Legal development

First European Sustainability Reporting Standards (ESRS) adopted 

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    The European Commission has adopted a Delegated Regulation and two Annexes setting out the first 12 European Sustainability Reporting Standards (“ESRS”). 

    The ESRS were developed by EFRAG (formerly the European Financial Reporting Advisory Group).  These ESRS are designed to enable the disclosures required under the EU’s Corporate Sustainability Reporting Directive (2022/2464) (“CSRD”) (see The Corporate Sustainability Reporting Directive - An overview). The Regulation was adopted following a consultation by the Commission in June 2023.

    What do I need to know

    The ESRS comprise a significant new reporting framework that in-scope companies need to get familiar with. As companies transition to these new requirements, they should:

    • Understand the reporting landscape. For large organisations, reporting across different regimes and to different standards, this is not just about understanding each set of requirements, it is also about how they interact. Consider mapping the requirements to your existing reporting processes to understand what further disclosures are needed and the data that you will need.  This is also an evolving landscape so your process for keeping up to date with these changes will need to be iterative. 
    • Pay attention to data collection. Consider whether you need to amend contracts (e.g., supply agreements) to ensure you are supplied with the relevant data needed for your sustainability disclosures. You may need to work with suppliers to help them collect the necessary data and set up reporting systems. You may also need to amend internal systems to collect the relevant data.
    • Adapt to longer time horizons. The risk assessment and scenario analysis being required of businesses is longer than the typical 3-5 year cycle and can be longer than 25 years. Management teams will need to get used to running an analysis and setting sustainability targets for far longer than the typical cycle.  

    Who needs to disclose using ESRS and when should they start using them?

    The ESRS have been developed to support sustainability disclosures required under the CSRD, which enhances the reporting requirements under the Non-Financial Reporting Directive (2014/95/EU) (NFRD) and extends non-financial reporting to significantly more organisations.


     Category  Entities Covered  From which financial reporting year

    Entities already covered by the NFRD.

    Large EU incorporated undertakings and parent undertakings of a large group that:

    • Are Public Interest Entities (PIEs) (broadly publicly traded companies, certain credit institutions and insurance companies)
    • Have either a balance sheet total of more than €20 million, a net turnover of more than €40 million or both.
    • Exceed an average of 500 employees during the financial year.

    Large non-EU incorporated undertakings and parent undertakings of a large group that exceed an average of 500 employees during the financial year 

    Financial years beginning on or after 1 January 2024 (first sustainability statement published 2025)


    Large EU incorporated undertakings and parent undertakings of a large group, not currently subject to the NFRD that exceed at least two of the following:

    • A balance sheet of €20 million
    • A net turnover of €40 million
    • On average 250 employees during the financial year

    Large non-EU incorporated undertakings or parent undertakings of large groups not within Category 1

    Financial years beginning on or after 1 January 2025, 2025 (first sustainability statement published 2026)


     EU incorporated small and medium-sized undertakings (SME) listed on EU regulated markets that:

    • Are PIEs
    • Are NOT micro-undertakings
    • Do not exceed at least two of:
    • A balance sheet of €20 million
    • A net turnover of €40 million
    • An average of 250 employees during the financial year Non-EU listed SMEs that are not micro-undertakings

    Financial years beginning on or after 1 January 2026 (first sustainability statement published 2027) subject to decision to opt out for two years. Last possible date to start reporting is from financial year 2028 with the first sustainability report published in 2029


    Non-EU companies that generated over €150 million per year in the EU for the last two consecutive financial years and that have either:

    • An EU branch with a net turnover exceeding €40 million; or
    • An EU subsidiary that is a large company or a PIE SME

    Report on the sustainability impacts at the group level of that non-EU company from financial year 2028, with first sustainability statement published in 2029


    What is required by the ESRS?

    The ESRS sets out the information that entities must disclose about their material impacts, risks and opportunities (“IRO”s) in relation to environmental, social, and governance sustainability matters. 

