��ݮ��Ƶ

What is ESRS and Why Does it Matter?

From CSRD to ESRS: How they are connected

To understand the European Sustainability Reporting Standards (ESRS), you first have to understand their relationship with the law. While the CSRD (Corporate Sustainability Reporting Directive) is the legal mandate that tells you that you must report, the ESRS is the technical framework that tells you how to report.

Why These Standards Exist

Before the ESRS, sustainability reporting was often called the "Alphabet Soup" of ESG. Companies chose between various voluntary frameworks (GRI, TCFD, SASB), making it difficult for investors to compare the actual performance of two different firms.

The ESRS were designed to solve three critical problems:

• Lack of Comparability: Standardizing definitions so that "Scope 3 emissions" or "Gender Pay Gap" mean the same thing in Paris as they do in Berlin.
• Greenwashing: Replacing voluntary marketing claims with audit-ready, financial-grade sustainability statements.
• Capital Allocation: Helping the EU redirect trillions of euros toward companies with proven sustainable business models.

The 2026 Strategic Reset

With the entry into force of the Omnibus I Directive (Directive (EU) 2026/470) on 18 March 2026, the "Why" has evolved. The EU shifted from comprehensive disclosure to proportionate, decision-useful reporting. For companies still in scope, the ESRS now functions as a strategic filter. The streamlined framework lets leadership focus on the sustainability risks and opportunities that actually affect long-term value, rather than chasing hundreds of metrics that add reporting effort without adding insight.

What Forms the Basis of the ESRS?

The development process of the ESRS was based on key frameworks, including the EU Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR), as well as existing international sustainability standards and disclosure recommendations from initiatives such as the Global Reporting Initiative (GRI) or the Task Force on Climate-Related Financial Disclosures (TCFD).

Further, EFRAG works closely with the IFRS Foundation's International Sustainability Standards Board (ISSB). While the ISSB standards aim at creating a global basis of sustainability-related financial language on which countries can base their building blocks, the ESRS take a multi-stakeholder perspective to also fulfill the broader information requirements of stakeholders other than investors.

Therefore, the ESRS go further where needed and require companies to report a wider range of information to meet the EU's ambitions consistent with the EU's legal framework.

Companies already reporting under GRI will find significant alignment with the ESRS, since GRI served as one of the foundational references. However, the ESRS go beyond GRI in several areas, particularly around financial materiality, forward-looking metrics, and connectivity with financial statements.

The ESRS Standards: Structure and Overview

The 12 European Sustainability Reporting Standards are organized into two layers: the cross-cutting standards that provide the foundation and methodology for all reporting, and the topical ESG standards covering environment, social, and governance topics. Within each topical standard, disclosures are structured around four reporting areas defined in the cross-cutting standards: Governance, Strategy, Impact/Risk/Opportunity Management, and Metrics and Targets.

Cross-Cutting Standards: The Reporting Foundation

The cross-cutting ESRS standards provide the framework and structure on what to include and how to present information in your final report. They define the principles for identifying material topics through double materiality assessment, set requirements for connected reporting with financial statements, and establish the baseline for systematic, auditable disclosure practices.

ESRS 1: General Requirements

The general requirements of ESRS 1 outline the disclosure expectations from applicable companies. They explain the mandatory concepts and principles to apply when preparing sustainability statements under the CSRD and state that a company must disclose all material information about its sustainability-related impacts, risks and opportunities in accordance with the ESRS. ESRS 1 also defines the double materiality principle, transitional provisions and phase-in schedules, and the "undue cost or effort" relief for value chain data.

ESRS 2: General Disclosures

ESRS 2 presents cross-cutting disclosure requirements that apply across all sustainability topics. It structures reporting around four areas and includes specific Disclosure Requirements (DRs) such as BP-1 (Basis for Preparation), GOV-1 through GOV-4 (Governance), SBM-1 through SBM-3 (Strategy and Business Model), IRO-1 and IRO-2 (Impact, Risk, and Opportunity identification), and General Disclosure Requirements for policies, actions, metrics, and targets.

