CSRD and ESRS: Sustainability Reporting Starting in 2024

Previously, sustainability reporting requirements were relatively mild. However, with the “Corporate Sustainability Reporting Directive” (CSRD) having taken effect in January 2023, companies face expanded requirements to provide more comprehensive reporting on their environmental impact, beginning with the 2024 fiscal year.

In January 2024, the European Sustainability Reporting Standards (ESRS) were introduced, creating a structured framework for sustainability reporting across Europe. The first 12 ESRS standards, defined under the updated CSRD, cover key areas: Environment, Social, and Governance.

What new obligations does the CSRD introduce? What are its goals, and how can your business meet these requirements? And what exactly does the ESRS entail—when will you be required to report on sustainability, and what does each of the European Sustainability Reporting Standards cover? We dive into these questions in detail below.

The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) establish the framework for sustainability reporting within the EU. The CSRD mandates that companies provide comprehensive reports on their environmental impact, while the ESRS specify the exact standards these reports must meet. These regulations will apply to large companies starting in the 2024 fiscal year and will later extend to small and medium-sized enterprises.

What Are the Goals of the CSRD?

The CSRD aims to elevate the role of sustainability in business by requiring companies to identify opportunities to optimize processes, adopt resource-saving practices, and take responsibility for their environmental impact to increase long-term efficiency.

With the CSRD, the gap between existing reporting requirements and the evolving demands for sustainability reporting is bridged. For the first time, a standardized EU-wide framework provides a reliable source of sustainability information.

Benefits for Your Company:

• Meeting customer expectations
• Building a positive image to attract talent
• Increasing appeal to investors

What Are ESRS? A Quick Overview!

In short, the European Sustainability Reporting Standards (ESRS) provide the framework for companies to report on their sustainability efforts, focusing specifically on environmental, social, and governance (ESG) requirements. There are two overarching and ten thematic ESRS standards designed to support long-term assessment of corporate sustainability strategies.

The ESRS were developed in phases by the European Financial Reporting Advisory Group (EFRAG) and are being implemented gradually.

The first set of 12 standards came into effect in January 2024. The second set, introducing simplified standards for small and medium-sized enterprises, is planned for 2025. The third set, expected in 2026, will cover industry-specific standards and reporting standards for non-EU companies.

What Are the Goals of the ESRS?

The ESRS, alongside the CSRD, aim to ensure consistent quality in sustainability reporting and enhance transparency for stakeholders, partners, customers, and other key audiences. With these 12 standards, companies gain a valuable tool to assess and guide their sustainability efforts, revealing opportunities, evaluating risks, and identifying areas for improvement. Ultimately, the ESRS help companies optimize or launch processes and initiatives that advance their sustainability strategies.

What Do the New EU Guidelines on CSRD Mean?

Certain companies have long been required to report on sustainability. However, the updated Corporate Sustainability Reporting Directive (CSRD) expands these obligations significantly. Its primary goal is to provide greater transparency, especially regarding social and environmental information, enabling investors to make better-informed decisions. Through detailed sustainability reports, partners and customers can also assess a company’s environmental impact.

Since these new CSRD guidelines and the associated European Sustainability Reporting Standards (ESRS) apply from fiscal year 2024, now is the time to prepare for compliance. The new sustainability reports will be published starting in 2025.

What Are the Key Changes in the CSRD?

The CSRD brings adjustments to:

• Expanded, standardized reporting requirements
• New approach to materiality
• External verification
• Inclusion in the management report
• Uniform electronic reporting format

Expanded, Standardized Reporting Requirements
The CSRD introduces standardized reporting across the EU, with the European Financial Reporting Advisory Group (EFRAG) developing the ESRS in collaboration with stakeholders. The first set of 12 standards, introduced in 2024, targets large EU companies.

New Materiality Approach
CSRD mandates “double materiality,” requiring companies to consider two perspectives in their reporting: how environmental and social factors impact the company (outside-in) and how the company’s activities affect the environment and society (inside-out). Under CSRD, if a topic is deemed material in either dimension, it must be reported.

External Verification
With CSRD, sustainability and financial reports must be audited by external experts. Initially, this focuses on limited assurance, with plans to expand the verification depth.

Part of the Management Report
All sustainability information must now be integrated into the mandatory management report.

