Understanding ESG: CSRD Requirements Explained
Within the domain of sustainability reporting, two crucial frameworks have emerged in Europe: the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). Companies focused on succeeding in their sustainability initiatives must understand the roles, development timelines and impacts those frameworks have on them.
What is the CSRD?
At its core CSRD, or the Corporate Sustainability Reporting Directive, represents the European Union’s commitment to fostering transparency and accountability in digital sustainability reporting.
It is a key component of the European Green Deal, designed to steer the EU towards a sustainable future and achieve climate neutrality by 2050.
NFRD vs CSRD
Building upon its predecessor, the Non-Financial Reporting Directive (NFRD), the CSRD amplifies the focus on both the what and how of sustainability reporting. Unlike the NFRD, which lacked uniformity and comprehensiveness, the CSRD mandates consistent and mandatory reporting practices.
This shift aims to address the previous shortcomings of transparency and comparability, empowering investors to make informed decisions aligned with sustainable objectives.
The CSRD is planned to be phased in over next several years, with first phase affecting companies already subject to the NFRD.
For an in depth overview, check out our CSRD implementation timeline →
ESRS: The guiding standards
While the CSRD sets the stage, the European Sustainability Reporting Standards (ESRS) serve as the guiding principles and methodologies for reporting.
In the beginning of 2024, the European Financial Reporting Advisory Group (EFRAG) released the Draft ESRS XBRL taxonomy that outlines what companies must report, how to report it, and when.
This adds another layer of complexity for issuers, but also allows reports’ users to analyse and consume ESG information in a structured, machine-readable, and error-free data format.
Uncover the essentials: A complete ESRS Taxonomy overview
Gain clarity on the 12 ESRS reporting standards and their corresponding taxonomy elements in a single, all-encompassing overview. Discover which elements are required and which are expected.
Overview of the ESRS standards
Currently, ESRS taxonomy covers 12 standards: 2 cross-cutting standards (ESRS 1 and ESRS 2) and 10 topical standards (ESRS E1, E2, E3, E4, E5, S1, S2, S3, S4, and G1), with sector-specific and entity-specific standards in the pipeline.
While the full suite of standards is yet to materialise, the existing draft provides a solid framework for companies to align their reporting practices, test and prepare.
Here is an overview of the 12 ESRS standards drafted by EFRAG so far:
The Draft ESRS XBRL taxonomy has more than 1000 data points and introduces a wide range of different data types, e.g. narrative disclosures, GHG emissions, electric charge, etc.
For a full overview of all data types see the Data Types Registry.
Deep-dive into the cross-cutting ESRS standards
General Requirements & Disclosures
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ESRS 1 – General Requirements The ESRS 1 outlines the general requirements that all companies shall comply with when preparing and presenting sustainability-related information.
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ESRS 2 – General Disclosures The ESRS 2 general disclosures are applicable to all covered companies, regardless of industry. The information should describe the company's work in all areas of ESG, including climate, environment, social conditions, and good business practice.
The reported information includes:- Strategic direction, business model, supply chain, and competitive stance
- Unique challenges and conditions influencing the business within the reporting period
- Stakeholder perspectives and their interactions with the company
- Leadership and management's expertise in sustainability, including their role in dual materiality assessments
- Performance-linked remuneration for executives, particularly with ESG targets
- Sustainability-focused due diligence, aligning with forthcoming mandates under the CSDDD
- Approaches to risk management and the establishment of robust internal controls
Environment
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E1 – Climate change Within the ESRS E1 climate change, it's essential to outline the strategies and actions the organisation plans to implement towards achieving the objectives set by the Paris Agreement, to limit global temperature rise at 1.5°C.
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E2 – Pollution When addressing the ESRS E2, organisations are required to disclose their environmental impact concerning air, water, and soil pollution, as well as their handling of particularly hazardous substances. This includes an evaluation of the current environmental footprint, potential pollution risks, and opportunities for mitigating these impacts, whether internally within the organisation or across its value chain.
