Understanding the ESRS: a practical guide for CSRD compliance

What are the ESRS?

The European Sustainability Reporting Standards are your roadmap for sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). They cover 10 essential Environmental, Social and Governance (ESG) topics, guiding you on what needs to be included in your reports.

One of the first steps on your sustainability reporting journey is determining which ESG topics are relevant for your company and its stakeholders, today as well as in the medium and long term. If you conclude that a specific topic is material for your company and/or stakeholders, you will have to include this topic in your sustainability reporting following the set ESRS.

In this blog, we take you through these topical standards to better understand how they are structured, how to work with them, and what is expected in terms of reporting.

Blueprint of each standard

Each topical standard follows a similar structure:

• Objective: What each standard aims to achieve.
• Links: How it connects with other standards.
• Disclosure Requirements : The narrative and quantitative information you need to report.

Accompanying each standard is an appendix detailing 'application requirements.' These are instrumental in clarifying how data should be collected and reported, addressing potential challenges and offering guidance to ensure accuracy and consistency in reporting.

Diving into Disclosure Requirements

Think of these as the core of your report, with a blend of narrative and data-driven insights. Not all will apply to every business, so focus on what's material to yours.

In each ESRS, the disclosure requirements maintain a relatively uniform structure. Some standards can have additional sections: the standards on climate change and biodiversity, for example, also have a section that addresses transition plans.

The draft summary tables produced by EFRAG of the disclosure requirements can help in giving an overview of what needs to be reported and the structure of the reporting for each topic.

Figure : Structure of Disclosure Requirements for ESRS E3: Water and Marine Resources based on EFRAG’s draft list of disclosure requirements

In practice, we suggest using this overview, as well as the document of the standard and the application requirements in parallel. For each disclosure requirement, consider if it is material (does it relate to the sub and sub-sub-topics you had identified as material? Or is there a specific reason why a particular disclosure requirement is not relevant for your specific business?). In the step of data gap analysis, you will have to determine if and where the information is available in your organization.

Specific Materiality Assessment procedure for certain topics

The general requirements for reporting (ESRS 1 and 2) define how a materiality assessment should be made across all topics. Each topical standard can specify specific requirements (IRO generalities) for conducting a materiality assessment on the ESG topic at hand, guiding companies on how to determine its relevance and significance.

For Biodiversity and Water, for example, the geographical location of a company’s operations and its supply chain (due to sensitive natural areas or in areas of high water stress) will be a determining aspect in identifying if this topic is material or not to the company. The standard for these topics therefore require a materiality analysis process that specifically addresses this geographical aspect.

Crafting a Compelling Sustainability Narrative

Using the ESRS is more than ticking boxes; it's about weaving a narrative that reflects your sustainability journey and strategy. You will outline your policies and practices, demonstrating their alignment with broader sustainability goals. Some examples of these sustainability goals in the ESRS are :

• In the case of water, how policies address water management or water consumption in high water stress areas.
• For biodiversity, this can be how policies assure traceability of products, components and raw materials with significant actual or potential impacts on biodiversity and ecosystems.
• For governance, you will have to specify if you have anti-bribery and anti-corruption policies as well as policies to protect whistleblowers or prevent late payments, especially to smaller businesses.

Metrics and KPIs: The Quantifiable Difference

While narratives provide context, metrics and KPIs offer the quantifiable evidence of your sustainability efforts.

The metrics can be very specific, such as:

• volume of water consumption over the reporting period
• mass of hazardous waste recycled
• mass of pollutant emitted to air

Other metrics, such as those use for biodiversity are left up to the choice of the company to best reflect the unique aspects of your business in terms of impacts, risks and opportunities.

A key challenge for reporting these metrics will be aggregating information that is not always collected in a similar way or format. However, effective monitoring is key to managing and enhancing your sustainability performance.

Addressing the financial intersection

Perhaps one of the more challenging aspects of ESRS reporting involves quantifying the financial impacts of material sustainability topics. This task demands a collaborative effort between topical experts, who understand the nuances of specific sustainability issues, and colleagues that understand the financial intricacies of your company. This interdisciplinary approach is essential to accurately assess and report on the financial implications of sustainability risks and opportunities.

This exercise requires data and insight that are often missing in the first years of reporting. Thankfully, for most topical standards, the commission has agreed that these points do not have to be reported on the first year of reporting and can be limited to qualitative data over the first three years of reporting.

In conclusion 

In the present transition, the ESRS are a roadmap for a journey of strategic adaptation and deepened sustainability commitment. By breaking down the process into manageable steps and focusing on the material aspects unique to your business, you can turn compliance into an opportunity to showcase your sustainability leadership. TAUW will take you through these steps, with a pragmatic and an impactful result-oriented approach.