Understanding CSRD ESRS: the European sustainability reporting requirements

The Corporate Sustainability Reporting Directive (the CSRD) divided into European standards for extra-financial reporting (the ESRS) requires certain companies to communicate transparently on their environmental, social and governance impacts.

ESRS standards, closely linked to the growing adoption of CSR approaches, represent not only an obligation, but also a strategic opportunity.

What are the ESRS standards? What is their role in CSRD? Which businesses are affected? Find out everything you need to know about the CSRD ESRS.

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Understand the basics of ESRS standards and the CSRD directive

What is CSRD?

The CSRD (Corporate Sustainability Reporting Directive) is a European directive adopted in 2022. Its aim is toimprove transparency on corporate sustainability practices.

They must report their environmental, social and governance (ESG) impacts accurately and in detail. Thus, employees, consumers, investors and all stakeholders have the opportunity to compare the performance of companies according to these 3 extra-financial themes.

The CSRD replaces the NFRD (Non-Financial Reporting Directive) which mainly concerned large companies listed on the stock exchange. It asked them for information on their ESG performance and carried out very few sanctions in case of non-compliance.

The CSRD greatly extends the scope of application of the standard and is more demanding and precise in terms of the information to be reported (double materiality, ESRS standards, external verification, digitalization). Beyond improving transparency, which was the main objective of the NFRD, the CSRD aims to have a harmonized framework for extra-financial data for companies. The CSRD has also strengthened sanctions in the event of non-compliance with these legal obligations (the manager risks up to €75,000 in fine and 5 years in prison depending on the offense).

What are ESRS?

The ESRS (European Sustainability Reporting Standards) are a set of European standards, guidelines, which make it possible to harmonize the extra-financial reporting of companies. They determine what information companies should publish regarding their ESG impacts. It's quite logical, to be able to compare them, it is essential to use the same criteria.

Relationship and difference between CSRD and ESRS

The CSRD is therefore the European directive that establishes the legal framework for the obligation to report ESG impacts and The ESRS are the standards used to carry out this reporting.

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Structure and content of ESRS standards

The main themes covered by the ESRS

The themes covered by the ESRS revolve around three ESG pillars : environment, social and governance; in addition to two general standards.

The ESRS you will have to report on will depend on the themes that you have identified as material through your analysis of double materiality.

The environment

The theme is very broad, but the sub-topics are not necessarily material (i.e. relevant) for all businesses. The objective is to reduce impacts and better manage financial risks and opportunities related to environmental issues. A few examples:

• Work against climate change by reducing greenhouse gas emissions and developing decarbonization strategies;
• Limit the exploitation of resources by controlling water and energy consumption, for example in production chains;
• Reduce pollution by reorganizing to generate less waste, by recycling as much as possible and by reducing its air emissions;
• Preserve biodiversity by limiting its harmful effects on natural ecosystems.

The actions to be implemented depend on the material topics identified in the materiality matrix.

The social

The scope of application is quite broad, these standards cover forced labour, but also discrimination, gender equality, health and safety at work. In the idea, the company must respect these obligations within its walls, but must also ensure that it collaborates with partners that also respect them. This is where it gets complicated, in the context of extra-European trade, with countries that are less attentive to the respect of human rights.

Through the CSRD, companies are invited to control and rethink their entire supply chain, especially with regard to working conditions at their suppliers. Value chain workers and affected communities should also be considered, as well as direct employees.

The ESRS linked to the social sector also focus on quality of social relationships that the company maintains with each of its stakeholders: employees, customers, local communities, suppliers, distributors, etc.

Governance

Governance standards seek to validate that the overall strategy of the company is correct. aligned with the sustainable development goals.

It assesses the quality of management to ensure that everything is in place to avoid abuses, such as executive pay gaps or the fight against corruption.

Mandatory for which businesses?

Businesses concerned by the CSRD: 

• Companies previously subject to the NFRD, listed on the stock exchange, which employ more than 500 people and whose balance sheet exceeds 25 million euros or whose net turnover exceeds 50 million euros.
• Large companies meeting at least two of these criteria: a net turnover of 50 million euros or more, a balance sheet total of 25 million euros, or more than 250 employees.
• Small and medium-sized enterprises (SMEs) meeting at least two of these criteria: more than 50 employees, a turnover of more than 5 million euros, or a balance sheet total of more than 10 million euros.
• Non-European companies with a significant presence in the European Union, according to certain specific criteria.

The application schedule is gradual according to the size of the company and small businesses (less than 10 employees or less than €20 million in turnover) are not affected for the time being.

Regarding the ESRS standards, here are the ones that are mandatory for all companies:

• General standards that share context and expectations: The ESRS 1 and the ESRS 2.
• ESRS E1, the environmental thematic standard on climate change, because all companies have an impact or are impacted by climate issues.

The other standards are applicable according to the results of the double materiality analysis of each company.

The thematic ESRS standards are divided into themes, sub-topics, and sub-sub-themes.

The specific requirements of the ESRS

In the majority of cases, ESRs require businesses to report:

• written policies;
• Objectives set;
• Action plans put in place to achieve their goals;
• Some key indicators;

for each challenge identified as material.

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How to prepare for ESRS and CSRD requirements?

