The European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Reporting Directive (CSRD) represent significant advances in corporate sustainability and transparency. From 2024, some 50,000 companies in Europe will be required to comply with these stringent ESG (Environment, Social, Governance) reporting requirements. This guide aims to provide an in-depth understanding of ESRS and CSRD, explaining their objectives, structure, the benefits of implementing them, and how companies can prepare effectively. By following these standards, companies will not only be able to meet regulatory expectations, but also strengthen their sustainability strategy, improve transparency and attract responsible investment.
2. Structure and application of ESRS
3. Implementing ESRS standards
4. Benefits of ESRS compliance
The European Sustainability Reporting Standards (ESRS) are a set of standards developed by the European Financial Reporting Advisory Group (EFRAG) as part of the CSRD directive. Their main objective is to standardize and improve the quality of ESG reporting by companies in Europe. These standards meet a growing demand for transparency and comparability of sustainability information, enabling stakeholders to make decisions based on reliable and comparable data. According to EFRAG's 2023 report, “ESRS enable greater transparency, helping companies to attract sustainable investment and enhance their reputation”.
ESRS covers three main areas of sustainability: environmental, social and governance. Each area has specific criteria that companies must meet to provide a complete picture of their sustainability performance.
- Environment : ESRS environmental standards cover aspects relating to greenhouse gas emissions, natural resource management and biodiversity. They aim to reduce the ecological footprint of companies by encouraging them to adopt more sustainable practices. In particular, companies must publish data on their direct and indirect emissions, their use of water and energy, and their waste management strategies.
- Social : Social standards focus on workers' rights, diversity and inclusion, and working conditions. They aim to promote a more equitable and inclusive society. Companies are required to provide information on non-discrimination policies, training and skills development initiatives, and occupational health and safety practices.
- Governance : Governance standards emphasize transparency, ethics and accountability in corporate management practices. This includes reporting on governance structure, internal control mechanisms, anti-corruption policies and risk management. Transparency in governance is crucial to building trust with stakeholders and ensuring that companies operate ethically and responsibly.
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ESRS are organized to cover all aspects of a company's sustainability activities. They are divided into a number of specific categories that provide comprehensive and detailed coverage of ESG impacts. Here's how they are structured:
- Cross-cutting standards: These standards apply to all sectors and address general themes such as sustainability strategy, governance and risk management. They provide a common framework for all companies to follow, regardless of their sector of activity.
- Environmental standards: These focus on the environmental impacts of companies, including greenhouse gas emissions, natural resource use and biodiversity. They aim to encourage companies to adopt more sustainable practices to reduce their ecological footprint.
- Social standards: Social standards deal with human rights, working conditions, diversity and inclusion. They seek to promote a more equitable and inclusive society by ensuring that companies adhere to socially responsible practices.
- Governance standards: These emphasize transparency, ethics and accountability in corporate management practices. They include requirements on governance structure, internal control mechanisms and anti-corruption policies.
This organization enables companies to structure their reporting in a clear and consistent way, while covering all relevant aspects of sustainability. According to EFRAG, this structuring helps to ensure that the information reported is complete and comparable between different companies and sectors.
ESRS are designed to be compatible with several international sustainability reporting standards. This harmonization facilitates compliance by companies operating on a global scale and improves the comparability of ESG reports. Here are some of the international standards with which ESRS are aligned:
- ISSB (International Sustainability Standards Board): ESRS are largely aligned with ISSB standards, enabling a seamless integration of reporting practices for companies operating internationally. This compatibility aims to harmonize sustainability reporting efforts on a global scale.
- GRI (Global Reporting Initiative): ESRS takes into account the guidelines of the GRI, one of the world's most widely used sustainability reporting frameworks. This compatibility enables companies to continue to use internationally recognized metrics while complying with specific EU requirements.
- TCFD (Task Force on Climate-related Financial Disclosures): The ESRSs incorporate the TCFD recommendations, reinforcing the consistency and relevance of reported climate information. This enables companies to provide comprehensive data on their climate risks and opportunities.
According to EFRAG's 2023 report, “alignment with international standards strengthens the credibility of European companies' ESG reports and facilitates their integration into global markets” . This strategic alignment with international standards aims to create a globally recognized sustainability reporting framework, thereby enhancing the transparency and comparability of ESG information across borders.
The CSRD provides for a phased implementation of ESRS, enabling companies to adapt gradually to the new requirements while reducing the risks of non-compliance and the costs associated with a rapid transition. The implementation schedule is structured as follows:
- January 1, 2024: Large companies currently covered by the NFRD will have to start applying the ESRS.
- January 1, 2025: Other large companies meeting the new CSRD criteria will be required to comply with ESRS.
- January 1, 2026: SMEs listed on European regulated markets will be obliged to comply with ESRS, with the possibility of a deferral to 2028 for certain companies, to give them more time to adapt to the new standards.
This phased implementation allows companies to develop and refine their ESG reporting systems, ensuring a smooth transition to the new requirements.
Compliance with ESRS offers several significant benefits for companies in terms of transparency and sustainability. By adopting these standards, companies can :
- Improving information transparency: ESRS require detailed, standardized reporting on companies' ESG performance. This enables stakeholders, including investors, customers and regulators, to access clear and comparable information on companies' sustainability practices. According to EFRAG's 2023 report, “increased transparency helps companies to attract sustainable investment and enhance their reputation” .
