In today's business environment, transparency and sustainability are more important than ever. The?Corporate Sustainability Reporting Directive?(CSRD) requires companies to report on the impact of corporate activities on the environment and society and requires the audit (assurance) of reported information. To meet the requirements of the EU CSRD a reporting standard, European Sustainability Reporting Standards (ESRS) had been introduced. Briefly stating, the CSRD sets out reporting requirements and obligations, and the ESRS provides the framework and methodology for reporting. The ESRS provides a detailed framework for companies to report on their environmental, social, and corporate governance (ESG) impacts. These standards aim to help stakeholders understand how companies contribute to sustainability and manage their ESG risks and opportunities. The ESRS framework is divided into three main categories: Environmental, Social, and Governance standards, each addressing critical areas of corporate responsibility and sustainability.

ESRS Standards:

To set out the reporting requirements and obligations of CSRD, there are 3 topical standards under ESRS which details the framework:

  1. ESRS Environmental standards
  2. ESRS Social standards
  3. ESRS Governance standards

ESRS Environmental standards:

ESRS Environmental standards, are sector-agnostic and there are 5 topics which addresses different types impacts on the environment:

  • E1. Climate change
  • E2. Pollution
  • E3. Water and marine resources
  • E4. Biodiversity and ecosystem
  • E5. Resource use and circular economy

E1. Climate change:

  • Entities should report GHG emissions (Scope 1, 2, and 3) by detailing the data and strategies undertaken to lower the impact on climate change and how that would impact the stakeholder�s decision-making.
  • Organizations must explain how climate-related risks and opportunities over the period will impact their business model and strategy.
  • To convey successful carbon management strategies, organizations need to disclose benchmarks and targets which have been achieved over time.

Note: Companies with less than 750 employees may exclude scope 3 emissions in their first year of reporting.

E2. Pollution:

  • The organizations and their value chains are required to report on various types of pollution, such as air emissions, water discharge, pollution of living organisms and food resources, and waste production among others.
  • The organizations should provide year on year comparable insights into how it manages and mitigates their pollution impacts. This involves detailing the practices and technologies adopted to reduce pollution at source and throughout the product life cycle.
  • The organization should also disclose any violations, fines, or enforcement actions taken against the company regarding pollution.

E3. Water and marine resources:

  • Companies need to report on their water usage and management, which includes, total volume of water withdrawn, the sources of water, and the efficiency of water use and reuse within their operations.
  • Physical risks from water flooding or scarcity, regulatory risks related to water use and quality standards, should be reported by the organizations, along with the opportunities arising from improving water efficiency and contributing to water stewardship.
  • Companies should report their target set for improving water management and reducing negative impacts.
  • For companies operating in or near marine and coastal environments, E3 also has provisions for reporting on their impacts on marine ecosystems, which includes discharges into marine environments, impacts on marine biodiversity, and measures taken to protect and preserve marine and coastal ecosystems.

E4. Biodiversity and ecosystem:

  • Direct and indirect impacts on biodiversity including ecosystems, species, and genetic diversity are expected to be assessed and disclosed by the organizations and their value chain.
  • Financial effects related to offsetting biodiversity should also be reported to paint the financial picture of conservation efforts and restoration activities, if any.
  • Organizations should also disclose specific, measurable targets related to biodiversity conservation and restoration, along with the progress towards these targets.
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Note: Companies with less than 750 employees may exclude biodiversity in their first two years of reporting.

E5. Resource use and circular economy:

  • Organizations are required to disclose its actions to minimize resource extraction, waste, and environmental impacts through the adoption of circular economy practices, which includes information on the types of waste generated, as well as the methods used to dispose of or appreciate the value of waste.
  • Companies can disclose their efforts towards sustainable product design, aiming to reduce environmental impacts through its life cycle which includes selection of material, energy efficiency, and increasing product lifespans.

ESRS Social standards:

ESRS social standards requires the organizations to report on social aspects. These standards are sector-specific, and consists of 4 main topics which addresses different types impacts on the human-centric topic:

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

S1. Own workforce:

  • The organizations are required to report their employment practices, working conditions, and rights of an organization's employees including types of employment contracts and work arrangements.
  • Organization's health and safety practices should also be disclosed under this standard.
  • Policies and practices regarding remuneration and benefits, with detailed information to ensure fair compensation, including information on wage levels, bonus schemes, and non-financial benefits should also be disclosed.

S2. Workers in the value chain:

  • This topic includes disclosures on how organizations ensure fair labor practices and protect workers' rights throughout their supply chain and business relationships.
  • Companies must report on the specific risks to workers in their value chain, including risks related to child labor, forced labor, unsafe working conditions, unfair wages, and lack of freedom of association.
  • Prioritization of the risks and policies to manage them should also be disclosed by the organizations in detail.

S3. Affected communities:

  • This topic includes disclosures on the organization's impact on local affected communities and how they are considered and engaged within the company's operations.
  • Disclosure regarding the organization�s impact and contributions to community development, including investments in local infrastructure, education, health services, and economic development initiatives.

S4. Consumers and end-users:

  • This topic includes disclosure information on an organization�s practices and measures to ensure the safety and quality of their products or services.
  • Compliance with relevant safety standards, product testing procedures, and mechanisms for tracking and addressing product safety concerns, need to be disclosed by the organization.
  • The organizations can also disclose how products and services are marketed complying with local laws.
  • In the case of services such as utilities, it needs to be disclosed if disadvantaged communities have access to it.

Note: Companies with less than 750 employees may exclude their own workforce in their first year of reporting and the first two years exclude the other 3 topics.

ESRS Governance standards:

ESRS governance standards require the organizations to report on governance aspects. These standards are entity-specific, which address business conduct by referring to corporate culture, protection of whistleblowers, animal welfare, political engagement, and relationship with suppliers. This standard consists of only 1 topic:

  • G1. Business conduct

G1. Business conduct:

  • Organizations need to disclose their code of ethics, and the process of communication of these principles and its enforcement among its employees and business partners.
  • The organizations need to disclose their policies and practices on prevention and detection of corruption and bribery, including training provided to stakeholders.
  • The process to report corruption in an organization should also be disclosed, which includes the processes to protect the whistleblowers.
  • Organizations are required to disclose if it is involved in any activities related to political engagement and lobbying.
  • Organizations are also required to disclose how it manages relationships with suppliers, including payment practices, with emphasis on late payment to SMEs.

The ESRS standards represent a significant step forward in promoting transparency and accountability in CSRD reporting. By providing a structured approach to disclosing environmental, social, and governance impacts, these standards help organizations align their operations with broader sustainability goals and report according to the CSRD requirements. Adhering to CSRD reporting not only enhances a company's reputation but also fosters trust among stakeholders and contributes to long-term business success. As companies navigate the complexities of these standards, they play a crucial role in driving the global sustainability agenda forward.