The CSRD, “Corporate Sustainability Reporting Directive”, came into force on 1 January 2024. This European directive, which replaces the former NFRD (Non Financial Reporting Directive), aims to require large companies or SMEs listed on the stock exchange to provide annual extra-financial sustainability reporting.
To know everything about the CSRD click here!
The CSRD is based on Double materiality assessment : companies must report both on the impact of society and the environment on the financial performance of their company but also on the impact of their activities on society and the environment.
The CSRD requires companies to adapt their extra-financial report to comply with standardized European standards, including the ESRS.
Concretely, what are ESRS? What are the new ESRS reporting standards established by EFRAG? Is it mandatory for businesses to meet these new ESRS standards? What will their impact be on your business? And how can you best prepare for it? We enlighten you!
What are ESRS?
New European reporting criteria developed by EFRAG
To complement the new CSRD directive, EFRAG (the European Financial Reporting Advisory Group) has been appointed technical advisor to the European Commission to develop specific reporting standards: the European Sustainability Reporting Standards, otherwise known as ESRS. EFRAG works closely with the European Commission to develop harmonized ESG reporting models across the European Union.
Concretely, ESRS are European reporting standards, i.e. environmental, social and governance (ESG) European reporting criteria. This series of new standards aims to improve corporate sustainability reporting at European level by promoting better transparency, harmonization and standardization of non-financial corporate declarations. This will thus make it easier to compare the extra-financial reports of various European companies.
All companies falling within the scope of the CSRD must therefore meet European standards for reporting on sustainable development in accordance with the ESRS adopted by the European Commission in July 2023.
The ESRS are based on the 3 CSR pillars: Environmental, Social and Governance.
Under the CSRD, companies in order to comply must collect and disseminate through their reporting information relating to their environmental and social impacts, as well as their governance practices (ESG criteria).
It is not surprising that the ESRS standards developed by EFRAG are based on the 3 classic pillars of CSR: governance, the social component and the environmental component.
The 12 themes covered by the ESRS are as follows:
2 general criteria:
ESRS 1 General Requirement
ESRS 2 General Information “General disclosures”
5 criteria related to the environmental component :
ESRS E1 Climate Change
ESRS E2 Pollution
ESRS E3 Marine and Water Resources
ESRS E4 Biodiversity and Ecosystems
ESRS E5 Resource Use and Circular Economy
4 criteria related to the social component :
ESRS S1 Own workers
ESRS S2 Workers in the value chain
ESRS S3 Affected communities
ESRS S4 Consumer and end-users
1 criterion related to governance :
ESRS G1 Business Conduct
The list above concerns trans-sectoral standards, i.e. all sectors. However, EFRAG does not stop there and around forty sectoral criteria should soon be published concerning 40 specific sectors.
How ESRS work
- General information
- Environmental information
The ESRS E1, dedicated to the theme “Climate Change”, which includes mitigation, adaptation to climate change and the issue of energy, is the subject of a dedicated and detailed article that you can find here.
- Social information
- Governance Information
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On what criteria should the company report?
In the delegated act finally adopted by the European Commission on 31 July 2023:
- Only general “General Disclosures” information remains mandatory to be provided as part of the reporting.
- For the other ESRS, it is the double materiality assessment that determines the themes that must be taken into account and published as part of the reporting by the company. It is therefore up to the company to specify what it considers appropriate to publish following its materiality analysis. The double materiality assessment may be subject to control via an external audit.
To understand everything about double materiality assessment, you can consult our article dedicated to double materiality.
- For the ESRS E1 “Climate Change”: it is up to the company to prove that the climate subject does not concern it if it makes the choice not to report on this question. It is said that for this ESRS, the burden of proof is reversed! Many believe that it will be difficult not to report on the climate component on the grounds that there are few or no human activities that do not lead to the emission of greenhouse gases.
Find our Full table to download with all the ESRS criteria here.
- In each ESRS, there are DR, disclosure requirements. This is the specific information that companies should potentially publish under the CSRD. They are linked to important aspects of the business, such as its financial, environmental, social and governance performance. And in order to publish this specific information, companies have to collect and present data points, otherwise known as data points. In total, there are nearly 1200 of them. Data points are associated with each DR. It can be narrative, semi-narrative, percentages, or even monetary data. You will find all these data points to be collected in this table.
Are ESRS compatible with ISSB international standards?
The answer is yes! In concrete terms, this means that if your sustainability reporting complies with the ESRS criteria, you also meet the international criteria of the ISSB (International Sustainability Standards Board).
Moreover, EFRAG has published a mapping table to comply with the ISSB international standard that you can find it here.
Calendar
Reporting schedule
The standards have gradually come into force since January 2024 and until 2028. The Commission has insisted on the fact that under the CSRD, implementation would be gradual according to the type of companies concerned. You can find the application calendar here.
The Commission allows for the gradual implementation of standards. The objective is to lighten the burden on companies, to be more flexible and thus to facilitate reporting by leaving more time for companies, especially smaller ones, to comply.
In particular, it was decided that:
- For the ESRS E1 on climate change, companies with less than 750 employees can omit all data on scope 3 emissions and total GHG emissions in the first year.
- For the first year of reporting, companies can omit all information relating to the anticipated financial effects for environmental topics. In the first 3 years, companies can only report on qualitative information by omitting quantitative information.
Example of qualitative information : explain how these climate risks have (or could reasonably be likely to have) a significant influence on the financial position of the company, its financial results and its future prospects.
Example of quantitative information : Communicate the monetary amounts and the percentage of assets exposed to significant physical risk in the short, medium and long term, before the adoption of climate change adaptation measures.
- Small businesses (those with fewer than 750 employees) will benefit from a grace period for the gradual introduction of certain thematic standards.
You can also refer to the table prepared by the European Commission, section 10 in the ESRS 1 standard, Appendix C (page 30 of the Annex document).
Conclusion
Complex reporting
As you can see, the CSRD reporting is complex and represents a real challenge for companies. Depending on the result of their double materiality assessment, companies may be required to report up to 82 Disclosure Requirements.
To better anticipate the reporting of the various DRs, we encourage you, for example, to carry out your company's carbon footprint now as well as to carry out your double materiality assessment if it has not already been done.
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Other content on the CSRD
- The 25 questions that all businesses ask themselves about CSRD
- Everything about the CSRD: extra-financial reporting obligations
- CSRD: understand everything about the ESRS E1 “Climate Change” standard
- Double materiality analysis: the basis of the CSRD
- ESRS application guide for French companies, ANC, December 2023
- The ESRS checklist
- The table of expected data points for each ESRS
- First version of the ESRS adapted to European SMEs not affected by the CSRD, EFRAG, November 2023
- Implementation guidance for materiality assessment, EFRAG, November 2023
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