- Strengthening stakeholder confidence: By providing accurate and reliable information, companies can strengthen the confidence of their stakeholders. Increased transparency on environmental, social and governance impacts enables companies to demonstrate their commitment to sustainability and show that they are taking concrete steps to improve their ESG performance.
- Fostering a culture of sustainability: ESRS encourage companies to integrate sustainable practices into their strategy and day-to-day operations. By adopting these standards, companies can foster a culture of sustainability within their organization, which can lead to continuous improvements in ESG performance.
- Attracting responsible investment: Investors are increasingly looking for companies that take their ESG responsibilities seriously. By complying with ESRS, companies can attract responsible investment and benefit from easier access to capital. According to an ISSB report, “companies that provide high-quality ESG information can benefit from a valuation premium and increased access to finance”.
ESRS compliance not only improves transparency and sustainability, it also has a profound impact on corporate strategy. Here's how:
- ESG risk identification and management: ESRS helps companies identify the environmental, social and governance risks they face. By better understanding these risks, companies can develop strategies to mitigate and manage them more effectively. This reduces vulnerabilities and strengthens corporate resilience to ESG challenges.
- Integrating ESG criteria into overall strategy: By complying with ESRS, companies are encouraged to integrate ESG criteria into their overall strategy. This means that business decisions take into account not only financial aspects, but also environmental, social and governance impacts. This integration can lead to more sustainable, long-term business practices, while improving overall corporate performance.
- Innovation and operational improvement: Adopting ESRS can stimulate innovation within companies. By seeking to improve their ESG performance, companies can develop new technologies, products and processes that not only reduce their environmental impact, but also increase their operational efficiency. This innovation can open up new market opportunities and improve a company's competitiveness.
- Enhanced reputation and brand image: Companies that adopt ESRS and demonstrate their commitment to sustainability can strengthen their reputation and improve their brand image. Consumers, employees and other stakeholders increasingly value responsible, sustainable companies. A good reputation for sustainability can thus attract and retain talent, build customer loyalty and create long-term value for the company.
In short, ESRS compliance offers considerable advantages in terms of transparency, sustainability and corporate strategy. It enables companies to navigate a complex regulatory environment, while seizing opportunities for sustainable growth and strengthening their market position.
ESRS compliance requires rigorous planning and implementation. Here are the key steps companies need to take to ensure effective ESRS compliance:
- Gap analysis: the first step in preparing for ESRS is to carry out a gap analysis between current company practices and ESRS requirements. This analysis helps to identify areas where improvements are needed, and to plan the actions to be taken to close these gaps. According to EFRAG, “a detailed assessment of current reporting processes, data collection systems and governance practices is essential to identify gaps and develop a compliance plan”.
A well-executed gap analysis helps to understand precisely where the shortcomings lie, and to prioritize efforts and resources to correct them. It includes an assessment of available data, the quality of reported information, and the ability of current systems to meet ESRS requirements.
- Training and awareness-raising: it is crucial to train internal teams and raise their awareness of the new ESRS standards. This includes not only those responsible for reporting, but also employees at all levels of the organization. Regular training programs and workshops can help ensure that all team members understand the ESRS requirements and know how to integrate them into their daily practices. As the ISSB points out, “a good understanding of ESG issues and reporting standards contributes to effective implementation and continuous performance improvement”.
Training must be tailored to the specific needs of each group of employees, taking into account their roles and responsibilities. Interactive training sessions and high-quality teaching resources can facilitate learning and encourage the adoption of ESG best practices within the company.
- Setting up reporting systems: developing robust reporting systems is a crucial step in ensuring ESRS compliance. This includes setting up processes for collecting and reporting ESG data, using technological tools to automate and simplify these processes, and ensuring the accuracy and consistency of reports. Integrated management systems can facilitate the collection and analysis of ESG data, enabling companies to monitor their performance in real time and respond rapidly to reporting requirements.
Companies also need to ensure that their reporting systems are flexible and scalable, capable of adapting to future changes in regulatory requirements and stakeholder expectations. The use of advanced technological solutions, such as ESG reporting platforms, can improve the efficiency and reliability of reporting processes. According to the EFRAG report, “robust and integrated reporting systems are essential to ensure compliance and facilitate ESG performance management”.
By following these key steps, companies can not only comply with the ESRS, but also improve their overall sustainability performance and strengthen their market position.
It is imperative for companies to act now to comply with ESRS. Proactive action enables ESG risks to be better managed and new opportunities to be seized. As EFRAG's 2023 report states, “companies that adopt ESRS early will be better prepared for future challenges and can stand out as sustainability leaders” .
Early adoption of ESRS can also offer a competitive advantage, as companies demonstrate their commitment to sustainability and their ability to meet rising stakeholder expectations for transparency and accountability.
ESRS compliance paves the way for a more sustainable and transparent economy. It strengthens the position of companies as responsible players in the global marketplace, attracting investment and strategic partnerships. By integrating ESRS principles into their strategies, companies can not only improve their ESG performance, but also make a significant contribution to achieving global sustainable development goals.
ESRS-compliant companies are more likely to attract investors interested in sustainable practices, which can lead to increased investment and financing opportunities. In addition, these companies can improve their reputation and brand image, which can attract more customers and talent.
Whether you're a company looking to comply with the new requirements of the CSRD or a specialist sustainability consultant, FocusTribes is here to help. We support companies in preparing and implementing detailed extra-financial reports in line with European ESRS standards. We also help sustainability consultants find assignments that match their skills.
Do you need to recruit CSRD compliance experts or find freelance opportunities? Focustribes is here to support you throughout your sustainable reporting project.