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E3 – Water and marine resources The disclosure under ESRS E3 concerning water and marine resources must include a comprehensive overview of the organisation's water usage, wastewater discharges, and overall strategies for water conservation. Additionally, it should detail the entity's efforts towards the preservation and rehabilitation of aquatic and marine ecosystems. This report ought to assess the current environmental footprint related to water and explore feasible measures for mitigating these impacts, both within the organisation itself and throughout its supply chain.
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E4 – Biodiversity and ecosystems The disclosure on biodiversity and ecosystems should articulate the company's impact on biological diversity and ecosystem health, including its commitment to preserving flora and fauna. It encompasses an assessment of the organisation's current environmental footprint and explores strategies for mitigating these effects, whether internally within the company or throughout its supply chain.
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E5 – Circular economy The report on resources and circular economy should outline the company's resource utilisation, waste management practices, and its integration into the circular economy. This encompasses an evaluation of the company's resource consumption and its efforts to promote circularity throughout its value chain.
Social
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S1 – Own workforce The reporting on own workforce includes a wide range of topics, extending beyond traditional metrics such as headcount. It now includes various new dimensions designed to provide insight into the workforce's employment conditions and rights.
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S2 – Workers in value chain The description of workers within a company's value chain should offer clarity on the significant impacts stemming from its value chain activities. This also includes the impact from business partnerships as well as the use of its products and services.
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S3 – Affected communities The narrative regarding the impact on the affected communities aims to provide an understanding of the extensive effects on economic, social, and cultural aspects arising from a company's operations and its value chain. This includes the repercussions of business partnerships and the application of its products and services.
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S4 – Consumers and end-users The description of ESRS S4 should offer insight into the effects on consumers and end-users, including areas such as health, safety, privacy, child protection, and anti-discrimination measures. These impacts may stem both from the direct use of the company's products and services and from its business partnerships.
Governance
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G1 – Business conduct This section of your report should convey a clear picture of the company's business conduct e.g. corporate culture and ethical standards. It should detail the makeup and responsibilities of its management team. Moreover, it needs to provide specific details about the company's initiatives to combat corruption and bribery.
Understanding the CSRD reporting requirements
The double materiality assessment
Double materiality, central to the EU CSRD directive, revolutionises corporate sustainability reporting by evaluating how business operations impact the environment and society (inside-out), and how external sustainability developments affect the organisation (outside-in).
This dual perspective ensures that companies focus on and report the most significant ESG topics, aligning with CSRD requirements and stakeholder expectations.
By integrating qualitative and quantitative insights from a broad stakeholder base, including experts and investors, organisations can identify material issues for transparent, impactful reporting.
CSRD timeline
Over 50,000 companies will be required to comply with the EU CSRD directive in the next few years.
Let’s dive into the CSRD timeline and explore who has to report, and by when?
CSRD passed
European Parliament passed the CSRD
November 2022
CSRD for listed Companies
CSRD effective for listed companies with over 500 employees. Reports to be filed in 2025.
January 2024
CSRD for large Companies*
CSRD effective for large non-listed companies. Reports to be filed in 2026.
- Balance sheet total > EUR 20M
- Net revenue > EUR 40M
- > 250 average number of employees during the FY
January 2025
CSRD for listed SMEs
CSRD effective for listed SMEs. Reports to be filed in 2027 (opt-out until 2028).
January 2026
CSRD for non-EU groups with EU-based subsidiaries*
CSRD effective for non-EU organisations. Reports to be filed in 2029.
- At least one EU subsidiary or listed on an EU regulated market
- Net turnover in EU > EUR 150M
January 2028
A complete ESRS Taxonomy overview: Uncover the essentials
Delve into our complete ESRS taxonomy overview and enhance your readiness for ESG reporting.
Download our free ESRS taxonomy template, and get:
✓ A well-defined framework that helps you structure your ESG report in a taxonomy centric way
✓ A complete breakdown of all 12 ESRS reporting standards
✓ A color-coded overview indicating which taxonomy elements are required and which are expected
✓ A strategic advantage enabling you to confidently prepare for ESRS tagging
Get instant access to the taxonomy overview
