CSRD Reporting Standards and Disclosure Requirements

In 2022, the European Financial Reporting Advisory Group (EFRAG) released its first set of European Sustainability Reporting Standards (ESRS). The ESRS outline the metrics companies must report and how to report them to comply with CSRD disclosure requirements.

There are 12 ESRS in all, which detail disclosures and metrics across sustainability matters in four categories:

• Cross-cutting: General principles and general disclosures.
• Environmental: Climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy.
• Social: Own workforce, workers in the value chain, affected communities, consumers and users.
• Governance: Business conduct.

Cross-cutting reporting is required of all organizations governed by the CSRD, while ESG reporting is mandatory for those organizations that consider them material.

1. Mandatory cross-cutting standards

These standards are integral to all organizations aiming for CSRD readiness. There are two standards in this group:

– ESRS 1 clarifies the foundational requirements for CSRD compliance, ensuring companies align with the essential standards of sustainable reporting.

– ESRS 2 expands on this by detailing overarching disclosure requirements that are universally applicable, regardless of the specific sustainability subject matter.

This standard (ESRS 2) go deep into three pivotal areas:

• Governance: Outlining how sustainability is integrated into the corporate governance framework.
• Strategy: Clarifying the role sustainability plays in the company’s long-term planning and decision-making processes.
• Impact, risk, and opportunity management: Providing a blueprint for companies to report on how they manage and respond to sustainability-related impacts, risks, and opportunities, as well as how these factors integrate into their overall risk management.

These cross-cutting standards act as a compass, guiding organisations on how to structure their disclosures to ensure clarity, relevance, and consistency.

2. Topical standards

Beyond the foundational requirements, the ESRS offer ten non-mandatory topical standards. These are specialized frameworks that delve into the specifics of Environmental, Social, and Governance (ESG) topics. They are tailored to facilitate topic-specific disclosures, providing a more detailed lens through which companies can evaluate and report their sustainability performance. While not mandatory, these topical standards are critical for organizations to comprehensively disclose their sustainability practices and impacts in specific ESG areas.

3. Sector-specific standards

Recognising the diverse nature of industries, the ESRS will evolve to include sector-specific standards. These are anticipated to be finalized and adopted by the European Commission by June 2026. These standards aim to address the unique sustainability aspects and reporting needs inherent to different sectors, ensuring that reporting is as relevant and insightful as possible.

In essence, the ESRS is designed to provide a clear and comprehensive framework for sustainability reporting. They are not just a checklist but a transformational approach to integrating sustainability into the very fabric of corporate strategy and communication.

4.- SME’s Proportionate Standars

The directive also recognises that large undertakings and small and medium-sized enterprises (SMEs) may not have the same resources or capabilities to comply with these requirements. For this to be an accessible goal for SMEs, the European Financial Reporting Advisory Group (EFRAG) introduce a simplified version of the ESRS for SMEs.