What does ESG mean? (Environmental Social Governance)

What is ESG?

Sustainability is essential for companies in times of climate change, rising temperatures, increasing emissions, and an ever-growing ecological footprint. A collective effort from everybody worldwide is needed to meet climate targets and ensure a sustainable future. Therefore the ESG report holds societal relevance and, from 2025, will become mandatory for many large companies.

In this article, you will learn about the ESG criteria: “Environmental, Social, Governance”. You will also discover how ESG supports company valuation, how it relates to the CSRD and EU Taxonomy, and how to integrate ESG criteria into your corporate strategy.

Does ESG reporting really matter and for who is it mandatory?

The ESG report ensures transparency on a company’s performance in the areas of environment, social responsibility, and corporate governance. Sustainability reporting, a key component of ESG reporting, documents activities in these areas and evaluates their impacts.

Disclosing detailed information about a company’s sustainability efforts is essential for securing necessary investment from stakeholders, as they increasingly factor sustainable business practices into their decision-making.

Since 2022, reporting has also been regulated across the EU under the Corporate Sustainability Reporting Directive (CSRD), significantly expanding the number of companies required to report and standardising the reporting process.

How to measure ESG criteria with ESRS Standards

For many small and medium-sized enterprises, the ESG report becomes especially important starting in 2025, as the CSRD mandates that they collect and disclose extensive data. To meet these requirements, companies must adhere to the European Sustainability Reporting Standards (ESRS). These standards include formal requirements, such as the principle of Double Materiality Assessment and reporting quality principles.

The ESRS also defines topic-specific standards aligned with ESG criteria, structured into different subcategories. A comprehensive overview of all subcategories can be found here.

1. Environment (ESRS E):The ESRS E standards are linked to the EU’s environmental goals and require companies to document their actions regarding various environmental aspects:

• ESRS E1: Climate change
• ESRS E2: Pollution
• ESRS E3: Water and marine resources
• ESRS E4: Biodiversity and ecosystems
• ESRS E5: Circular economy

2. Social (ESRS S):The social standards address working conditions, equality, and human rights for a company’s employees and those in its supply chain. Additional standards focus on communities and end users:

• ESRS S1: Own workforce
• ESRS S2: Workers in the value chain
• ESRS S3: Affected communities
• ESRS S4: Consumers and end-users

3. Governance (ESRS G):Governance topics include corporate ethics, supplier relationships (incl. payment practices), and political engagement (incl. lobbying):

• ESRS G1: Business conduct

Which regulations and guidelines impact the ESG report?

The ESG report should take into account different regulatory requirements, as the CSRD introduces additional regulations that affect ESG criteria. The first step under the CSRD is the Double Materiality Assessment (DMA). Here, companies must identify the key impacts, risks, and opportunities (IROs) they face. These IROs must then be assessed according to ESRS parameters to derive the data points that need to be reported.

The EU Taxonomy is another key component of sustainability reporting and is closely tied to the CSRD and ESG criteria. All companies subject to the CSRD must also report on their sustainable economic activities under the EU Taxonomy. This involves assessing revenues, investments, and operational expenditures for taxonomy eligibility and alignment.

Steps to implement Environmental, Social, and Governance criteria in your company

Tanso helps small and medium-sized enterprises meet CSRD requirements and achieve their sustainability goals through integrated ESRS reporting of the highest standards. By focusing on data-intensive categories like the Corporate Carbon Footprint, Tanso enables not only compliant reporting but also active management and optimization of ESG performance.