European Sustainability Reporting Standards (ESRS) - The most important facts at a glance ‍

Definition of the ESRS

Since January 2024, the European Sustainability Reporting Standards (ESRS) have set the framework for sustainability reporting in Europe. These are a forward-looking development in the area of non-financial reporting and a key standard of the Corporate Sustainability Reporting Directive (CSRD). Under the ESRS, companies must provide relevant, comparable and reliable information about their sustainability-related impacts, risks and opportunities. They contain detailed and standardized disclosure requirements to enable companies to report on environmental, social and economic (ESG) issues.

What does ESRS include?

The ESRS requirements act as an overarching framework for all affected company types and sizes. They consist of two cross-cutting standards (ESRS 1 and ESRS 2) and 10 topic-specific standards covering environmental, social and governance (ESG) topics.

• ESRS 1 ("General Requirements") sets out general rules to be observed when reporting in accordance with ESRS, but does not specify any particular disclosures.
• ESRS 2 ("General Disclosures") describes basic information that must be published regardless of the sustainability issue under consideration. ESRS 2 is mandatory for all companies that fall under the scope of the CSRD.

All other standards and the individual disclosure requirements and data points therein depend on the result of the double materiality analysis. Here, both the inside-out perspective (impact materiality) and the outside-in perspective (financial materiality) must be taken into account. Both perspectives are fundamental for identifying the strategically relevant sustainability topics and the associated reporting obligations.

Essential elements of ESRS

• ESRS 2 is always mandatory
• Other reporting requirements depend on the outcome of the double materiality assessment
• The methods and criteria used to determine materiality must be disclosed in the report
• ESRS E1 and ESRS S1 typically form the basis for industrial companies
• If ESRS E1 is not reported, a detailed justification must be provided

ESRS data points

As part of the double materiality assessment, it is necessary to take a comprehensive view that includes not only the ten topic-specific standards (ESRS E1-E5, S1-S4 and G1), but also additional topics. These topics are divided into overarching topics, sub-topics and sub-sub-topics. An overview of these topics can be found here. As part of the double materiality assessment, companies must identify the material impacts, risks and opportunities of these 91 topics.

Example: Identification of material impacts, risks and opportunities for ESRS S1

In order to simplify data collection, the European Financial Reporting Advisory Group (EFRAG) published a list of data points on October 25, 2023, which represent the entirety of the reporting requirements of the delegated act. This Excel list contains 1178 data points, which are categorized in detail according to the ESRS standards and according to their type - narrative, quantitative or monetary. However, the EFRAG data points are not grouped according to the ESRS materiality analysis topics, which is why additional categorization of the reporting requirements is necessary.

265 of the 1178 data points listed are optional and can be reported on a voluntary basis. The list serves as a comprehensive catalog of all disclosure requirements for companies that already report ESG data and for those that are new to ESRS. It supports companies in structured data collection and helps to identify gaps in reporting.

By breaking down the disclosure objectives into individual, customizable data points, the ESRS standards make it easier to present sustainability data in a comparable and contextualized way, meaning that companies must assign the relevant sub-topics and sub-sub-topics to the corresponding disclosure requirements according to the Excel list in EFRAG after performing the double materiality assessment.

What needs to be considered under ESRS

With the implementation of ESRS, the focus shifts to three key factors that form the basic framework for transparent and effective reporting in accordance with ESRS:

1. Double materiality
   Double materiality is the principle for determining the scope of reporting and requires companies to consider their negative as well as positive impacts on the environment and society, both potential and actual. At the same time, it considers the impact of external factors on their own profitability. When determining which topics are material for a company, both financial materiality and environmental and social materiality are taken into account.
2. Disclosure and reporting
   Under ESRS, ESRS 2 is always mandatory, including the documentation of the double materiality assessment and contains specific disclosure requirements: If ESRS E1 is not considered material for an entity, this must be documented. A detailed explanation is required that is based on the results of the double materiality assessment and describes the analysis process in detail.
3. Mandatory audit
   A review of the disclosures in accordance with the ESRS guidelines by an external auditor is required from 2028. Member states also have the option of approving another auditor or an independent assurance provider, provided that they are subject to comparable regulations to an auditor.

Greenhouse gas emissions in ESRS

Among the ESRS guidelines, ESRS E1 stands out in particular, as it defines reporting on CO₂ under CSRD for the first time and brings it into line with the existing ISSB / GRI guidelines.

The ESRS E1 standard from EFRAG covers various aspects

• The recording of greenhouse gas emissions in accordance with the requirements of the standard, broken down into Scope 1, 2 and 3
• The definition of emission reduction targets and measures to adapt the business model in line with climate protection goals
• Analysis of the impact of climate-related risks and opportunities on the company and the company's impact on the climate

ESRS requirements for Scope 1 - 3 for manufacturing companies

ESRS E1 requirements for Scope 1 and 2 emissions

For Scope 1

• The total greenhouse gas emissions of Scope 1 in metric tons of CO₂ equivalent
• The share of Scope 1 greenhouse gas emissions under regulated emissions trading systems (ETS) in percent

For Scope 2

• Location-based method: The total greenhouse gas emissions of Scope 2 based on local factors in metric tons of CO₂ equivalent
• Market-based method: The total greenhouse gas emissions of Scope 2 based on specific factors in metric tons of CO₂ equivalent

ESRS E1 requirements for Scope 3 emissions

While the disclosures for Scope 1 and 2 are clear, the requirements for reporting Scope 3 emissions under the final standards are more complex. These emissions require a breakdown into more detailed categories.

The recording and reporting of Scope 3 greenhouse gas emissions is a complex process that requires special attention, as these emissions occur outside the direct control of the company. They usually contribute substantially to a company's overall carbon footprint and can have risks for operational processes, products and services. This challenge requires careful handling and reporting to ensure a comprehensive overview of the company's environmental impact. Scope 3 emissions can also be assessed using database values in accordance with the standard. It is not necessary to integrate the supply chain for an initial assessment, and is only mandatory in the second step to manage the reduction in emissions.

How does Tanso support your company?

The Tanso software helps companies to meet CSRD requirements and achieve sustainability goals through audit-compliant and integrated ESRS reporting to the highest standards. Our focus on data-intensive categories (e.g. corporate carbon footprint) enables Tanso not only to report in compliance with standards, but also to actively manage and optimize ESG performance.

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