ESRS standards – or how to prepare a corporate sustainability report?

In response to these challenges, the European Union has introduced new, uniform reporting standards – the European Sustainability Reporting Standards (ESRS) – which aim to harmonise the rules for presenting non-financial information across the EU. The implementation of these standards represents a significant change in the preparation of annual reports by companies, both in terms of the scope of information disclosed and the methods used to collect and present it.

The aim of this article is to provide practical guidance on implementing the ESRS requirements and to discuss the key stages of preparing a sustainability report within a company. The remainder of the text will cover both the legal framework and the detailed aspects of the reporting process, so as to help companies fulfil their new obligations efficiently and in compliance with the regulations.

Regulatory context and terminology

Introduction The European Sustainability Reporting Standards (ESRS) are the result of many years of legislative work at European Union level, aimed at increasing the transparency and comparability of non-financial information presented by companies. Understanding the regulatory context and key concepts is crucial for the correct implementation of reporting requirements.

CSRD vs. NFRD – the evolution of reporting obligations in the EU

Previous regulations on non-financial reporting were based on the NFRD (Non-Financial Reporting Directive), which covered a limited group of large public-interest entities. The new CSRD (Corporate Sustainability Reporting Directive) significantly broadens the scope of obligations, extending to further groups of companies and clarifying the requirements regarding the data to be reported.

The role of EFRAG and the origins of the ESRS

EFRAG (European Financial Reporting Advisory Group) – an independent advisory body to the European Commission – is responsible for the preparation and consultation of ESRS standards. The standards developed by EFRAG aim to ensure consistency and interoperability of reporting across the European Union, as well as to align it with international ESG initiatives.

Implementation timetable

The implementation of ESRS requirements has been phased in, depending on the size of the company and its status on the capital market. The earliest to be subject to ESRS reporting requirements will be the largest listed entities and public-interest entities (for the 2024 financial year). In subsequent years, this obligation will be extended to other large companies, and then to selected small and medium-sized entities.

Before beginning to prepare the report, it is worth analysing in detail both the applicable regulations and the basic definitions used in the ESRS standards. This will not only enable you to correctly determine the scope of obligations but also to plan implementation activities within the company appropriately.

Scope of application: who is subject to ESRS?

The new reporting requirements under ESRS do not apply to all companies simultaneously. It is crucial to correctly determine whether, and from when, a given organisation is subject to the obligation to prepare a sustainability report in accordance with the new standards.

The reporting obligation under the ESRS applies first and foremost to large public-interest entities, i.e. listed companies, banks and insurance companies. It will subsequently be extended to other large companies and, ultimately, to selected small and medium-sized enterprises listed on regulated markets. A ‘large undertaking’ within the meaning of the CSRD is defined as an entity that meets at least two of the following three criteria:

• total assets exceeding €25 million,
• net revenue exceeding €50 million,
• more than 250 employees.

The reporting obligation also applies to companies belonging to corporate groups, including subsidiaries of entities based outside the European Union, provided they conduct significant business within the EU. In the case of corporate groups, reporting may take place at both the individual and consolidated levels.

The ESRS requirements cover not only the company’s own activities but also selected aspects of the entire value chain – on both the supplier and customer sides. This means that data must also be collected from related parties and, in some cases, from external contractors.

ESRS Standards

The ESRS (European Sustainability Reporting Standards) have been developed in a modular manner, allowing for the gradual and structured implementation of reporting requirements by companies. The ESRS architecture comprises both general and detailed thematic standards, which together form a comprehensive sustainability reporting framework.

At the basic level, there are two general standards: ESRS 1 (General Requirements) and ESRS 2 (General Disclosures).

• ESRS 1 sets out key principles and requirements for the reporting process, such as the scope of reporting, the approach to materiality, and interoperability with other reporting frameworks.
• ESRS 2 specifies requirements for disclosing information on strategy, governance, policies, objectives, and the management of risks and opportunities in the context of sustainability.

Environmental standards cover topics related to the impact of a company’s operations on the natural environment, including:

• E1 – climate change (greenhouse gas emissions, climate strategy),
• E2 – pollution,
• E3 – water and marine resources,
• E4 – biodiversity and ecosystems,
• E5 – resource use and the circular economy.

