Understanding CSRD ESRS: the expectations of European sustainability reporting

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

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

What are ESRS standards? What is their role in CSRD? Which companies are affected? Find out everything there is to know about CSRD ESRS.

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Understanding 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 in precise detail. In this way, employees, consumers, investors and all stakeholders can 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 listed companies. It required them to provide information on their ESG performance, but imposed few sanctions in the event of non-compliance.

The CSRD broadens the scope of the standard and is more demanding and precise in terms of the information to be reported(double materiality, ESRS standards, external verification, digitization). In addition to improving transparency, which was the main objective of the NFRD, the CSRD aims to provide a harmonized framework for companies' extra-financial data. The CSRD has also strengthened penalties for non-compliance with these legal obligations (managers risk a fine of up to €75,000 and 5 years' imprisonment, depending on the offence).

What are ESRS?

The European Sustainability Reporting Standards (ESRS) are a set of European standards and guidelines designed to harmonize extra-financial reporting by companies. They determine the information that companies must publish concerning their ESG impacts. Logically enough, to be able to compare them, it is essential to use identical criteria.

Relationship and difference between CSRD and ESRS

The CSRD is the European directive that establishes the legal framework for ESG impact reporting, and ESRS are the standards used for this reporting.

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Structure and content of ESRS standards

The main themes covered by the ESRS

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

The ESRSs you will be asked to report on will depend on the themes you have identified as material through your dual materiality analysis .

The environment

The theme is very broad, but the sub-themes are not necessarily material (i.e. relevant) to all companies. The aim is to reduce impacts and better manage the financial risks and opportunities associated with environmental issues. Here are a few examples:

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

The actions to be taken depend on the material issues identified in the materiality matrix.

Social

The scope of application is quite broad, covering not only forced labor, but also discrimination, gender equality, and health and safety in the workplace. The idea is that the company must respect these obligations within its own walls, but must also ensure that it collaborates with partners who also respect them. This is where it gets tricky, when trading outside Europe, with countries that are less careful about respecting human rights.

Through CSRD, companies are invited to monitor and rethink their entire supply chain, particularly with regard to working conditions at their suppliers' sites. Value chain workers and affected communities must also be taken into account, in the same way as direct employees.

Social CSRs also focus on the quality of the company's social relations with each of its stakeholders: employees, customers, local communities, suppliers, distributors and so on.

Governance

Governance standards seek to validate that the company's overall strategy is well aligned with sustainable development objectives.

It assesses the quality of management to ensure that everything is in place to prevent abuses, such as discrepancies in executive compensation or the fight against corruption.

Mandatory for which companies?

Companies involved in CSRD : 

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

The implementation schedule is progressive according to company size, and small businesses (with fewer than 10 employees or less than €20 million in sales) are not affected for the time being.

The following ESRS standards are mandatory for all companies:

• General standards that share context and expectations: ESRS 1 and 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 each company's dual materiality analysis.

Thematic ESRS standards are divided into themes, sub-themes and sub-sub-themes.

Specific requirements of ESRS

In most cases, the ESRS asks companies to report :

• Written policies ;
• Fixed objectives;
• Action plans put in place to achieve their objectives;
• Some key indicators ;

for each issue identified as material.

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How to prepare for ESRS and CSRD requirements?

Steps to CSRD compliance

Compliance with the CSRD can take a long time, depending on a company's sustainability maturity. So it's essential to commit early, and to take things one step at a time: 

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

Disclosure Requirements (DR) and Data Points (DP)

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

The 82 "Disclosure Requirements" represent no fewer than 1,150 data points, or DPs, guiding the company on what to include in its report.

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

For example, you need to produce a CSRD report. You're dealing with ESRS theme E3 (water and marine resources), sub-theme "water", sub-sub-theme "water consumption".

Within the sub-sub-theme, you'll find DRs specifying the information you need to report (policy, actions, targets, objectives, metric tracking) and DPs indicating the expected form of reporting (water consumption trend curve, water consumption per production unit, quantity of water saved thanks to specific measures).

Each DR concerns a detailed 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 DPs specify what the company must collect and report in order to respond to the DRs. 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, staff turnover rate, number of workplace accidents, etc.). It is not obligatory to respond to all ESRS, but only to the DR and DP for themes that are material for the company.

Available tools and resources

CSRD is a vast subject. To help them in their approach, companies can call on the services of specialized experts.

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

• Educational guide issued by the AMF (Autorité des Marchés Financiers) to report on its climate transition plan in ESRS format ;
• Practical guide to theapplication of the CSRD by ANC (Autorité des Normes Comptables) ;
• Senate report on the implementation of the CSRD ;
• ESRS guide from the CSR portal of the Ministry of the Economy and Finance and the Digital Services Incubator.

And to keep on top of the project while benefiting from in-depth expertise, you can also use CSRD reporting software such as Beavr.

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Prospects and new opportunities

The impact of ESRS on corporate CSR strategy

Implementing reporting in line with the CSRD's ESRS is an integral part of our CSR approach. They impose new transparency and reporting requirements, prompting companies to rethink their global strategy in favor of sustainability:

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

Thanks to its transformation, the company improves its reputation, brand image and attractiveness. Even if adaptation requires investment, it ultimately reduces costs and optimizes financial and extra-financial performance.

Harmonization with international standards

Being ESRS-compliant also enables compliance with other international standards, as the CSRD draws on frameworks such as the GRI standards or the TCFD recommendations. This ensures a consistent and harmonized approach to its sustainability reporting, and facilitates alignment with global standards and stakeholder expectations on an international scale.

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 on climate-related information;
• ISSB (International Sustainability Standards Board), which concerns standards related to sustainable development, but geared more to the needs of investors.

Outlook for the future

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 concerned, it is in their interest to get involved now to stay ahead of the game and remain competitive. Those not yet concerned by these obligations have every interest in embarking on this process as soon as possible to stay ahead of the game and remain competitive.

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In conclusion

More than just a constraint, the CSRD directive and ESRS standards represent a real opportunity for companies. Integrating ESG issues into their strategy enables them to differentiate themselves, develop their brand image and enhance their attractiveness to investors and talent.

Understanding ESRS is the first step to successful CSRD reporting.

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FAQ

How many standards are there in ESRS?

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

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

The structure of reporting, as well as the key information to be communicated, are defined by ESRS 1 and ESRS 2. The report must then integrate the environmental, social and governance criteria of the thematic ESRSs, according to the material issues identified by the company in its dual materiality analysis.

What are the European Sustainability Reporting Standards (ESRS)?

Within the framework of the CSRD, the ESRS constitute a set of specifications specifying the information that companies must communicate in their extra-financial report.

How does the CSRD work?

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

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

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