On November 23, 2022, EFRAG delivered the first set of draft ESRS to the European Commission (EC). The set is expected to be adopted in June, 2023 by EC.

Since the Corporate Sustainability Reporting Directive (CSRD) will be applied to European companies and some non-European companies in the future, it is imperative to grasp this outline and start preparing for the report’s publication as soon as possible. 

This article in a series provides an overview of the CSRD/ESRS, key points of application, and its relevance to the GRI, with which EFRAG is currently collaborating.

The first article provides a brief of the first draft of ESRS, 4 things to complying with CSRD/ESRS, the scope and the timelines.

CSRD: Corporate Sustainability Reporting Directive

An initiative to strengthen and standardize the integration disclosure of European companies’ impact (Environmental and Social) and financial information by European Commissions

ESRS: European Sustainability Reporting Standards

The new reporting standard developed by EFRAG (EFRAG=European Financial Reporting Advisory Group) based on CSRD

Contents of the ESRS

Here is the latest draft agreed upon on November 23.

The ESRS is a set of 12 standards that comprehensively cover environmental, social, and governance matters, providing the basis for a legal framework for sustainability reporting under double materiality. Therefore, all matters that an organization identifies as materiality must be disclosed.

CategoryThemeSubjectRequirement Level
ESRS 1 & ESRS 2General PrinciplesStrategy, Governance and materiality assessment disclosure requirementsMandatory
ESRS E1 – E5EnvironmentalE1 Climate change
E2 Pollution
E3 Water and marine resources
E4 Biodiversity and ecosystems
E5 Resource use and circular economy
Depends on materiality issues (E1 must be disclosed regardless of materiality issues)
Draft P6 >13
ESRS S1 – S4SocialS1 Own workforce
S2 Workers in the value chain
S3 Affected communities 
S4 Consumers and end users
Depends on materiality issues
ESRS G1GovernanceG1 Business conductDepends on materiality issues

The revised standards further contribute to:
Harmonization of terminology and structure, interoperability with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI), reducing disclosure requirements from the original drafts by 40% (e.g., G2), and clarification of the approach to materiality, including items that must be reported regardless of materiality (e.g., E1).

4 things to complying with the CSRD/ESRS

To be proactive to comply with the upcoming legislation is highly recommended.

1, Concept of Integrated Reporting

As the ESRS requires companies to disclose financial and impact (environmental and social) information in their reports, the guideline of the Integrated Reporting Framework is highly recommendable. Also, intangible assets that one of the factors that increase the value of a company can be measured is recommended.

2, Conduct a double materiality assessment

This is a necessary first step in developing a sustainability strategy that fully considers all stakeholders. The double materiality principle allows an organization to distinguish between its external and internal impacts and to disclose both perspectives, thereby increasing transparency and potentially preventing greenwashing.

3, Process Due Diligence in the Supply Chain

Through the request of the ESRS S2 workers in the value chain, it will be required to conduct due diligence in the supply chain.

The Corporate Sustainability Due Diligence Directive (CSDDD) is currently being prepared to enter into force as one of the EU GreenDeal as well as CSRD. Corresponding to this background, sustainable and responsible corporate action will be increasingly required throughout the global value chain.

4, Introduction of assurance schemes and digital access

Independent auditing and certification of non-financial information will be mandatory for companies to provide reliable information. Specifically, limited assurance will be obtained within 3 years of CSRD implementation and reasonable assurance within 6 years after implementation.

Companies are required to publish their reports in digital access (XHTML format) and ensure that they are “tag” following a digital classification using the European Single Access Point (ESAP) model.

Scope of application for the CSRD/ESRS

For European companies

The CSRD will first apply to large European companies that meet at least 2 out of the following 3 criteria:

  • More than 250 employees
  • Turnover that exceeds EUR 40 million
  • A balance sheet that exceeds a total of EUR 20 million

In the future, the CSRD will apply it to European listed companies with more than 10 employees, a turnover that exceeds EUR 2 million, and a balance sheet that exceeds EUR 2 million.

However, a subsidiary wholly owned by a home-country company in Europe will be applicable if it meets at least 2 of the above 3 criteria. This subsidiary will be directly subject to the application, with indirect consequences for the home country’s parent company. Working on a consolidated group level and cooperation between the parent company will be crucial, even third-party assurances.

The current NFRD (Non-Financial Reporting Directive) only applies to about 11,000 companies, but the CSRD will apply to about 50,000 companies.

In Finland, the number of companies is expected to increase from about 100 at present to about 700 companies.

For Non- European companies

Companies with subsidiaries or branches in Europe meet at least one or more of the following 2 criteria on the condition of substantial business activity.

  • Net turnover (on a consolidated basis) that exceeds EUR 150 million within Europe
  • The existence of a subsidiary (large or listed company) or a branch (with a net turnover that exceeds EUR 40 million)

These non-European companies must have an “assurance” as above and must attach the guarantees to the report.

Timelines of the CSRD/ESRS

The start reporting according to the CSRD/ESRS depends on the feature and size of the entity.

Applicable companiesYear of ResultsYear of Reporting issue
Companies to which the NFRD applies20242025
Companies not covered by the NFRD but matching two of the above scopes20252026
SMEs listed on a stock exchange20262027
Non-European companies20282029

Applicable companies are highly recommended to start immediate internal preparations for implementing a promotion structure for compliance with CSRD/ESRS.

In the next article, we provide the relevance of the GRI and ESRS.

Photo by Tyler Casey on Unplush