The New EU-wide ESRS Standards for Sustainability Reporting According to CSRD – Part 3

The New EU-wide ESRS Standards for Sustainability Reporting According to CSRD – Part 3
March 1, 2023
Insights overview

In our first part of the series "Sustainability according to CSRD," we outlined the basic features of the new directive proposal in November 2021, which includes an external audit, among other things. In the second part, we took a closer look at the concept of double materiality. The following article will now focus on the European Sustainability Reporting Standards (ESRS), the reporting standards of the CSRD.

The purpose of sustainability reporting fundamentally lies in increased transparency for a company's stakeholders, particularly financial stakeholders. To ensure this transparency, as well as comparability, auditability, and the quality of ESG (Environmental, Social, Governance) information in future reports, the CSRD mandates uniform standards across the EU: the European Sustainability Reporting Standards (ESRS). As a reminder, companies previously had the option to choose whether and which of the various existing standards, such as GRI, DNK, or TCFD, they wanted to use.

The ESRS are being developed by an organization, the European Financial Reporting Advisory Group (EFRAG), commissioned by the European Commission. Drafts have already been created in collaboration with entities like the ECB, expert groups from member states, and exchanges with existing standard setters such as GRI, SASB, and TCFD. The final step is adoption as delegated acts, expected to take place by June 2023.

Let's get specific: What do these standards look like now?

Currently, drafts of cross-sectoral standards covering the three sustainability pillars—Environment, Social, and Governance (ESG)—are available. There are also cross-cutting standards explaining general information and requirements. Additionally, sector-specific standards and standards tailored for small and medium-sized enterprises (SMEs) are expected to be developed by mid-2024. 

The individual standards follow a similar structure: Firstly, they inquire about the governance structures within the company related to the specific area (e.g., Own Employees), as well as any implemented or planned measures in the respective thematic area. After gathering these qualitative insights, the standards then proceed to include quantitative metrics and targets for the specific area – ranging from greenhouse gas emissions under "Climate Change" to indicators of diversity under "Own Employees," and confirmed incidents of corruption and bribery under "Responsible Business Practices." Each of the five environmental standards concludes by requiring disclosure of potential financial impacts, as well as risks and opportunities associated with the respective thematic area. 

An exemplary look at the standard on climate change (ESRS E1): Climate Change

General Disclosure:

DR E1-1: Transition plan to mitigate climate change
DR E1-2: Policy measures to mitigate climate change and adapt to climate change
DR E1-3: Measures and resources related to climate policy 

Metrics and Objectives:

DR E1-4: Objectives related to mitigating climate change and adapting to climate change
DR E1-5: Energy consumption and mix

Energy intensity based on net revenue:

DR E1-6: Gross Scope 1, 2, 3, and total GHG emissions based on net revenue

GHG intensity based on net revenue

DR E1-7: GHG reduction and mitigation projects funded by emission credits
DR E1-8: Internal carbon pricing
DR E1-9: Potential financial impacts of material changes and potential climate-related opportunities

It becomes apparent that the various requirements, known as Disclosure Requirements (DR), are associated with varying levels of effort in collection, aggregation, and presentation. Particularly, some of the metrics initially require the establishment of new, suitable structures and processes – unless they are already being collected. For instance, DR E1-6 demands the disclosure of Scope 3 greenhouse gas emissions, which does not include emissions generated directly within the company but pertains to the upstream and downstream value chain. In contrast, DR E1-5 only requires the presentation of the company's energy consumption and mix in MWh, which is comparatively easy to determine or is often already determined.

The assessment of the potential financial impacts of material changes, as demanded in DR E1-9, encompasses three types of risks/opportunities that the company faces due to climate change in the example above:

  • Potential financial impacts of significant physical risks (e.g., heavy rainfall events, heatwaves)
  • Potential financial impacts of significant transition risks (e.g., stricter regulations regarding pollutant and CO2 emissions)
  • The potential to pursue significant climate-related opportunities (e.g., new markets for technologies to mitigate or adapt to climate change)

A exemplary look into the standard for Employees in the Value Chain (ESRS S2): Employees in the Value Chain 

Management of Impacts, Risks, and Opportunities:

DR S2-1 - Policies regarding employees in the value chain
DR S2-2 - Procedures for involving employees in the value chain regarding impacts
DR S2-3 - Procedures for addressing negative impacts and channels for employees in the value chain to express concerns
DR S2-4 - Taking actions regarding significant impacts on employees in the value chain and approaches to mitigate significant risks and pursue significant opportunities related to employees in the value chain, as well as the effectiveness of these measures

Measurement and Objectives:

DR S2-5 - Objectives regarding the management of significant negative impacts, promotion of positive impacts, and the management of significant risks and opportunities

This standard, for example, according to DR S2-3, requires the disclosure of procedures for addressing negative impacts, as well as information about channels for employees in the value chain to express concerns. This raises questions about whistleblower systems that are accessible to third parties and the processes established within the company, as well as concepts for remedial measures. Additionally, the company should describe how it supports or mandates the availability of channels at the workplace of employees in the value chain. With the entry into force of reporting and due diligence obligations under the Supply Chain Due Diligence Act (LkSG), the required information will be available and documented in the affected companies, saving additional effort. Even for companies with fewer than 1,000 employees, these processes should largely be in place as part of quality management. For example, they could include a compliance hotline or email address and regulate communication through supplier requirements.

In the case of social standards, the metrics and goals operate on a more qualitative and extensive level than the environmental standards. The disclosure of time-bound, results-oriented goals regarding the management of significant negative impacts, promotion of positive impacts, and the management of significant risks and opportunities is required. These goals should include, among other things, the base value and year, interim goals, methodology and assumptions, as well as overall progress over time, including how the goal is monitored.

If no objectives are set for a specific topic, it must be indicated whether and when this is planned for the future or reasons must be given why this is not intended.

Many companies are likely to initiate new processes to meet these disclosure requirements, defining measurable and transparently set goals, and, above all, monitoring them. For example, a manufacturing company may set a goal of ensuring living wages for its producers in Asian countries. To achieve this, it introduces a corresponding commitment from the producers and plans to have compliance annually verified by an independent multi-stakeholder initiative on-site. Progress is measured based on the purchasing power parity of the workers in dollars.


The new standards for sustainability reporting under CSRD will pose numerous challenges for many companies. However, upon closer examination, several metrics to be reported can be identified that can be collected with relatively minimal effort. By comparing and incorporating existing management systems that collect and process non-financial information, synergies can be leveraged, and complexity reduced.