ESRS

The European Sustainability Reporting Standards (ESRS) are mandatory reporting standards for sustainability disclosures under the EU Corporate Sustainability Reporting Directive (CSRD). Developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission in July 2023, ESRS represents the most comprehensive sustainability reporting framework globally, covering environmental, social, and governance topics through a double materiality lens.

Framework Overview

ESRS consists of 12 standards organized into three categories: cross-cutting standards, environmental standards, and social/governance standards.

Cross-Cutting Standards

ESRS 1: General Requirements — Defines fundamental concepts, principles, and structure for sustainability reporting

• Double materiality assessment methodology
• Value chain reporting requirements
• Time horizons and scenario analysis
• Reporting boundaries and consolidation

ESRS 2: General Disclosures — Mandatory disclosures required for all companies

• Governance, strategy, and business model (GOV-1 to GOV-5)
• Stakeholder engagement (SBM-2)
• Material impacts, risks, and opportunities (SBM-3)
• Policies, actions, metrics, and targets (MDR framework)

Environmental Standards (E1-E5)

ESRS E1: Climate Change — Climate-related impacts, risks, and opportunities (based on TCFD/IFRS S2)

• GHG emissions (Scope 1, 2, 3)
• Transition plans and decarbonization targets
• Physical and transition risks
• Climate scenario analysis

ESRS E2: Pollution — Air, water, and soil pollution

• Emissions to air, water, and soil
• Substances of concern and very high concern
• Microplastics

ESRS E3: Water and Marine Resources — Water consumption, withdrawal, and marine impacts

• Water consumption and withdrawal by source
• Water stress areas
• Marine resource exploitation

ESRS E4: Biodiversity and Ecosystems — Nature-related impacts and dependencies (aligned with TNFD)

• Impacts on biodiversity and ecosystems
• Dependencies on ecosystem services
• Transition plans for nature-positive outcomes

ESRS E5: Resource Use and Circular Economy — Resource efficiency and circularity

• Resource inflows (materials, products)
• Resource outflows (products, waste)
• Circular economy strategies

Social Standards (S1-S4)

ESRS S1: Own Workforce — Company's own employees and workers

• Working conditions, equal treatment, health & safety
• Social dialogue and collective bargaining
• Training and skills development
• Diversity metrics (gender, age, disability)

ESRS S2: Workers in the Value Chain — Upstream and downstream workers

• Working conditions in supply chain
• Human rights due diligence
• Forced labor and child labor risks

ESRS S3: Affected Communities — Communities impacted by operations

• Economic, social, and cultural rights of communities
• Indigenous peoples' rights
• Land rights and displacement

ESRS S4: Consumers and End-Users — Product/service users

• Consumer health and safety
• Data privacy and protection
• Fair marketing and consumer information

Governance Standards (G1)

ESRS G1: Business Conduct — Corporate governance and ethics

• Corporate culture and business ethics
• Anti-corruption and anti-bribery
• Political influence and lobbying
• Payment practices and supplier relationships

Double Materiality

ESRS requires companies to assess double materiality — considering both impact materiality and financial materiality:

Impact Materiality (Inside-Out): How the company's activities affect people and the environment

• Positive and negative impacts
• Actual and potential impacts
• Short, medium, and long-term impacts

Financial Materiality (Outside-In): How sustainability matters create financial risks and opportunities for the company

• Risks to business model and financial position
• Opportunities from sustainability trends
• Dependencies on natural and social capital

A topic is material if it meets either impact materiality or financial materiality criteria (or both). This differs from IFRS S1/S2, which uses only financial materiality.

Why ESRS Matters

Mandatory Scope

CSRD applies to approximately 50,000 companies in the EU, making ESRS the most widely mandated sustainability reporting framework:

Assurance Requirement

CSRD mandates limited assurance of sustainability information from the first reporting year, progressing to reasonable assurance in the future. This makes ESRS disclosures subject to the same audit rigor as financial statements.

Primary Source Documents

From ESG Library

• ESG Reporting Made Simple (IFRS/SASB) — Includes ESRS-IFRS interoperability guidance
• ESG & GRI Reporting Made Simple — ESRS-GRI mapping for integrated reporting

View all books →

How to Implement ESRS

Step 1: Determine Applicability
Check if your company falls under CSRD scope based on size, listing status, and EU presence.

Step 2: Conduct Double Materiality Assessment
Identify material sustainability topics using ESRS 1 methodology:

• Assess impact materiality (inside-out): company's impacts on people and environment
• Assess financial materiality (outside-in): sustainability risks and opportunities affecting the company
• A topic is material if it meets either criterion

Step 3: Identify Applicable ESRS Standards
ESRS 2 (General Disclosures) is mandatory for all. For topical standards (E1-E5, S1-S4, G1), disclose only material topics or explain why a topic is not material.

Step 4: Collect Data
Gather quantitative and qualitative data for material topics across value chain (upstream, own operations, downstream).

Step 5: Prepare Sustainability Statement
Create a dedicated sustainability statement within the management report, following ESRS structure and disclosure requirements.

Step 6: Obtain Assurance
Engage an auditor or assurance provider for limited assurance (mandatory from first reporting year).

Step 7: Publish
Include sustainability statement in management report, tag in ESEF (European Single Electronic Format) for machine-readability.

ESRS vs. IFRS S1/S2 vs. GRI

Materiality Approach:

• ESRS: Double materiality (impact + financial)
• IFRS S1/S2: Financial materiality (enterprise value)
• GRI: Impact materiality (sustainable development)

Scope:

• ESRS: Comprehensive (E, S, G across 12 standards)
• IFRS S1/S2: Climate-focused (S2) + general sustainability (S1)
• GRI: Comprehensive (universal + topic-specific standards)

Mandatory vs. Voluntary:

• ESRS: Mandatory (EU CSRD)
• IFRS S1/S2: Mandatory in adopting jurisdictions (UK, Singapore, etc.)
• GRI: Voluntary globally

Interoperability:
ESRS E1 (Climate) is aligned with IFRS S2 and TCFD. Companies can use ESRS disclosures to substantially meet IFRS S2 and GRI requirements with minimal additional work.

ESRS Sector-Specific Standards (Upcoming)

EFRAG is developing sector-specific ESRS for high-impact industries:

Phase 1 (expected 2026):

• Oil & gas
• Coal mining
• Agriculture, food, and beverage
• Textiles and apparel
• Motor vehicles

Phase 2 (expected 2027+):

• Additional sectors based on impact assessment

Sector standards will provide more granular disclosure requirements tailored to industry-specific sustainability issues.

ESRS for SMEs

EFRAG has developed voluntary ESRS for SMEs (listed SMEs have mandatory simplified standards from FY2026):

Simplified Structure:
Streamlined disclosure requirements, reduced data points, proportionate to SME resources.

Voluntary Adoption:
Non-listed SMEs can voluntarily adopt to meet customer/investor demands or prepare for future regulation.

Value Chain Reporting:
Large companies subject to CSRD must report on value chain impacts, creating indirect pressure on SME suppliers to provide sustainability data.

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