    There are three categories of standards:

    (i) Cross-cutting standards (sector-agnostic standards) that apply to all entities regardless of their sector.

    (ii) Topical standards on environmental, social and governance topics that are structured as sub-topics and possibly sub-sub-topics. 

    (iii) Sector-specific standards that address the IROs likely to be material for all entities in a sector and that are not covered, or not sufficiently covered, by topical standards.

    Entities should also provide entity-specific disclosures if they decide that an ESRS does not require disclosures in relation to an IRO (or it does not require disclosures of sufficient granularity) but the IRO is material to their specific facts and circumstances.

    The ESRS information assessed to be non-material need not be disclosed.

    The aim of the disclosures is to help users understand the entity's material impacts on people and the environment as well as the material impacts of sustainability matters on the entity's development, performance and position. This is known as double materiality.

    Annex I contains: 

    • 2 cross-cutting standards: 
    • ESRS 1 describes the structure of the ESRSs, the fundamental concepts (such as double materiality and the value chain) and general requirements for preparing and presenting sustainability information that should be applied by all companies reporting under the ESRS. 
    • ESRS 2 covers general disclosures on governance, strategy, IRO management, and metrics & targets, which apply irrespective of which sustainability matter is being considered.
    • 5 topical environmental ESRS (ESRS E1-5) on climate change, pollution, water and marine resources, biodiversity and ecosystems, and resources and the circular economy.
    • 4 topical ESRS (ESRS S1-4) on social disclosures including an organisation's workforce, workers in the value chain, affected communities, customers and end-users.
    • A topical ESRS on governance (ESRS G1).

    Annex II contains the list of acronyms and definitions to be used for the ESRS.


    Entities must report on sustainability matters based on the double materiality principle. Entities must undertake a materiality assessment to identify the IROs to be reported under all the ESRS apart from ESRS 2. An entity will only report IROs that are material for its business model and activity. The materiality assessment process is subject to external assurance in accordance with provisions of the Accounting Directive (2013/34/EU).

    Information is material and therefore reportable if it relates to the entity's significant actual or potential impact on people or the environment (“impact materiality”), or if it has or could have a significant financial impact on the company in the short, medium or long term (“financial materiality”).

    In a change from the consultation draft issued by the Commission in June 2023, if an entity concludes that climate change is not a material topic and therefore does not report in accordance with ESRS E1, it must provide a detailed explanation of the conclusions of its materiality assessment with regard to climate change and a forward-looking analysis of the conditions that could lead the undertaking to change its conclusion in the future.

    Target audience

    The ESRS are targeted at stakeholders, which are defined as including:

    • Individuals or groups whose interests are affected positively or negatively by the entity's activities and its business relationships across its value chain.
    • Users of the sustainability statements (that is, primary users of general purpose financial reporting such as investors, lenders, creditors, business partners, civil society, NGOs governments, analysts and academics).

    This is a wider definition than the definition of primary users in the International Sustainability Standards Board (ISSB) Sustainability Disclosure Standards.

    Changes between EFRAG recommendations and the adopted ESRS

    The bullets below highlight how the adopted Regulation differs from the EFRAG proposals:

    • Materiality. More of the reporting requirements have been made subject to a materiality assessment so that entities need not report on information that is not relevant to them. EFRAG had proposed that the following should be subject to a materiality assessment (i) ESRS 2; (ii) ESRS E1 (climate); (iii) some reporting requirements about the entity's own workforce; and (iv) datapoints corresponding to information required by financial market participants, benchmark administrators and financial institutions for their own reporting purposes (See the section on overlap with the SFDR reporting below). The Commission decided that all reporting requirements would be subject to a materiality assessment except ESRS 2.
    • Further phase-ins. In addition to the phase-in's proposed by EFRAG, the sustainability disclosures on biodiversity and certain social issues have been postponed for companies with fewer than 750 employees for one or two years depending on the relevant entity.
    • Voluntary disclosures. Further reporting requirements have been made voluntary in addition to the voluntary reporting already recommended by EFRAG. These were reporting on a biodiversity transition plan, certain indicators about self-employed people and agency workers in the entity's workforce.