The four reporting areas according to ESRS 2 cover:

• Governance (GOV): Includes the governance processes, controls and procedures used to monitor and manage impacts, risks and opportunities
• Strategy (SBM): How the business model/strategy interacts with its material impacts, risks and opportunities, including the strategy for addressing them
• Impact, risk and opportunity management (IRO): Includes the process by which impacts, risks and opportunities are identified, assessed and managed through policies and actions
• Metrics and targets (MT): How a company measures its performance, including progress toward its goals and targets

‍

Which topical standards apply to your company depends on your Double Materiality Assessment (DMA). The DMA evaluates each sustainability topic from two perspectives: your impact on people and the environment, and how sustainability matters affect your financial position. Only topics that are material under at least one lens require full disclosure. For the complete methodology, see our Double Materiality guide.

Topical Standards: Environment, Social, Governance

Only material topics require full disclosure under the topical standards. If a topical standard is not material to your business, you do not need to report against it, but you must document that conclusion in your materiality assessment.

ESRS E1-E5: Environment

The topical environmental standards outline disclosures for companies to report on specific environmental topics. Each standard requires disclosure across the four reporting areas (GOV, SBM, IRO, MT) for its specific topic:

• ESRS E1 Climate Change
• ESRS E2 Pollution
• ESRS E3 Water and Marine Resources
• ESRS E4 Biodiversity and Ecosystems
• ESRS E5 Circular Economy

ESRS S1-S4: Social

The topical social standards provide disclosures for companies to report on four specific social topics related to human-centric issues, both internally and externally.

• ESRS S1 Own Workforce
• ESRS S2 Workers in the Value Chain
• ESRS S3 Affected Communities
• ESRS S4 Consumers and End-Users

ESRS G1: Governance

The topical governance standard sets a reporting standard for companies to disclose their business strategy and approach, processes, procedures and performance.

ESRS G1 Business Conduct

Phase-In Provisions: What You Can Delay

Not every standard applies from day one. ESRS 1 (Chapter 10) defines specific phase-in provisions that allow Wave 1 reporters (former NFRD companies reporting since FY2024) to defer certain disclosures:

1. ESRS E4 (Biodiversity), S2 (Workers in Value Chain), S3 (Affected Communities), S4 (Consumers and End-Users): all DRs may be omitted for financial years before FY2027.
2. Anticipated financial effects (ESRS 2 paragraph 27 and ESRS E1-11): qualitative information phased in until FY2027, quantitative information until FY2030.
3. Substances of concern (ESRS E2-5): quantitative data phased in until FY2030.
4. Certain ESRS S1 sub-disclosures (S1-6, S1-7 for non-EEA countries, S1-10 through S1-14): phased in until FY2027.

Phase-in provisions for companies other than Wave 1 reporters will depend on the final transposition of the Omnibus I Directive by Member States (deadline: 19 March 2027).

How ESRS Reporting Works: The ESRS Data Points List

The ESRS framework translates broad sustainability topics into specific, auditable data points. Understanding the datapoint hierarchy is essential for scoping your data collection.

The framework is built on a hierarchy of Requirements, Disclosure Requirements (DRs), and Datapoints.

• The ESRS Set: The full collection of 12 standards (2 Cross-cutting, 10 Topical).
• Disclosure Requirements (DRs): Specific "chapters" within a standard that tell you what to describe (e.g., "E1-1: Transition plan for climate change mitigation").
• Datapoints: The smallest unit of information. These are the individual "input fields" you must fill, whether a number, a "yes/no" toggle, or a specific paragraph of text.

The extensive nature of the ESRS framework is reflected in the tabular ESRS Data Points List, initially including more than 1,000 rows of data points. Based on EFRAG's December 2025 technical advice, the Commission's revised delegated act will reduce the mandatory datapoint list to approximately 320 items. The Commission published its consultation draft on 6 May 2026 (feedback deadline: 3 June 2026). The final delegated act is expected in the second half of 2026 and will apply from financial year 2027.

