Summary
Details
- European Union
ESRS reporting is mandatory for companies subject to the Corporate Sustainability Reporting Directive.
Entities required to comply include:
- large EU companies meeting CSRD thresholds.
- listed companies in EU regulated markets.
- certain EU subsidiaries of non-EU companies.
- non-EU companies with substantial EU activity.
Certain exemptions and transitional provisions exist.
Listed SMEs may opt out of reporting until 2028 but must provide a statement explaining the opt-out.
Some data points may be omitted if a company demonstrates through its materiality assessment that the topic is not material.
Value chain disclosures may be limited during the initial transition period if reliable data is not yet available, provided the company explains the limitation and its improvement plan.
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What’s Required
The ESRS are a comprehensive set of disclosure standards that operationalise sustainability reporting obligations under the CSRD. They were developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission through delegated regulation.
The standards establish a structured system for companies to report how sustainability issues affect their financial performance and how their operations affect the environment and society. This dual perspective is referred to as double materiality.
Companies subject to ESRS must prepare an annual sustainability statement as part of their management report. The sustainability statement must include structured disclosures across several thematic areas and must follow the detailed data points and narrative explanations defined in the ESRS framework.
Core obligations include:
Double materiality assessment. Companies must evaluate sustainability topics from two perspectives. Impact materiality examines how corporate activities affect environmental and social systems. Financial materiality examines how sustainability issues affect financial performance, position, and prospects.
Standardised disclosures. ESRS requires disclosure across general, environmental, social, and governance categories. The first adopted set includes:
ESRS 1 General Requirements.
ESRS 2 General Disclosures.
Environmental standards (E1–E5 covering climate change, pollution, water and marine resources, biodiversity and ecosystems, and resource use).
Social standards (S1–S4 covering own workforce, workers in the value chain, affected communities, and consumers).
Governance standard (G1 covering business conduct).
Climate transition plans. Companies must disclose climate mitigation targets, emissions reduction strategies, and alignment with EU climate objectives where climate change is identified as material.
Greenhouse gas emissions reporting. Companies must disclose Scope 1, Scope 2, and, where material, Scope 3 emissions using methodologies aligned with recognised carbon accounting frameworks.
Targets and progress tracking. The standards require companies to disclose sustainability targets, baseline metrics, and progress indicators. Targets must be accompanied by timeframes and methodologies.
Value chain coverage. Companies must assess and report impacts and risks throughout their upstream and downstream value chains where relevant.
Governance and internal controls. Companies must describe how sustainability is integrated into governance structures, management responsibilities, and internal risk management processes.
Data tagging. Sustainability disclosures must be digitally tagged using the European Single Electronic Format to enable machine-readable reporting for regulators and investors.
Independent assurance. Reported sustainability information must undergo external assurance by accredited auditors.
The ESRS framework aims to standardise sustainability reporting across the EU while ensuring interoperability with international reporting frameworks.
Important Deadlines
Adoption of ESRS delegated regulation: July 2023
Entry into force: January 2024
Phased implementation schedule:
2024 reporting year (reports published in 2025):
Large public-interest companies are already subject to the Non-Financial Reporting Directive (NFRD)
2025 reporting year (reports published in 2026):
Large EU companies meeting at least two of the following criteria:
more than 250 employees.
more than €40 million turnover.
more than €20 million in total assets.
2026 reporting year (reports published in 2027):
Listed small and medium enterprises, with a possible opt-out until 2028.
2028 reporting year (reports published in 2029):
Non-EU companies generating more than €150 million annual revenue in the EU and operating through EU subsidiaries or branches.
Companies must conduct materiality assessments before their first reporting cycle.
Current Status
The ESRS are in force as delegated legislation under the Corporate Sustainability Reporting Directive.
The first set of standards applies to environmental, social, and governance reporting topics. Additional sector-specific standards and standards for non-EU companies are under development by EFRAG and will be adopted through future delegated acts.
Regulators across EU member states are currently implementing supervisory processes to review sustainability statements.
Penalties for Non-Compliance
Penalties are defined by individual EU member states under the enforcement provisions of the Corporate Sustainability Reporting Directive.
Potential enforcement measures include:
administrative fines for missing or misleading disclosures.
mandatory restatement of sustainability reports.
regulatory investigation by financial market authorities.
director liability for inaccurate reporting.
suspension or restriction of listing in regulated markets in severe cases.
Auditors assuring sustainability statements may also face disciplinary actions if verification standards are not followed.
Examples of Known Violations
Although ESRS implementation is recent, several compliance risks have already been identified.
Incomplete double materiality assessments are a common issue, particularly when companies fail to properly evaluate upstream and downstream impacts.
Inconsistent greenhouse gas accounting is another risk, especially when companies use non-standard methodologies or incomplete Scope 3 data.
Weak governance disclosures may occur when companies describe policies but fail to demonstrate actual decision-making structures or board oversight.
Some firms also underestimate value chain risks, especially in sectors with complex global supply chains.
Regulators expect companies to demonstrate traceable data sources and documented methodologies.
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