CSRD: ESRS 1 requirements

It is in order to involve companies in a transition towards a more sustainable economy that the European CSRD (Corporate Sustainability Reporting Directive) directive has introduced ESRS standards (European Sustainability Reporting Standards). These new rules redefine how companies must communicate on their extra-financial performance.

The 12 ESRS cover a wide range of environmental, social and governance (ESG) themes and impose a clear framework for coherent and harmonized reporting. These standards help stakeholders better understand the impact of businesses on society and the environment.

In this article, we will explore the main lines of ESRS and focus on ESRS 1, the true methodological basis of CSRD.

This cross-cutting standard establishes the general principles, key definitions, and expectations that will guide businesses in applying the 11 other thematic and sectoral standards. This is a key step in mastering CSRD issues and structuring your sustainability report.

What is an ESRS?

An ESRS, or European Sustainability Reporting Standard, is a set of rules created under the European CSRD directive (Corporate Sustainability Reporting Directive). These standards define the information that companies must publish about their CSR performance.

They cover major ESG topics, the environment, social aspects and governance. Their main objective is to ensure transparency in ESG reporting and to make data comparable between companies, to help stakeholders (investors, customers, regulators) assess the impact of companies.

To fully understand, EFRAG has developed a series of 12 ESRS standards for sustainability reporting: 2 general ESRS and 10 thematic ESRS.

ESRS 1 establishes the overall framework for businesses, defining the context, principles, and rules applicable to all reporting.

ESRS 2, on the other hand, requires the disclosure of general information about the company, providing an essential basis for understanding its sustainability positioning and priorities.

The 10 thematic ESRS deepen specific topics related to Environment (E), Social (S) and Governance (G).

To explain it simply, let's say they work like elements in a movie:

• ESRS 1 is the scenario. It defines the movie universe, the rules, and the overall framework in which the story takes place. While very important, it's not what the viewer (or here, the stakeholders) see directly.
• In ESRS 2, these are the main characters who appear on the screen. This is the key information about the company: who it is and what are the essential topics that will guide the rest of the story (reporting).
• Thematic ESRS represent the individual stories of each character. They detail the actions, impacts and specificities of the Environment, Social and Governance themes.

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The general principles of ESRS 1

ESRS 1 represents the backbone of reporting standards for CSRD.

It sets out the general principles that companies should follow to structure their reports: for example, how to choose the most relevant topics to deal with (this is called double materiality), or how to make data reliable, comparable and understandable.

ESRS 1 is a user manual, which must be read before starting your CSRD. These are rules, definitions or standards to be respected when reporting CSRD.

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It is important, because thanks to these principles, stakeholders can truly understand a company's sustainability issues and assess whether its actions are in line with expectations.

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ESRS 1 requirements

What should I do?

• 👉 You do NOT have to do ANY REPORTS under ESRS 1 directly.
• It guides how to apply the other sectoral/thematic ESRS (such as ESRS 2, E1, S1...).

ESRS 1 serves as a methodological framework for applying CSRD standards in a coherent and structured manner.

It provides general principles, definitions, context, and explanations to help you complete your CSRD report on:

• The most important ESG topics for CSRD,
• Explanation of the concept of double materiality,
• The structure of the information expected so that it is clear, comparable and reliable,
• An explanation of the coherent approach between the different areas covered by the thematic and sectoral standards.

ESRS 1 therefore serves as a global framework for CSRD reporting, it shares with you the basic principles that will guide the application of other specific standards (sectoral and thematic). Nothing is expected of you at this stage.

Here's how it works and what it's for:

Data definition in ESRS 1 to follow for the rest of the report

ESRS 1 establishes key definitions and principles to follow when creating the sustainability report, allowing the rest of the process to be structured in a coherent manner. The following section details and simplifies a bit the topics covered by ESRS 1.

Definition of ESRS categories

There are 3 categories of ESRS:

• Cross-cutting (general) standards: They define the general principles applicable to all sustainability relationships, such as governance and risk management.
• Thematic standards: They focus on specific areas such as environmental, social, and governance. Each domain is subdivided into sub-themes and sub-sub-themes for greater accuracy in reporting.
• Sectoral standards: They apply to specific sectors, detailing the issues specific to each industry. These standards make it possible to identify the material challenges specific to the company in its sector of activity. These are still under development.

Methodology for determining your material challenges

ESRS 1 defines the double materiality method expected in CSRD. It guides businesses to identify the material themes, sub-themes, and sub-sub-themes, that is, the most significant for their activities. If the company has a positive or negative impact on a theme or if it represents a risk or an opportunity for it, in these cases, they must be taken into account in the materiality analysis.

Description of the structure of the disclosure of standards in 4 pillars

Details of the expected structure can be found in each ESRS. The sustainability report should be structured around four main areas:

• Governance (GOV): Oversight processes related to corporate sustainability.
• Strategy (SBM): How the company manages risks and opportunities related to sustainability.
• Management of impacts, risks and opportunities (IRO): The management of risks and environmental and social impacts.
• Metrics and Indicators (MT): Monitoring of sustainability results and performances.

