The European Union (EU) proposed the Corporate Sustainability Reporting Directive (CSRD) to improve the non-financial reporting of companies operating within the EU. It was aimed at replacing the existing NFRD and include new requirements to be reported on environmental, social and governance topics. The European Financial Reporting Advisory Group (EFRAG) came up with the first draft of the European Sustainability Reporting Standard in November 2022. The first draft prepared by the EFRAG Project Task Force on ESRS had the following 12 modules.

General Environment Social Governance

ESRS 1 General requirements

ESRS 2 General disclosures

ESRS E1 Climate change

ESRS E2 Pollution

ESRS E3 Water and marine resources

ESRS E4 Biodiversity and ecosystems

ESRS E5 Resource use and circular economy

ESRS S1 Own workforce

ESRS S2 Workers in the value chain

ESRS S3 Affected communities

ESRS S4 Consumers and end users

ESRS G1 Business conduct

The European Commission (EC) has reviewed the draft ESRS and has proposed multiple changes to reduce the reporting burden, maintain compatibility with leading global standards and ensure ease of complying for small organizations.


The materiality assessment gains importance now as the companies need to report only on the material topics rather than the earlier mandatory reporting on all modules. This is not applicable to the topics covered under the General disclosures module and it continues to remain mandatory. It’s a welcome move to give materiality assessment the importance it demands, as the companies need not report on the standards that are not relevant to them. On the other hand, the Commission should be wary of the loophole it opens by requiring reporting on only material topics. The materiality assessment should be rigorous and validated by third parties to ensure that important disclosures are not missed out.

Timeline allowances for certain requirements

The Commission has provided relaxation on the timelines of certain complex standards to small organisations giving them ample time to build the systems and processes in order to report on these requirements.

  • Companies with < 750 employees may skip scope 3 emissions data and own workforce for the first year.
  • Companies with < 750 employees can also choose to omit the requirements on biodiversity, value chain workers, affected communities, and consumers and end users for the first two years.
  • Reporting the anticipated financial effects related to non-climate environmental issues like pollution, water, biodiversity and resource use are voluntary in the first year for all reporting companies.
  • All companies can leave out information on specific datapoints under own workforce module including social protection, persons with disabilities, work related illness, and work-life balance for the first reporting year.

Voluntary disclosures

Some of the disclosures have been made voluntary in the revised draft:

  • Biodiversity transition plans
  • Data points about non-workers in own workforce
  • Explanation on why any particular topic is not material

The first two topics becoming voluntary will reduce the burden on the companies as the relevant data might not be necessarily available. But it is important for companies to disclose on why any topic is not material especially that all disclosures are now subject to materiality assessment. The absence of it might act as a leeway for companies to not disclose on any important topics.

Compatibility with global standards

The EC has engaged with leading global standards and bodies like ISSB and GRI to ensure there is enough inter-operability and alignment within these standards. This will help the companies to align their reporting with important standards without requiring any duplication of time, efforts and resources. This has been one of the major challenges for the companies with multiple standards and regulatory requirements to be met by them.

Added flexibility

The disclosure on financial impacts of sustainability risks have been made flexible by adjusting the wording from “potential” to “anticipated”. There are limited resources in public on methodologies to estimate the financial value of climate and environmental risks which makes the topic complex. Hence, some flexibility around this help companies to comprehend the subject in a better way and improve the reporting with time. The threshold for the companies to report on significant employment in the own workforce module has been changed from >50 employees in a country to >50 employees forming at least 10% of its entire workforce. It will reduce the reporting burden as the workforce is not significant enough to report on multiple datapoints. Certain datapoints around protection of whistle-blowers, bribery and corruption has been re-worded to avoid self-disclose on these legal aspects.

The revised draft is open for opinion until 7th July post which the comments will be reviewed, and the final draft is due to be released in the last week of July. The standard will come into effect starting January 2024 for large companies. Most of the revisions made by the EC and EFRAG will help small companies ease into the process of non-financial reporting and improve their ESG performance gradually. Providing the flexibility in a phase-in manner ensures that the standards are met ultimately.