Uniform Electronic Reporting Format
To ensure machine and human readability, reports are to be submitted in the European Single Electronic Format (ESEF), with the European Commission providing an XBRL taxonomy.

Overview of the ESRS: The 12 European Sustainability Reporting Standards

The first set of ESRS, effective in 2024, applies to all large companies in the EU.

• ESRS 1 and 2 define the general requirements for sustainability reporting.
• ESRS 1 covers structure and principles, including guidelines on:
  • Materiality assessment
  • Double materiality principle
  • Stakeholder involvement
  • Corporate due diligence
  • Reporting on supply and value chains

According to the double materiality principle, companies can omit ESRS 1 standards if they are not deemed material.

What Is Double Materiality?
Double materiality is central to ESRS, requiring companies to analyze each reporting standard from two angles: financial materiality (how sustainability issues impact the company) and impact materiality (how the company impacts the environment and society). If a topic is material in either aspect, it must be reported.

ESRS 2 (Cross-cutting Reporting Requirements)
Addresses governance structures, strategy and business model, processes to identify impacts, risks, and opportunities (IRO), and minimum reporting requirements.

Mandatory for all companies, ESRS 2 is complemented by 10 thematic standards in environment, social, and governance areas, applying universally to companies under CSRD obligations. The double materiality principle also applies to these standards, with material topics required to be reported.

Environmental Standards

• ESRS E1 requires reporting on emission reduction measures to combat climate change, including energy consumption.
• ESRS E2 covers pollution across air, water, soil, and microplastics.
• ESRS E3 addresses water resource management, including marine resources.
• ESRS E4 emphasizes biodiversity and ecosystem impacts.
• ESRS E5 focuses on resource use and waste management to promote circular economies.

Social Standards

• ESRS S1 requires reporting on employee conditions, equality, and diversity.
• ESRS S2 focuses on labor conditions across the supply chain.
• ESRS S3 calls for evaluation of community impact and protection measures.
• ESRS S4 covers customer security, data privacy, and social inclusion.

Governance Standards

• ESRS G1 addresses corporate culture, including anti-corruption, political engagement, and whistleblower protection.

Mandatory Status of the ESRS

In July 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS). The CSRD requirements will take effect starting with the 2024 fiscal year, meaning the first reports based on the ESRS will be published in 2025.

By 2026, in addition to large EU companies, capital-market-oriented small and medium-sized enterprises (SMEs) will also be required to comply. For these SMEs, simplified reporting standards will apply, which are still in development and can be implemented gradually until 2028. SMEs not subject to mandatory reporting may opt to report voluntarily, with the EFRAG developing a simplified, modular reporting standard specifically for this purpose.

The ESRS thus establishes a standardized framework for sustainability reporting, which will progressively include more companies across the EU over the coming years.

Who Is Affected by CSRD and When Are ESRS Standards Mandatory?

With the CSRD expanding the Non-Financial Reporting Directive (NFRD), the scope now covers approximately 49,000 corporations and partnerships. The CSRD rollout begins with fiscal year 2024:

• 2024: Public-interest companies with 500+ employees.
• 2025: All large companies meeting balance sheet criteria.
• 2026: Publicly traded SMEs and third-country companies with significant EU revenue.

Small companies remain exempt but may opt into a simplified, modular sustainability reporting framework.

How Will CSRD Impact Companies?

CSRD brings substantial new requirements, necessitating adjustments across internal structures and processes to collect and process extensive ESG data across entire value chains, including executive oversight. For companies with limited sustainability reporting experience, the additional workload may be considerable. Even experienced firms face increased requirements.

Beyond compliance, CSRD offers opportunities for improved decision-making, cost-saving measures, and environmental responsibility, aiming for long-term operational and financial efficiency.

How Do CSRD, ESRS, and EPR Relate?

CSRD, ESRS, and Extended Producer Responsibility (EPR) are part of the EU’s strategy for sustainability and transparency in business. CSRD mandates comprehensive sustainability reporting, while ESRS provide a reporting framework. EPR extends responsibility across a product’s lifecycle, emphasizing proper disposal and recycling.

Companies that adapt early benefit from compliance and enhance their market competitiveness. Are you required to implement CSRD and ESRS from fiscal year 2024? At Deutsche Recycling GmbH, we assist with compliance across environmental, resource use, and circular economy standards, supporting companies with compliance checks, recycling services, and cost-saving solutions aligned with regulatory requirements.