Definition of stakeholders and their role

ESRS 1 emphasizes the importance of involving stakeholders in the CSRD reporting process. This includes any individuals, groups, or organizations that may affect or be affected by business activities, such as investors, customers, regulators, suppliers, suppliers, employees, etc.

What ESRS 1 expects in concrete terms:

• Stakeholder consultation: ESRS 1 emphasizes the importance of exchanging with these stakeholders to understand their expectations and concerns about sustainability issues. This exchange makes it possible to collect quantitative and qualitative data on material issues at the company.
• Integrating these expectations into the strategy: To guide the company's actions according to the priorities identified by the stakeholders and to better meet their expectations.

• Weighing the importance of stakeholders: Not all stakeholders have the same importance or influence on every sustainability topic. ESRS 1 recommends quantifying the importance of each stakeholder, according to its impact and knowledge, to properly weigh their influence in the process of double materiality analysis. This is an essential point for define its matrix of double materiality. For example, for a battery manufacturer, customers (car manufacturers) will be of major importance on the subject of environmental performance, as their requirements directly influence innovations in sustainable materials. Conversely, local communities around production sites will play a key role in matters related to social impacts, such as managing nuisances or creating jobs.

Definition of double materiality

ESRS 1 introduces the concept of double materiality, which analyzes at the same time:

1. The material impact: how business activities affect the environment and society (positively or negatively). It's about To assess severity, The ladder, The range, irreversibility And the probability of these impacts.
2. Financial materiality: how these sustainability issues influence the financial performance of the company, measured by financial size (in €) risk or opportunity, and its probability of happening (in%).

ESRS 1 also defines the level of disaggregation, that is, the level of detail with which you will analyze the information. In concrete terms, this means that the company must adapt its analysis according to various criteria, such as:

• The sectors of activity : If the company operates in several sectors, each sector must be analyzed separately taking into account the challenges specific to this sector.
• Geographical areas : Environmental and social impacts may vary by region, so it is necessary to analyze the impacts according to the different geographical areas where the company is present. This is particularly relevant for topics such as The water Or the biodiversity, where the importance of stakeholders varies considerably depending on the geography.
• The type of activity : Some businesses can have very diverse activities, which require specific information adapted to each field of activity.

Value chain definition

ESRS 1 defines the expected value chain for CSRD. The value chain of a company must therefore correspond to:

• Own operations: These are activities directly under the control of the company, such as production, human resource management, or internal operations.
• Upstream: These are activities that take place before the company's products or services reach the production stage, such as raw material suppliers or service providers.
• Downstream: This concerns the steps that follow production, such as distributors, retailers, or end customers.
• External environment: ESRS 1 also takes into account external factors that directly influence the company, such as regulations, financing, or geopolitical and geographical conditions.

Links to other regulations or reporting frameworks

ESRS 1 establishes links to other reporting frameworks or regulations, such as:

• The EU Green Taxonomy: companies must communicate on their green activities (environmental topics) in the Green Taxonomy, same as during the environmental ESRS report.
• The recommendations of the TCFD: ESRS 1 insists that companies must comply with the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures) for the disclosure of information related to climate risks, especially with regard to governance, strategies, strategies, risk management, and climate-related financial indicators.
• The GRI and SASB standards: Although ESRS 1 does not require strict compliance, it encourages alignment with these standards for more consistent reporting.

Thus, the integration of these links into ESRS 1 ensures that corporate reporting is mainstreamed and internationally recognized, while offering a greater clarity and consistency for stakeholders.

Alignment with reasonable duty of care

CSRD focuses on integrating due diligence obligations - commonly referred to as “due diligence” into corporate governance and information practices.

The duty of vigilance is the obligation for a company to prevent and repair the negative impacts of its activities, in particular on human rights and the environment, throughout its production chain. In concrete terms, this means that a company must ensure that its suppliers respect ethical and sustainable standards.

The elements of alignment between CSRD and due diligence are:

• Materiality assessment: CSRD requires companies to identify and disclose risks and opportunities on human rights and the environment, in accordance with the principle of due diligence.
• Governance and oversight: Businesses should put in place governance structures to oversee practices and manage their risks in accordance with due diligence obligations.
• Risk management: CSRD requires sharing how companies manage risks to contribute to their due diligence.
• Stakeholder engagement: The guidelines encourage businesses to engage with stakeholders, ensuring that their concerns and expectations are taken into account.

Conclusion

ESRS 1 is the methodological basis of the CSRD, it gives companies the tools they need to structure their extra-financial reporting in line with European regulatory expectations. More than just a guide, it clarifies essential concepts such as dual materiality, transparency requirements, and stakeholder consideration.

Thanks to this standard, companies have a clear framework for identifying their material challenges, structuring their disclosures and strengthening the reliability of their data.

Mastering this standard means giving yourself the means to calmly address all the requirements of thematic and sectoral ESRS, while showing a real desire to contribute to a more sustainable economy.