As sustainability reporting becomes increasingly important, the Corporate Sustainability Reporting Directive (CSRD) sets a new standard for large and listed companies in Europe. The CSRD requires companies to disclose how their activities impact social and environmental issues, focusing on risks and opportunities. By adhering to European Sustainability Reporting Standards (ESRS), businesses will provide investors, civil society, and other stakeholders with a clear view of their sustainability performance.
In this blog, we provide an overview of the CSRD framework, including its mandatory reporting requirements and alignment with global standards.
• All large companies and listed companies must disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.
• Companies that are subject to CSRD reporting will need to use a double materiality perspective and report in accordance with European Sustainability Reporting Standards (ESRS).
• CSRD will help investors, civil society organisations, consumers and other stakeholders evaluate a company’s sustainability performance.
• EFRAG (European Financial Reporting Advisory Group) are the body that are creating the guidance for the implementation of CSRD.
Topical Standards:
• The ESRS topical standards cover general requirements, environmental standards, social standards and governance standards.
• Each of the main standards includes other subcategories which are organised into disclosure areas including governance, strategy and business model, impact, risk and opportunities and metrics and targets. For all issues deemed material companies must report on policies, actions, metrics and targets based on the ESRS 2 MDR. Companies are required to comply or explain and therefore companies must provide an explanation for any issues not deemed material.
• EFRAG are currently in the process of developing sector-specific standards which are expected to be released by June 2026.
There are four topical standards which are: Cross-cutting standards, Environmental Standards, Social Standards and Governance Standards. Under these there are 12 sub-topics.
Cross-cutting standards
• ESRS 1 (General Requirements): This sets out the general requirements for the preparation and presentation of sustainability statements.
• ESRS 2 (General Disclosures): These are the disclosures that companies must include in their sustainability statements for material issues.
• ESRS 2 MDR (Minimum disclosure requirements): These are a list of minimum disclosure requirements that companies must report on for material issues.
Environmental Standards:
• Climate Change (ESRS E1): GHG emissions, carbon credits, reduction targets, removals, energy mix and intensity.
• Pollution (ESRS E2): Pollution of soil, air, water, substances of concern and living organisms, microplastics.
• Water (ESRS E3): Water that has been stored, reused, withdrawn, discharged, consumed and use of marine resources.
• Biodiversity (ESRS 4): Natural resource use and exploitation, land use and habitat change.
• Circular Economy (ESRS 5): Resource inflows and outflows, materials used, reusability, durability, repairability and recyclability of materials, waste.
Social Standards
• Own workforce (ESRS S1): Working conditions, equal treatment and opportunities, other workers rights including child and forced labour and adequate housing and privacy.
• Workers in the value chain (ESRS S2): Working conditions, equal treatment and opportunities, other workers’ rights including child and forced labour and adequate housing and privacy within the value chain.
• Affected communities (ESRS S3): Communities social, economic and cultural rights, communities civil and political rights and rights of indigenous people.
• Consumers and end-users (ESRS S4): Personal safety, social inclusion of consumers, privacy and access to quality information.
Governance Standards
Business Conduct (ESRS G1): Protection of whistleblowers, corporate culture, political engagement and lobbying activities, corruption and bribery detection and prevention, relationships with suppliers.
Mandatory Reporting Requirements
All companies under the CSRD scope must report on ESRS 2 requirements. All other topics are subject to the results of the company’s double materiality assessment however if found to be material the company must report on that topic.
If a company concludes that climate change is not a material topic, they must provide a detailed explanation of the conclusion of their materiality assessment as it is recognised that climate change has impacts across the whole economy.
Some of the data points within the sub-topics are voluntary. These points are the ones considered most challenging and costly for companies to implement. If a company concludes that a data point deriving from the Benchmarks Regulation (BMR), Sustainable Finance Disclosure Regulation (SFDR) or the Capital Requirements Regulation (CRR) is not material, the company will need to explicitly state that it is not material rather than not reporting any information. Companies will also have to include a table with the datapoints linked to BMR, SFDR or CRR stating where the information can be found within their sustainability statement or stating if it is not material. This is to ensure the compliance of financial market participants, financial institutions and benchmark administrators.
Alignment with global standards
The ESRS requirements are closely aligned with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI). EFRAG have ensured a high level of alignment between ESRS and ISSB. For example, companies that report on climate change within the ESRS requirements will report very similar information to companies that use the ISSB standard on climate-related disclosures.
How Achieve Goal 12 can help
We simplify the legislation and identify actions, allowing you to focus your efforts on areas that need the most attention. Our services include a double materiality assessment, gap analysis to review your current reporting, action plans to address areas of improvement, and fully compliant reporting.