Since their introduction in January 2023, the European Sustainability Reporting Standards (ESRS) have become a key part of the ESG disclosure landscape.
Initially drafted and proposed by the European Financial Reporting Advisory Group (EFRAG), the ESRS standards are now the central disclosure tool for all companies subject to the Corporate Sustainability Reporting Directive (CSRD).
According to EU leaders, they mark an important step forward in the transition to a sustainable EU economy – despite adding anther acronym to the ESG lexicon.
As such, the ESRS framework aims to increase corporate transparency in terms of sustainability, providing investors with the information they need to better evaluate risk and bring an increased level of rigor to sustainability reporting, on par with financial disclosure.
In this article, we explore how the ESRS framework can help provide an accurate and comparable overview of your ESG risks and impacts, and your opportunities.
what is the CSRD?
In order to understand the ESRS, it’s a good idea to start with a quick recap of the CSRD. The EU Corporate Sustainability Reporting Directive (CSRD) builds on the foundations of the Non-Financial Reporting Directive (NFRD) to provide increased transparency around the impact of businesses’ activities on the environment and society.
While the NFRD covered around 11,000 large companies across the EU, the CSRD has expanded this scope to nearly 50,000 businesses including all large and publicly listed companies.
This broader remit reflects the important role of business in tackling global sustainability challenges, emphasizing that transparency and accountability in sustainability are non-negotiable. By increasing participation in the program, the CSRD is expected to take significant steps in reaching Europe’s carbon neutral goals by 2050.
how were the ESRS developed?
Designed to replace the more general NFRD guidelines, the ESRS were developed as a firm framework for reporting requirements specified by the CSRD. They were drafted by the European Financial Reporting Advisory Group (EFRAG) at the request of the European Commission.
To ensure that the standards met the needs of all parties, EFRAG consulted with various stakeholders including businesses and investors, following which it presented draft standards that underwent a public consultation process.
In July 2023, the EC adopted the final version of the standards, although EFRAG will continue to develop and refine the ESRS to ensure the standards remain pertinent and effective.
how do the ESRS standards work?
The final version of the ESRS is made up of two cross-cutting standards, which set out requirements for CSRD disclosures in the following areas:
• General disclosures
• Environmental disclosures
• Governance disclosures
• Social disclosures
The “General Requirements” standard sets overarching principles for sustainability reporting, detailing what is required to understand a company’s impacts, risks, and opportunities regarding environmental, social, and governance (ESG) aspects. This will cover your workforce, governance structures, business strategies, risk management, and other organizational information.
It also sets out how companies should decide what information is material or relevant to their organization using a materiality assessment.
The “General Disclosures” standard specifies essential information that all companies should disclose, irrespective of materiality. It covers information on governance, strategy, materiality assessment, key performance indicators, and value chain coverage.
topical standards
Beyond the mandatory cross-cutting standards, the ESRS offers ten non-mandatory topical standards. These specialised frameworks delve into the specifics of Environmental, Social, and Governance (ESG) topics in areas such as climate change and human rights. They are tailored to provide a more detailed report, which companies can use to evaluate their sustainability performance.
sector-specific standards
Recognising the diverse nature of industries, the ESRS will gradually evolve to include sector-specific standards. These updates are anticipated to be finalised and adopted by the European Commission by June 2026, ultimately ensuring that reporting is as relevant as possible and that it reflects the specific sustainability challenges and opportunities faced by different industries.
how to prepare for ESRS
For many organizations, their first CSRD report is due in the next year or two. That’s why the time to start compiling reports is now, especially for those organizations not previously captured by the NFRD and new to ESG disclosure.
Despite the learning curve, ESRS reporting under the Corporate Sustainability Reporting Directive (CSRD) offers both challenges and opportunities for businesses. To report sustainability effectively and gain real insights on your sustainability performance, consider the following steps:
- Set boundaries
You will need to think about the scope and timeframe of your reports. Consider which parts of the value chain, both upstream and downstream, are included and define what constitutes short, medium, and long-term for your business. - Assess Materiality
Identify the topics on which you will report by conducting a materiality assessment. In order to comply, you will need to assess both how your business is affected by ESG issues, including climate risk, and how your business has an effect on society and the environment. This comprehensive double materiality analysis will help you prioritize your disclosure efforts. - Assess data collection and identify gaps
Undertake a thorough review of your existing sustainability reporting to see how well it meets ESRS requirements and identify any gaps. Some data may already be available because it is required by law or used to track against other metrics, but for those new to ESG reporting, this process will involve reaching out to individuals across your company and supply chain. - Plan your data collection process
Consider factors such as data availability, collection methods, and reporting timelines to help you plan your data collection process. It may be necessary to establish new processes or adjust existing ones to capture the required data accurately and consistently. Specialized software such as the AMCS Sustainability Platform can help simplify data collection across your organization, increasing transparency and reducing errors.
AMCS can streamline ESRS compliance
Thanks to the broad scope of the ESRS standard, you may need to locate and collate information from across multiple facilities, different areas of your business, and even from various partner companies up and down the value chain.
A cloud-based software like the AMCS Sustainability Platform can help by:
• Streamlining data collection and centralizing sustainability information
• Automating GHG accounting and calculations in real-time
• Updating methodologies used to comply with various frameworks
• Customizing reports to meet individual ESG standards including ESRS
If you’re ready to dive into the ESRS standard and want to simplify your ESG disclosure process with automated data capture and framework focused reporting, contact an AMCS expert today.