently introduced by the European Financial Reporting Advisory Group (EFRAG), combined with the European Commission, aiming to better align sustainability reporting across different regulatory frameworks and to ensure global consistency. The ESRS is based on the general foundations of the Global Reporting Initiative (GRI), stemming from the United Nations Environment Programme (UNEP). The ESRS reporting framework ensures that the sustainability information provided by organisations is consistent, comparable, transparent, and audited by a certified external third party. 

The ESRS structure is built on twelve ESRS standards: two cross-cutting standards (ESRS 1 and 2) and ten topical standards that are divided into environmental, social and governance standards. The ESRS 1 and 2 are mandatory for all affected companies. 

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Mandatory ESRS 1 and 2

Within the ESRS there are two mandatory standards: the ESRS 1 and 2. This applies to all companies falling under the previously mentioned criteria. 

Eligible corporations must comply with the CSRD starting January 2025 and start their data collection in January 2024. This applies to all companies that were subjected to the NFRD. An additional 37,000 large corporations need to comply starting January 2026 and should start collecting data from January 2025. In general, European corporations are required to comply with the CSRD if they meet two of the following criteria: 250 full-time employees, 40 million euros in revenue and/or 20 million euros in balance sheet. 

The below picture indicates the structure of the ESRS, with both its cross-cutting and topical standards. 

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Picture 1. The overall structure of the ESRS

ESRS 1 introduces mandatory disclosure criteria for reporting on several subjects, including environmental, social and governance (ESG) aspects. These standards ensure a comprehensive understanding of an organisation’s sustainability impacts, risks, and opportunities. Companies can disclose information on strategy, risk management and objectives. The annexes emphasise that organisations are obligated to report on what's required by ESRS 2 and other important EU rules, no matter the materiality assessment. 

ESRS 2 outlines further disclosure requirements for sustainability statements that need to be applied to all companies. This should include all details about governance, the value chain, the materiality assessment, key performance indicators and finally the company’s strategy. The annexes give the specific mandatory data points to be reported on, in addition to any mandatory elements coming from EU legislation such as the Sustainable Finance Disclosure Regulation (SFDR), Pillar 3, EU Climate Law and Benchmark Regulation.

Picture 2 demonstrates how the ESRS report fits into the general annual reporting of a company.

Picture 2. An example of a sustainability statement placed within the annual report

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Topical standards: Environment, Social and Governance standards

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ESRS E1-E5 – Environmental Information

The environmental standards introduce five new sub-standards that address all reporting on climate change (E1), pollution (E2), water and marine resources (E3), biodiversity and ecosystems (E4), and resource use and circular economy (E5). These standards reflect an organisation’s efforts in supporting the EU Green Deal’s environmental objectives. 

ESRS S1-S4 – Social Information

The following four social standards include all social aspects. Organisations can report on information related to their internal workforce (S1), employees in the value chain (S2), communities impacted by the company’s operations (S3) and consumers and end users (S4). These standards allow organisations to reflect on both internal and external stakeholders, with a focus on qualitative over quantitative data. 

ESRS G1 – Governance Information

The governance standards showcase a company’s process, performance and strategy. This includes information on all administrative and supervisory bodies. The standards also include disclosure criteria for managing impacts, opportunities and risks. G1 mandates information on a company’s culture and policies and addresses how the organisation manages situations such as bribery, political influence, corruption and relations with external suppliers. 

Picture 3 outlines the ESRS roadmap for 2024 established by EFRAG in October 2023. The main developments in 2024 will focus on the implementation guidelines for the ESRS offering practical advice for the challenging aspects of the ESRS: the double materiality assessment and the value chain analysis. Additionally, sector-specific standards are in the pipeline, with finalised drafts for two high-impact sectors (oil & gas and mining, quarrying and coal) set to be released before June 2024. 

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Picture 3. EFRAG’s roadmap for ESRS development over 2024

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AFS Energy - your partner in sustainability strategies

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The upcoming reporting standards introduce new challenges for eligible companies. AFS Energy is here to help, offering guidance on the ESRS and CSRD while also identifying challenges coming with these reporting obligations. In addition, AFS Energy specialises in crafting end-to-end sustainability strategies to realise climate-positive goals. Connect with our Sustainability Advisors today to start your sustainability journey.