    Overlap with SFDR requirements

    EFRAG had intended that Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR) disclosures of principal adverse impact (PAI) indicators (as well as disclosures under the Benchmarking Regulation ((EU) 2016/1011) (BMR) or Pillar 3 requirements under the Capital Requirements Regulation (575/2013) (CRR) would be always considered material under the ESRS and need to be reported. 

    The Commission made a significant change to the ESRS from the EFRAG recommendations by moving away from mandatory disclosure requirements in its June 2023 consultation draft. The ESRS now provide that apart from the General Disclosures in ESRS 2, all disclosure requirements shall be subject to a materiality assessment. 

    Financial market participants expressed concerns that there could be a potential data gap if they need to report PAI information under the SFDR but target companies do not have to report the relevant information if they don't assess it as material. To address these concerns, the adopted version of the ESRSs now require entities that decide not to disclose information related to the SFDR, the Benchmark Regulation or Pillar 3 requirements on the grounds that it is not material, to disclosure that fact rather than just not publishing any information. The entity must also provide a table with all these data points and either indicate where they can be found in the sustainability statement or that they are "not material" (as relevant).

    Interaction with the ISSB Sustainability Disclosure Standards

    Interoperability has been a key concern during the development of these standards. The EU and the ISSB have been working together to avoid duplicatory requirements between the ESRS and the ISSB's Sustainability Disclosure Standards: IFRS S1 and IFRS S2 (see Disclosures required under the IFRS's Sustainability Disclosure Standards (ISSB S1 and S2)

    The Commission considers that entities required to report under the ESRS on climate change will "to a very large extent" report the same information as companies that will use the IFRS S2.

    The Commission has further aligned the definition of financial materiality in the ESRS to the ISSB requirements to focus further on primary users of financial reports (i.e., investors). 

    ESRS 1 allows entities to include additional disclosures that relate to compliance with other standards (e.g., ISSB or GRI standards) provided that those disclosures (i) are clearly identified with a reference to the relevant legislation, standard or framework and (ii) meet the requirements for qualitative characteristics of information specified in ESRS 1, chapter 2 and Appendix B.

    The ISSB has:

    • Formed a Jurisdictional Working Group (JWG) to discuss the interoperability of these and other standards and the Commission and EFRAG are both members.
    • Added a requirement to S1 to permit (but not require) entities to consider the ESRS when identifying information to provide about sustainability-related risks and opportunities.
    • Allowed the Sustainability Disclosure Standards to be located in the same place as information disclosed to meet other requirements providing the IFRS disclosures are clearly identifiable and not obscured by additional information.

    EFRAG have produced a Mapping Table comparing the ESRS and IFRS S2 to demonstrate how well the standards are aligned.

    Next steps

    The Delegated Regulation was to be sent to the EU Parliament and the Council in the second half of August for scrutiny. This will run for two months unless extended by a further 2 months. The EU Parliament and the Council cannot amend the Delegated Regulation although they do have the power to veto it. If no objections are received, the Delegated Regulation will be published in the Official Journal and will come into force 3 days later.

    EFRAG is also working on:

    • A second set of draft sector-specific ESRS covering the Global Reporting Initiative (GRI) sectors (agriculture, coal mining, mining, oil and gas (upstream), and oil and gas (mid-to downstream)) and high-impact sectors (energy production, road transport, motor vehicle production, food and beverages, and textiles). The CSRD requires the Commission to adopt these by June 2024.
    • ESRS for listed and non-listed SMEs.
    • Implementation Guidance and FAQs regarding materiality assessment (MAIG) and reporting regarding value chains (VCIG).