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1 August 2023 (Updated 27 September 2023)

Companies in scope need to get ready now for enhanced sustainability reporting, as the European Commission (EC) has published the final text of its first set of twelve European Sustainability Reporting Standards (ESRSs)1. For the first wave of companies, disclosures will be required as early as the 2024 reporting period.

Companies will need to assess which topics to report using the double materiality concept, which requires information that is material from either a financial perspective or an impact perspective. Companies will also need to include information from their value chain.

It is important to engage now to understand the requirements of this first set of ESRSs and to assess how your company needs to adapt.

Now the final text of the ESRSs is clear, companies in scope have no time to lose before these standards become mandatory. The scale and ambition of these standards is unparalleled and there are key differences to other international frameworks. Companies need to get ready to meet the challenges and realise the opportunities that enhanced reporting will bring.

Eddie Ng
Partner, ESG Advisory
KPMG China

Patrick Chu
Partner, Head of ESG Reporting and Assurance
KPMG China

Pat Woo
Partner, Head of Environmental, Social and Governance, Hong Kong SAR
KPMG China

Irene Chu
Partner, ESG Advisory
KPMG China

Eddie Ng
Partner, ESG Advisory
KPMG China

Dana Chaput
Partner, ESG Advisory
KPMG China

Serene Seah-Tan
Partner, Audit Quality & Professional Practice
KPMG China

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How will ESRSs affect companies in China?

Ultimately, ESRSs will be applied by (group exemptions may apply):

  • Large EU companies that exceed at least two of the following three criteria (including EU and non-EU subsidiaries): 250 employees, net revenue of EUR 50 million (formerly EUR 40 million) or total assets of EUR 25 million (formerly EUR 20 million). The new thresholds take effect from FY 2024. EU member states can choose to adopt them early from FY2023;
  • most companies with listed securities on EU-regulated markets (irrespective of whether they are based in the EU or not2); and
  • Ultimate non-EU parent companies3 with a combined group turnover in the EU of more than EUR 150 million and that have in the EU either a branch with a turnover exceeding EUR 40 million or a subsidiary that is a large company or a listed company.

The ESRSs will affect not only EU companies but also non-EU companies. Companies in China that are listed in the EU or having subsidiaries or branches in the EU should determine whether they will be included in its mandatory disclosure scope, familiarise themselves with the disclosure requirements and start preparations as early as possible.

In addition, ESRSs also expand the reporting boundary to cover material information across value chain. Therefore, companies in China may also receive requests for sustainability information from their EU customers, banks, investors or other stakeholders.  Failure to fulfil the request may impair the relationship with key stakeholders.  Those companies should engage with their EU stakeholders to understand the reporting requirements and start planning for it.

Key features of the final ESRSs

The ESRSs set out detailed reporting requirements for companies in the scope of the Corporate Sustainability Reporting Directive (CSRD). Two cross-cutting standards provide general reporting concepts and include overarching disclosure requirements including multiple datapoints. Ten topical standards complement these with detailed disclosure requirements across environmental, social and governance topics. Together, these twelve ESRSs require companies to provide information on:

  • their governance and strategy to address material sustainability topics;
  • the impacts, risks and opportunities arising from those topics; and
  • quantitative metrics and targets.
                           Key features of the final ESRSs
Double materiality principles
  • Double materiality refers to two dimensions of materiality – ‘financial’ and ‘impact’.
  • Companies will need to perform materiality assessments for both dimensions and report matters that are material in either dimension for all sustainability-related topics.
Reporting across a broad range of topics
  • ESRSs require disclosures on material impacts, risks and opportunities across a broad range of environmental, social and governance topics. 
  • Following a materiality assessment, companies need to ensure they have the data, processes and expertise to report on topics that may be new to them, such as biodiversity or the circular economy.
  • Companies need to clearly set out their governance of how they address sustainability-related topics, including how sustainability key performance indicators (KPIs) affect remuneration. 
Reporting at the same time as the financial statements
  • Companies in scope will prepare a sustainability statement including the disclosures required by the ESRSs as part of their management report, published at the same time as the financial statements.
  • It will be challenging for many companies to gather data in time.
Reporting on impacts, risks and opportunities across the value chain
  • The standards require companies to identify and report on impacts, risks and opportunities from across the value chain.
  • Companies need to understand how this feature will impact their reporting and data gathering, even though the extent of data required from the value chain has reduced since the original drafts, and phase-in reliefs are available.
Reporting on policies, action plans and targets
  • Companies need to be ready for the transparency of providing granular disclosures about their policies, action plans and targets across all material topics. 
  • While the standards themselves do not require companies to put in place new targets or implement new policies, the standards will bring greater visibility and scrutiny of their plans. Undertaking an implementation project therefore represents an opportunity to identify and address areas where companies are less mature than they would want to be.
  • Upon the implementation of ESRSs, companies are required to obtain limited assurance from the date of initial reporting. It is worth noting that the EC is also considering further tightening requirements in the future, requiring companies to obtain reasonable assurance for sustainability disclosures.
  • Therefore, companies need to be prepared for disclosures to be subject to assurance. 
  • This will require a clear audit trail and documentation of processes and controls to support the disclosures provided.