Social standards cover broadly defined social aspects, such as human rights, working conditions and stakeholder relations. These include, amongst others:

• S1 – own workforce,
• S2 – workers in the value chain,
• S3 – local communities,
• S4 – consumers and end-users.

Standard G1 covers issues related to corporate governance, including management structure, business ethics, anti-corruption measures and transparency in relations with stakeholders.

Alongside general and thematic standards, work is underway to develop sector-specific standards that will take into account the specific characteristics of individual industries. Furthermore, simplified standards for small and medium-sized enterprises are also planned, which will allow for a proportionate approach to reporting depending on the size and nature of the business.

Key reporting principles

The correct preparation of a sustainability report in accordance with the ESRS requires an understanding of and adherence to several fundamental principles that determine both the scope and quality of the information disclosed. These principles form the foundation of effective and transparent reporting.

Double materiality

One of the most important principles of the ESRS is the concept of double materiality. This means that a company should disclose information both from the perspective of the impact of its activities on the environment and society (impact materiality) and from the perspective of the potential impact of sustainability factors on the organisation’s financial performance (financial materiality). Proper identification of material issues requires conducting a formal materiality assessment and documenting the process.

Value chain approach

ESRS places great emphasis on reporting information covering the entire value chain – not only the organisation’s own operations, but also the impacts and risks associated with suppliers, customers and other entities collaborating with the organisation. The collection and verification of data from the value chain becomes a key element in producing a credible report.

Compatibility and interoperability with other standards

The ESRS standards have been designed with compatibility and interoperability in mind with other globally recognised reporting frameworks, such as the GRI (Global Reporting Initiative), TCFD (Task Force on Climate-related Financial Disclosures), or ISSB/SASB. This allows for better comparison of reports across different entities and minimises the risk of duplicating reporting obligations. In practice, many companies use a mapping of ESRS requirements against guidelines already in use.

Adherence to the above principles serves as a starting point for the effective planning and implementation of the non-financial reporting process, as well as for building trust in the published information among investors, customers and other stakeholders.

Structure and content of the report

The appropriate structure and completeness of a sustainability report are crucial both for meeting the formal requirements of the ESRS and for the readability and usefulness of the document to stakeholders. The ESRS standards precisely define which elements should be included in the report, whilst allowing companies a degree of flexibility regarding how the information is presented.

General disclosures

Each report should begin by presenting general information about the company, such as its business model, strategy, sustainability goals, management system, and the key principles and policies in force within the organisation. It is also necessary to describe the processes for identifying and managing risks and opportunities in the ESG area, as well as to identify key performance indicators (KPIs).

Policies, objectives, measures and results for individual ESRS topics

The remainder of the report should discuss in detail the issues covered by the individual ESRS thematic standards (environmental, social and corporate governance). In each area, it is required to present the applicable policies, set targets, implemented measures and achieved results. The report should also include information on how progress is monitored and the effectiveness of the measures taken is assessed.

Appendices, cross-references, indexes

Appendices containing additional data, tables and detailed methodologies used in the reporting process may also form an integral part of the report. It is worth ensuring the document’s clarity by using cross-references and preparing indices of compliance with other standards (e.g. GRI or ISSB), which makes it easier for readers to find specific information and assess the completeness of disclosures.

A well-organised report, prepared in accordance with ESRS requirements, not only enables compliance with legal obligations but also strengthens the company’s credibility and transparency vis-à-vis the market and all stakeholders.

Summary

The implementation of ESRS standards is a significant step towards increasing the transparency and comparability of non-financial information presented by companies in the European Union. For many organisations, the new regulations mean not only expanding the scope of reported data but also introducing new processes and standards for ESG information management. Proper preparation of a sustainability report requires both an understanding of the regulatory context and key concepts, as well as a practical approach to identifying material topics, managing data and presenting results. Companies that begin the process of implementing the new standards early enough will not only be able to efficiently meet their legal obligations, but also strengthen their market position by building stakeholder trust and providing tangible support for the achievement of sustainability goals.

Author

Agata Bączkowska

Adwokat, Senior Associate

She specializes in commercial and civil law. She has gained experience in Warsaw law firms providing comprehensive services to companies and a law firm specializing in labor law. She has extensive experience in corporate consulting. She has participated in mergers and acquisitions at every stage of the process, from pre-transaction legal examination to fulfillment of regulatory requirements related to the transformation process. She prepares and reviews contracts entered into by clients and advises in cases of…

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