The “Summer of CSRD” series – categories of ESRS standards, reporting areas and drafting conventions

The EU’s Corporate Sustainability Reporting Directive will have broad impact. Approximately 50,000 undertakings are expected to have a reporting obligation. The recently finalized European Sustainability Reporting Standards specify the information required to be reported under CSRD.

As we recently posted, this summer’s ESG must-read is ESRS 1, which contains the general requirements applicable to CSRD reporting. The objective of ESRS 1 is to provide an understanding of the architecture of the ESRS, the drafting conventions and fundamental concepts used and the general requirements for preparing and presenting sustainability information in accordance with CSRD.

Understanding ESRS 1 is therefore critical to preparing for CSRD reporting. It will drive not only disclosure, but also the underlying processes and controls. As a threshold matter, understanding ESRS 1 also is important for developing the project plan for CSRD readiness.

Each post in this “Summer of CSRD” series will discuss selected aspects of ESRS 1, in a bite-sized read, in more or less the order presented in ESRS 1.

First up, categories of ESRS standards, reporting areas and drafting conventions. These are addressed in chapter 1 of ESRS 1.

Categories of ESRS standards

There are three categories of ESRS: (1) cross-cutting standards; (2) topical standards; and (3) sector-specific standards. Cross-cutting standards and topical standards are sector-agnostic. They apply to all undertakings irrespective of the sector in which they operate.

Cross-cutting standards. There are two cross-cutting standards: ESRS 1, General Requirements, and ESRS 2, General Disclosures. These standards apply to the sustainability matters covered by topical standards and sector-specific standards. As noted above, ESRS 1 describes the architecture of the ESRS standards, explains drafting conventions and fundamental concepts and sets out general requirements for preparing and presenting sustainability-related information. ESRS 2 contains general disclosure requirements relating to governance, strategy, impact, risk and opportunity management and metrics and targets.

Topical standards. There are ten topical ESRS. Each covers a particular sustainability topic. For example, ESRS E4 addresses biodiversity and ecosystems. Each of the topical ESRS also contain sub-topics. Most are further broken down into sub-sub-topics. Some of the topical ESRS also include specific requirements that complement the general disclosure requirements of ESRS 2.

Sector-specific standards. Sector-specific standards are standards applicable to all undertakings within a sector. They are intended to address impacts, risks and opportunities that are likely to be material for all undertakings in a specific sector and that are not sufficiently covered by topical standards. Sector-specific standards are intended to be multi-topical.

In September 2022, EFRAG started the development of four sector standards: (1) mining, quarrying and coal mining; (2) oil and gas; (3) road transportation; and (4) agriculture, farming and fisheries. EFRAG subsequently began work on four additional sector standards, which are at a somewhat earlier stage of development: (1) motor vehicles; (2) energy production and utilities; (3) food and beverages; and (4) textiles, accessories, footwear and jewelry. In March 2023, the European Commission asked EFRAG to prioritize work related to the implementation of the sector-agnostic ESRS.

In addition to the disclosure requirements provided for in the three categories of ESRS, when an undertaking concludes that an impact, risk or opportunity is not covered, or not covered with sufficient granularity, by an ESRS, but is material due to its specific facts and circumstances, the undertaking is required to provide additional entity-specific disclosures to enable users to understand the undertaking’s sustainability-related impacts, risks or opportunities.

Reporting areas 

The disclosure requirements in ESRS 2 and the topical ESRS (and sector-specific ESRS if/when developed) are structured into the following reporting areas: (1) governance, which includes governance processes, controls and procedures used to monitor, manage and oversee impacts, risks and opportunities; (2) strategy, which is how the undertaking’s strategy and business model interact with its material impacts, risks and opportunities, including how the undertaking addresses those impacts, risks and opportunities; (3) impact, risk and opportunity management, which are the process(es) by which the undertaking identifies impacts, risks and opportunities and assesses their materiality and manages material sustainability matters through policies and actions; and (4) metrics and targets.

ESRS 2 includes minimum disclosure requirements regarding policies, actions, metrics and targets. Those are to be applied together with the corresponding disclosure requirements in topical and sector-specific ESRS.

Drafting conventions

Throughout the ESRS, many terms are presented in bold italics. These are defined in the glossary of definitions.

The ESRS structure the information to be disclosed under “Disclosure Requirements.” Each Disclosure Requirement consists of one or more distinct data-points.

In addition to Disclosure Requirements, most ESRS also contain “Application Requirements.” Application Requirements support the application of Disclosure Requirements and have the same authority as other parts of an ESRS.

Not all ESRS disclosures are mandatory. For those that are mandatory, the ESRS use the phrase “shall disclose.” Disclosures that are indicated as “may disclose” are voluntary and intended to encourage good practice.

In addition, the ESRS use the term “shall consider” when referring to issues, resources or methodologies that the undertaking is expected to take into account or use in the preparation of a given disclosure if applicable.

Next up: qualitative characteristics of reported information.

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