Once you have completed your Double Materiality Assessment, EFRAG's Explanation ID 177 maps your results to specific Disclosure Requirements, bridging the gap between your materiality conclusions and the datapoints you actually need to fill. Note that ID 177 is a pre-simplification tool; an updated version aligned with the post-Omnibus standards is expected from EFRAG later in 2026.

The Anatomy of a Datapoint

Every datapoint in the ESRS list is classified by its Data Type. Understanding these types is critical for setting up your data collection software:

• Narrative: Descriptive text elements that provide context and qualitative insights; Example: Disclosure of decarbonization levers and key action
• Semi-Narrative: Descriptive elements that can be single text blocks, binary choice (yes/no) or dropdown selections; Example: Removals and carbon credits are used [yes/no]
• Numerical: Quantitative elements, for example monetary, percent or volume

Setting Up Your Basis for ESRS Reporting

With the complexity of the standards and the sheer volume of the technical annexes, knowing where to start your transition can be overwhelming. Before implementing a software solution, you must establish a baseline for your reporting readiness.

The Scoping Phase

Confirm whether your company meets the new scope thresholds: a net turnover exceeding EUR 450 million AND more than 1,000 employees on average during the financial year. Companies that were in Wave 1 (former NFRD reporters with >500 employees) but fall below these new thresholds will exit the reporting scope from FY2027. Member States may allow these companies to opt out of reporting for FY2025 and FY2026 as well. Companies that remain in scope should plan for data collection beginning FY2027 (with first reports due in 2028).

Double Materiality Assessment (DMA)

This is the filter for your entire report. You assess each sustainability topic from two perspectives: Impact (your effect on the world) and Financial (the world's effect on your bottom line). Only topics that are material under at least one lens require full disclosure. The CSRD hub covers the complete DMA process, including the step-by-step methodology and the ESRS E1 climate exception.

Data Collection & The Simplified Datapoint List

Identify the required metrics. The Commission published its consultation draft of the revised ESRS on 6 May 2026. The final delegated act, expected in the second half of 2026, will reduce mandatory datapoints by approximately 61% based on EFRAG's December 2025 technical advice. Until formal adoption, the current ESRS Set 1 remains the legal baseline for companies already reporting.

Value Chain Mapping

Identify your tier-1 suppliers. Note the 2026 Value Chain Cap: Reporting companies are prohibited from requiring "protected undertakings" (value chain partners with 1,000 or fewer employees) to provide information beyond the scope of the VSME (Voluntary SME Standard). Protected undertakings have a statutory right to decline such excess requests. When requesting data that exceeds the VSME scope, the reporting company must inform the protected undertaking of (a) which information exceeds the VSME and (b) their right to decline.

This applies only to information gathered for CSRD sustainability reporting. It does not limit data collection for due diligence obligations under the CSDDD or for other business purposes such as risk management.

Draft, Tag, and Audit

• Draft: Write the narrative disclosures (the "story" behind the numbers).
• Tag: Apply digital XBRL tags so the report is machine-readable.
• Audit: Engage an external auditor for Limited Assurance.

Optimize your Workflows for CSRD Reporting with a Collaborative Proof Platform

The 2026 ESRS restructuring makes reporting more focused, but fewer datapoints does not mean easy. Transitioning from a 1,000-point checklist to a streamlined framework of approximately 320 material datapoints still requires structured data collection, cross-team coordination, and audit-ready documentation. A spreadsheet will not get you there.

��ݮ��Ƶ's Collaborative Proof Platform is built for exactly this transition. Whether you are checking the Value Chain Cap for the first time or preparing your data for Limited Assurance, ��ݮ��Ƶ provides the technical guardrails to ensure you only collect what is material and only report what is verified.

With ��ݮ��Ƶ, you can:

• Instant Gap Analysis: Map your existing data against the revised ESRS datapoint list to spot data gaps in seconds.
• Automated Workflows: Assign specific disclosure requirements and track narrative and metric progress across your team from one dashboard.
• Audit-Ready Accuracy: Maintain a proof library with documentation tied directly to every metric for a painless Limited Assurance process.
• Framework Interoperability: Enter data once to power your ESRS disclosures, then instantly reuse them for CDP, EcoVadis, and investor requests.