For further detail on the ESRSs, see our high-level visual overview.

Key changes compared with prior versions

The proposed standards were exposed for comment at key stages over the past fifteen months. The basic principles have been retained – such as using double materiality principles and requiring reporting from across the value chain on a broad range of topics. However, the structure has changed to align more closely with the TCFD and some requirements have been simplified, removed or made voluntary compared with earlier versions.
  Key changes compared with prior versions
Material and mandatory disclosures

Under the first set of ESRSs, only ESRS 2 General Disclosures includes mandatory disclosure requirements. A list of mandatory disclosure requirements (i.e. disclosures not subject to materiality assessment) has been removed, in particular related to ESRS E1 Climate Change and ESRS S1 Own Workforce. They are now all subject to a materiality assessment. However, when companies conclude that ESRS E1 is not material, they will provide a detailed explanation of their conclusion. 

Financial companies need certain datapoints to meet disclosure requirements under other EU law, for example SFDR4. If companies conclude that such datapoints are not material, then they need to make an explicit statement for each datapoint.

EFRAG5 is currently developing additional guidance on how companies can perform the double materiality assessment. 

Phase-in reliefs

To give companies, especially smaller companies, more time to implement the data collection and reporting processes, the first set of ESRSs introduces relief measures for one, two or three years. 

All companies, regardless of size, may opt out of disclosing the expected financial impacts related to risks from environmental issues for the first year of reporting. Companies can provide qualitative disclosure only on these financial impacts for a further two years.

Additionally, certain disclosures related to own workforce (social protection, people with disabilities, work-related illnesses and work-life balance) can be omitted in the first year of reporting.

Companies with less than 750 employees may also omit:

  • the disclosure of Scope 3 greenhouse gas emissions (ESRS E1) and other disclosures on their own workforce (ESRS S1) in the first reporting year; and
  • the disclosures on biodiversity (ESRS E4 Biodiversity and Ecosystems), workers in the value chain (ESRS S2 Workers in the Value Chain), affected communities (ESRS S3 Affected Communities) and consumers (ESRS S4 Consumers and End-users) in the first two reporting years.
Voluntary disclosure requirements

Some data points were labelled as voluntary in the drafts prepared by EFRAG. The EC has made additional disclosure requirements or data points voluntary, for example:

  • biodiversity transition plans;
  • certain indicators on 'non-employees' in the company's workforce; and
  • an explanation of why the company has deemed a particular sustainability topic (i.e. the disclosure requirements of a topic-specific standard as a whole) to be non-material.

Interoperability with international standard-setting initiatives

The CSRD requires the EC and EFRAG to take 'account, to the greatest extent possible, of the work of global standard-setting initiatives'. Both have worked with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) to increase interoperability. A summary comparing the ESRSs to ISSBTM Standards is expected to be released in the coming months.

One of the main areas of concern flagged by many respondents to the EC’s recent consultation is that the definitions of financial materiality and other key definitions differ between ESRSs and ISSB Standards. While improvements have been made in the final text, companies applying ESRSs will not automatically meet all of the requirements in the ISSB Standards and will need to check carefully to identify any gaps between the two frameworks.

Next steps

Companies in scope need to get ready now for ESRS reporting. For the first wave of companies, this will be as early as the 2024 reporting period. You can use our high-level visual overview, which includes key questions to help you with your preparations.
See also our short guide outlining a five-step approach to getting ready for ESRSs.

1 The EU Parliament and the EU Council have a period of potentially up to four months to object. If they raise no objections, then the first set of ESRSs will apply for the first companies for the 2024 reporting period. 

2 Exemptions apply, for example, micro-undertakings (companies that do not exceed two of the following three criteria (including EU and non-EU subsidiaries)): 10 employees, net revenue of EUR 900,000 (formerly EUR 700,000) or total assets of EUR 450,000 (formerly EUR 350,000) and for certain debt listings. The new thresholds take effect from FY 2024. EU member states can choose to adopt them early from FY2023.

3 Separate standards will be developed for SMEs and non-EU parent companies.
Small and non-complex institutions and captive insurers are treated like listed SMEs (the option to opt out until 2028 does not apply unless they also meet the definition of an SME).

4 The EU’s Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) 

5 European Financial Reporting Advisory Group, which is mandated by the European Commission responsible for developing ESRSs