The EU's new Sustainability Directive CSRD is changing the game for how companies need to report on their sustainability performance. At the heart of this is ESRS - European Sustainability Reporting Standards. But what does ESRS actually mean, and what does it mean for your company in practice?
What is ESRS?
ESRS are the European Sustainability Reporting Standards. They are developed by the European Financial Reporting Advisory Group ( EFRAG ) on behalf of the EU to ensure that companies report sustainability data in a comparable, structured and transparent way.
The reporting covers three main areas:
- Environment (E) - e.g. carbon emissions, energy use, resource consumption and impact on biodiversity.
- Social responsibility (S) - working conditions, gender equality, human rights and supply chain impacts.
- Governance (G) - business ethics, risk management, board structure and transparency.
What does ESRS mean for your business?
If your company is covered by CSRD, you must report under ESRS. But even companies that are not directly covered are affected. Larger companies need to collect sustainability data from their entire value chain. Is your company a supplier or partner of a CSRD company? Then you will likely need to share sustainability information in line with the ESRS.
Why is ESRS important?
With ESRS, your business gets:
- A common standard that makes the reports comparable across the EU.
- Enhanced competitiveness as customers, investors and banks increasingly demand credible sustainability data.
- A tool for risk management through better transparency on environmental and social challenges.
- The opportunity to stay ahead in a market where sustainability is becoming increasingly crucial.
ESRS or VSME?
- The ESRS is mandatory and detailed - for the companies covered by the CSRD.
- The VSME is a simpler and voluntary framework for smaller companies, but can also be used by larger companies that want to prepare for the ESRS in stages.
How can your business get started?
- Identify which ESRS standards apply to you.
- Conduct a double materiality analysis - what is most relevant to both you and your stakeholders?
- Build data collection procedures - from the business and from the supply chain.
- Create an initial report and improve the work over time.
Conclusion
ESRS marks a new era of sustainability reporting in Europe. For large companies it is a requirement, but smaller companies will also be affected through their customer and supplier relationships. Preparing in time will allow your company to meet the requirements more smoothly, while strengthening your position in the market.
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