The steps to comply with the CSRD

Compliance with CSRD can take a long time; this varies depending on the sustainability maturity of the company. It is therefore essential to commit to it quickly and to move forward step by step:

1. Understand CSRD and ESRS;
2. Define a dedicated team, a compliance manager;
3. Discern material issues by involving all stakeholders in the reflection;
4. Set up data collection and analysis tools;
5. Define and monitor relevant KPIs to measure progress;
6. Prepare the sustainability report;
7. Have the report checked by an independent auditor;
8. Review the company's strategy to collect more reliable data from year to year, and improve on ESG topics;
9. Publish annual reports.

Disclosure Requirements (DR) and Data Points (DP)

The 12 ESRS standards are broken down into 82 “Disclosure Requirements”, the DRs, specifying what and how to report on each subject.

The 82 Disclosure Requirements represent no fewer than 1,150 data points, or DP, guiding companies on what to include in their reports.

The combination of these two elements ensures detailed, consistent sustainability reports that are aligned with the expectations of regulators and stakeholders.

For example, you need to produce a CSRD report. You are dealing with ESRS E3 (water and marine resources), the sub-topic “water,” and the sub-sub-topic “water consumption.”

Within the sub-sub-topic, you will find the DRs specifying the information you need to report (policy, actions, targets, objectives, metrics) and the DPs indicating the expected form of reporting (water consumption trend curve, water consumption per unit of production, amount of water saved through specific measures).

Each DR relates to a specific sustainability topic, in relation to a sub-theme and a sub-sub-theme. For example:

• ESRS E1-1 Transition to a low-carbon economy;
• ESRS S1-2 Fair working conditions for the workforce;
• ESRS G1-1 Governance structure responsible for sustainability issues.

The DP specifies what the company must collect and report to respond to the DR. They can be qualitative (describing a policy, strategy, or commitment) or quantitative (measuring scope 1 greenhouse gas emissions in tons of CO₂, sulfur dioxide, or fine particles, turnover rate, number of workplace accidents, etc.). It is not mandatory to respond to all ESRS, only the DR and DP for topics that are material to the company.

Available tools and resources

CSRD is a vast subject. To help them in their efforts, companies can seek assistance from specialized experts.

Numerous resources are also available on official websites to provide as much information as possible on the subject. For example:

• Educational guide issued by the AMF (Autorité des Marchés Financiers) for reporting on your climate transition plan in ESRS format;
• Practical guide to applying the CSRD by the ANC (Autorité des Normes Comptables);
• Senate report on the implementation of the CSRD;
• ESRS guide from the CSR portal of the Ministry of Economy and Finance and the digital services incubator.

And to stay on top of the project while benefiting from advanced expertise, you can also use CSRD reporting software such as Ditto.

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Outlook and new opportunities

The impact of ESRS on corporate CSR strategy

The implementation of CSRD-compliant ESRS reporting is fully in line with the CSR approach. It imposes new transparency and reporting requirements, forcing companies to rethink their overall strategy in favor of sustainability:

• Strengthen CSR governance;
• Consolidate ESG risk management;
• Innovate and develop new business models.

Through this transformation, companies improve their reputation, brand image, and attractiveness. Although adaptation requires investment, it reduces costs in the long term and optimizes financial and non-financial performance.

Harmonization with international standards

Compliance with ESRS also enables companies to comply with other international standards, as the CSRD is inspired by frameworks such as the GRI standards and the TCFD recommendations. This ensures a consistent and harmonized approach to sustainability reporting and facilitates alignment with global standards and the expectations of stakeholders worldwide.

What are the main international standards?

• GRI (Global Reporting Initiative), which also provides a framework for ESG reporting;
• TCFD (Task Force on Climate-related Financial Disclosures), which focuses specifically on climate-related information;
• ISSB (International Sustainability Standards Board), which covers sustainability standards, but with a focus on investor needs.

Outlook

ESRS and CSRD are intended to apply to more and more companies. They play a key role in the ecological and social transition. Even if they are not currently affected, companies would be wise to commit now to stay ahead of the curve and remain competitive. Those that are not yet affected by these requirements would be well advised to embark on this process as soon as possible in order to gain a head start and remain competitive.

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In conclusion

Beyond a constraint, the CSRD directive and ESRS standards represent a real opportunity for companies. Integrating ESG issues into their strategy allows them to differentiate themselves, develop their brand image and attract investors and talent.

Understanding ESRS is the first step to successful CSRD reporting.

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FAQ

How many standards are there in the ESRS?

There are 12 ESRS standards divided into two general themes and three others on ESG: environmental, social, and governance standards.

What are the key criteria to include in an ESRS-compliant report?

The structure of the reporting and the key information to be disclosed are defined by ESRS 1 and ESRS 2. The report must then include the environmental, social, and governance criteria of the thematic ESRSs based on the material issues identified by the company in its double materiality analysis.

What are the European sustainability reporting standards (ESRS)?

Under the CSRD, the ESRS are a set of specifications that tell companies what information they need to disclose in their non-financial reports.

How does the CSRD work?

The CSRD requires large European companies to publish a standardized, detailed report on their ESG impacts, based on the ESRS standards.

Among these standards, the 12 guidelines, known as the ESRS, are mandatory for all companies: ESRS 1, ESRS 2 (General Information) and ESRS E1 (Climate Change). You only need to respond to the other ESRS if the topics are material to your company.