First set of ESRSs is now out!

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. Conor Holland, our Head of ESG Reporting & Assurance explains how the ESRSs work and what companies need to do next.

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.

Key features of the final ESRSs
Key changes compared with prior versions
Interoperability with international standard-setting initiatives
Next steps

The first set of ESRS have now been finalised and will be mandatory for some entities as early as January 2024. The depth and breadth of these standards is significant, and so it’s critical companies take steps now to prepare for implementation

Conor Holland

Partner

KPMG in Ireland

Key features of the final ESRSs
Key changes compared with prior versions
Interoperability with international standard-setting initiatives

The ESRSs set out detailed reporting requirements for companies in the scope of the CSRD². 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.
Governance	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.
Assurance	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 (PDF, 814KB).

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. EFRAG³ 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.

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.

EFRAG³ 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.

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 ISSB^TM 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 (PDF, 814KB), which includes 10 key questions to help you with your preparations.

Download the full report for more

Get ready for European Sustainability Reporting Standards | Understanding the first set of ESRSs - April 2025

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¹ The EU Parliament and the EU Council now 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 Corporate Sustainability Reporting Directive

³ European Financial Reporting Advisory Group, which is mandated by the European Commission responsible for developing ESRSs

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

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Don't navigate the ESRS journey alone. Leverage the expertise of professionals well-versed in sustainability reporting and regulatory compliance. Our dedicated team is here to support you, providing valuable guidance, tailored solutions, and practical insights to facilitate your ESRS readiness.

Start your sustainability journey today by contacting Conor Holland for an initial consultation. We'd be delighted to hear from you.