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Adoption by the European Commission of the first EU Sustainability Reporting Standards: further clarity and certainty for reporting under the CSRD

Companies which fall within the scope of the Corporate Sustainability Reporting Directive ((EU) 2022/2464) (“CSRD”) now have additional clarity and certainty around the standards that their disclosures will need to meet. On 31 July 2023, the EU sustainability reporting standards (“ESRS”), developed by the European Financial Reporting Advisory Group (“EFRAG”), were adopted by the European Commission as a Delegated Regulation. Companies now need to fully familiarise themselves with the requirements and assess how their reporting processes and procedures will need to adapt over the coming months.


The Delegated Regulation, with related Annexes I and II, sets out the ESRS that apply to all in-scope undertakings under the CSRD, regardless of their sector. The regulation is based on the technical advice and draft standards developed by EFRAG, the independent multistakeholder advisory body.

Whilst companies have had time to review the ESRSs through their draft stage, and the final standards largely correspond to the drafts from June 2023, companies now have additional certainty around, in particular, what it means to report on a “double materiality” basis and what requirements apply to them and when.

The ESRS are intended to set common standards to improve the quality of, encourage consistency of, and therefore comparability and reliability of, sustainability reporting. As well as reducing reporting costs for undertakings in the medium- to long-term with a set of mandatory standards, rather than compliance with multiple voluntary standards, it is expected that the ESRS should create increased accountability through sustainability reporting to the public and investors.

What do the ESRS require? 

Materiality – 

The ESRS set out specific information that an undertaking must disclose in accordance with the CSRD, through a “double materiality” lens. Double materiality requires an assessment of both:

  • impact materiality (the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short, medium or long-term, including those connected with its business relationships in its upstream and downstream value chain); and
  • financial materiality (material financial effects on the undertaking triggered by sustainability-related matters, including risks and opportunities attributable to business relationships).

Scope - There are 12 ESRSs which cover the full range of sustainability issues. Annex I includes:

  • ESRS 1 (General Requirements) which sets general principles to be applied, covering the concept of double materiality and the required materiality assessment, the value chain and how to prepare and present sustainability information.
  • ESRS 2 (General Disclosures), which is mandatory for those in-scope of the CSRD, and specifies essential information to disclose irrespective of the sustainability matter under consideration (including on governance and strategy).
  • Other standards and individual disclosure requirements which a company will only report relevant information in relation to:
    • five environmental standards covering climate change1, pollution, water and marine resources, biodiversity and ecosystems, and resource use and the circular economy;
    • four social standards covering an organisation’s own workforce, workers in the value chain, affected communities and consumers and end-users; and
    • a specific governance standard covering business conduct.

All disclosure requirements (with the exception of ESRS 2) are subject to a materiality assessment. Annex II contains the list of acronyms and the glossary of definitions to be used for the ESRS.

Phased implementation - 

It should be noted that the ESRS envisage a phased implementation for a number of reporting requirements, which may be helpful for undertakings to manage their data collation in the immediate term. For example, an undertaking may omit reporting for all datapoints on the characteristics of non-employee workers in the undertaking’s own workforce disclosure requirement for the first year of preparation of its sustainability statement, although it is noted that a number of the phase-in requirements otherwise primarily benefit undertakings with less than 750 employees.

How consistent are ESRS with other global standards?

There have been concerns about the interoperability between ESRS and other global reporting standards, including the ISSB standards (IFRS S1 and IFRS S2) which were released on 26 June 2023.

Whilst 'the Commission has worked to ensure a very high level of alignment between ESRS and the standards of the [ISSB] and Global Reporting Initiative' which is to be welcomed to reduce complexity and duplication for companies reporting under both, it has been noted that certain definitions, including financial materiality, differ between the two standards and so it will not automatically be the case that companies applying the ESRSs will meet the ISSB standards – so care will still need to be taken to avoid disclosure gaps.

Further guidance on the interoperability of the ESRS and the ISSB standards is expected to be released later in 2023, which should provide some additional comfort on reporting alignment (whilst noting that EFRAG has already published certain mapping documents as part of its agenda for the 23 August Sustainability Reporting Board meeting). This additional guidance will be welcomed by companies and their advisors, including whether the ISSB standards will be considered equivalent to the ESRS, despite not requiring reporting on a double materiality basis, which has been drawn out as on ongoing differentiator.

What comes next?

The key next steps for EFRAG include developing its implementation guidance (which will be non-binding technical guidance), sector-specific standards, proportionate standards for listed SMEs and standards for non-EU companies.

The implementation guidance is expected to focus on guidance on materiality assessment and on reporting with regard to value chains, and is expected in the near future. The second set of draft ESRS are sector specific, including high impact sectors (such as energy production, road transport etc.), which are also in progress but have been delayed. There are another 10 sets of ESRS we can expect in the future.

The Delegated Regulation is not in force until it is published in the Official Journal. Starting in the second half of August 2023, the European Parliament and the Council will scrutinise the Delegated Regulation over a two-month period (extendable by a further two months). They may reject the Delegated Regulation but they may not amend it. The Delegated Regulation will apply from 1 January 2024 for financial years beginning on or after 1 January 2024, with phase-in provisions for some of the reporting requirements depending on various criteria including jurisdiction of incorporation, turnover, balance sheet total and number of employees, amongst others.

For further information on CSRD and the reporting timetable, please see our previous blog post.

1Compared to other standards, in relation to climate change, if the company concludes that climate change is not a material topic it has to provide a detailed explanation of the conclusions of its materiality assessment.