What’s the issue?

Under the draft European Sustainability Reporting Standards (ESRSs), companies would need to publish separate sustainability statements as part of their management reports from 1 January 2024. This will significantly affect the scope, volume and granularity of sustainability-related information that companies need to collect and disclose.

The 12 ESRSs, issued by the European Financial Reporting Advisory Group (EFRAG), would apply for companies located or listed in EU member states as well as non-EU companies with significant operations in the EU.

For the standards to become effective, the European Commission will need to adopt them as delegated acts. The Corporate Sustainability Reporting Directive (CSRD) requires this to happen before 30 June 2023. Further, the Commission is expected to make targeted changes to the EFRAG’s drafts, following the due review process as required by the CSRD.

Companies should begin to prepare now. ESRSs will apply from the 2024 reporting period and will require greater volume and granularity of sustainability-related information.

Getting into more detail

What are European Sustainability Reporting Standards?

After the European Commission adopted the initial CSRD proposal in April 2021, it tasked EFRAG with developing reporting standards that would both support the EU Green Deal and set out the detailed disclosure requirements under the CSRD. After public consultation, EFRAG published the first set of draft standards in November 2022; it continues to develop additional standards – e.g. those with sector-specific requirements and standards for small and medium-sized enterprises (SMEs).

  • The first set of 12 ESRSs cover: general principles for sustainability reporting (ESRS 1);
  • Overarching disclosure requirements (ESRS 2); and
  • Specific disclosure requirements focused on 10 environmental (ESRS E1–E5), social (ESRS S1–S4) and governance (ESRS G1) topics.

The final CSRD was published in the Official Journal of the European Union on 16 December 2022 and takes effect for financial years starting on or after 1 January 2024.

Which companies would be impacted and when?

The CSRD applies to all large and most listed companies in the EU, including companies from outside the EU with listed securities on an EU regulated market.

Large companies with more than 500 employees that are either European public interest entities or non-EU companies with debt or equity securities listed on an EU regulated market will be required to report in accordance with ESRSs for financial years beginning on or after 1 January 2024.

Other large companies will follow for periods commencing on or after 1 January 2025, and listed SMEs after 1 January 2026. Companies outside the EU with significant operations in the EU (with a net turnover in excess of EUR 150 million and large subsidiaries or branches with a net turnover in excess of EUR 40 million) will be required to report from the beginning of the reporting period starting 1 January 2028.

Large companies are defined as those that meet two of the following criteria:

  • Over 250 employees;
  • Over EUR 40 million net revenue; and
  • Over EUR 20 million total assets.

What would companies need to report?

Under the draft standards, companies would need to publish separate sustainability statements as part of their management reports containing sector-agnostic, sector-specific and company-specific information on governance, strategy, impact, risk and opportunity management, as well as metrics and targets of their corporate sustainability.

- Sector-agnostic disclosures

When assessing whether a topic is material under ESRSs, a company would need to present information on its impact on sustainability matters and on how sustainability-related matters affect the company itself (the double materiality concept).

Double materiality requires companies to approach their materiality analysis from two separate perspectives.

  • 'Impact materiality' considers the sustainability matters that relate to a company's actual or potential impacts on people or the environment.
  • 'Financial materiality' considers information that would influence an investor’s decisions.

Information is material to report if it meets the criteria of either perspective, or both.

Additionally, a company would need to expand its reporting boundary to provide information on its entire value chain – i.e. its own operation plus its business relationships.

- Sector-specific disclosures

EFRAG is also developing sector-specific standards that will require companies operating in specific industries to provide additional disclosures.

- Company-specific disclosures

In addition, companies would need to identify material company-specific disclosures of impacts, risks and opportunities. These would be additional to the disclosure requirements already included in the ESRSs.

What changes have been made to the draft standards following the consultation process?


Area of change

What has changed


The definition of financial materiality has been amended to align more closely with that in the draft IFRS Sustainability Disclosure Standards.

The definition of impact materiality has been amended to align more closely with that used by the Global Reporting Initiative.

The rebuttable presumption that all topics are material for all companies has been replaced. Under the draft ESRSs, companies would assess a topic’s financial materiality or its impact materiality.

However, disclosures under the draft climate standard (ESRS E1) and certain disclosures from other topical standards are mandatory irrespective of the company’s materiality assessment.

Reporting structure

EFRAG was instructed to align the ESRSs more closely with the draft IFRS Sustainability Disclosure Standards.

Topical standards on climate

EFRAG aimed to align the topical standards on climate with those under draft IFRS Sustainability Disclosure Standards to the extent possible.


Phase-in relief

To ease a company’s transition to ESRSs, a phase-in relief from providing certain disclosures for up to three years has been introduced.


Certain reporting requirements in the governance standard (formerly known as G1) have been integrated into the reporting area on governance in ESRS 2 and others have been removed because they are no longer required. The former G2 standard is now the G1 standard on business conduct, which includes various disclosure requirements from the former G2.

Actions for management

  • Use KPMG firms’ resource centre to help you understand the ESRSs and to support you in getting ready for the new reporting requirements.
  • Understand how ESRSs compare to other sustainability reporting frameworks using a talkbook (comparing ESRSs, the International Sustainability Standards Board and the Securities and Exchange Commission proposals) and an article on interoperability between draft IFRS® Sustainability Disclosure Standards and ESRSs.
  • Companies outside the EU can take a look at how the ESRSs might apply to them here or listen to this podcast.