The European Sustainability Reporting Standards (ESRS) have been released for a year now. We have featured information on multiple occasions. However, as companies are starting to engage more with the standards to prepare for their first reporting year in 2025, the question arises: Where do I start?

Reading the entire document of roughly 250 pages, 280+ pages in the German version, is a daunting task. Nevertheless, we encourage everyone who has to report reading the original document (especially ESRS 1 and ESRS 2) at least once before starting. While we have purposefully incorporated the original standard text for all disclosure requirements and application requirements of ESRS 2 and the topical standards in the software, nothing will prepare you as well as going back to the source. In order to facilitate the start a little bit, this blog will provide you with some guidance on how to read the ESRS. 

Inhaltsverzeichnis

1. Overview of European Sustainability Reporting Standards (ESRS)
2. ESRS 1 General Requirements
3. ESRS 2 General Disclosures
4. Topical Standards
5. Disclosure requirements: How to read, understand and implement them
6. Summary: ESRS original texts are essential

1. Overview of European Sustainability Reporting Standards (ESRS)

First, an overview: The European Sustainability Reporting Standards consist of two cross-cutting standards and ten topical standards. Additionally, there will be sector-specific standards, which are yet to be released. Each standard in itself is a complete document with its own introduction and appendices. However, due to cross-referencing and general context, they really only make sense as a whole set of standards. 

Before you start reading Annex I (which includes the full set of standards), we recommend opening Annex II, which includes the glossary of all important terms that are used in the ESRS. It is encouraged to always have the glossary on hand while reading, as it will clarify many questions that might arise. Each standard includes a main part with multiple sections and paragraphs – this is also where the disclosure requirements (DRs) are stated in ESRS 2 and the topical standards -, as well as a standard-specific appendix. The appendices include relevant context information as well as the application requirements (ARs).

2. ESRS 1 General requirements

The ESRS 1 General requirements lays the basic ground rules for reporting, defines key terminology, and provides an overall overview of expected processes attached to the report. This standard should always be read at least once before the entire reporting process is started. Although some sections are very technical and specific to some processes, it still provides a good overall understanding of the reporting process that is applied here and introduces important concepts such as the qualitative characteristics of information (ESRS 1, Appendix B). It might be helpful to re-read certain sections of ESRS 1 later on, depending on necessity and relevance. 

3. ESRS 2 General disclosures

Likewise, it will be necessary for all sustainability managers to read ESRS 2 General disclosures as well. As the second cross-cutting standard, it also includes information relevant to everyone included in the reporting process. It consists of the first set of disclosure requirements that are mandatory to report for all undertakings. These ask for general information about the undertaking as well as basic context which is relevant to understand the ESG reporting in context, such as strategy, business model, and governance approach.

It is recommended to read ESRS 2 already before or during the materiality process, as the process and its outcomes will need to be documented in ESRS 2 disclosure requirements. You can save time and effort by viewing the materiality and reporting processes as integrated, rather than separate, successive processes. 

4. Topical standards

The topical standards really only need to be read, if they were identified as material, as the included information is very specific to the given topic. Although, it might be helpful to read all standards to grasp the overall picture of the ESRS, you should realistically focus on the parts relevant to you. For this same reason, our software only displays the topical standards that are relevant to you according to your double materiality assessment. This ensures a better overview and a focus on the important parts.

5. Disclosure requirements

For reading the topical standards, generally the same principles apply. Each standard first presents its objectives and interaction with other ESRS, then the disclosure requirements and then the application requirements in the appendix. However, you should read them side by side. So, after reading each disclosure requirement, look up necessary definitions and read the according application requirements to understand the entire task. This has also been realised in our software, where all ARs are portrayed alongside the relevant DR.

5.1. The structure of disclosure requirements

The disclosure requirements are ordered more or less in the same general structure: 

1. Strategy
   1. Overarching DRs that supplement information required in ESRS 2
2. Impact, risk and opportunity management
   1. Overarching DRs that supplement information required in ESRS 2
   2. Policy 
   3. Actions
3. Metrics and targets
   1. Targets
   2. Relevant metrics
   3. Anticipated financial effects (only for E-topics)

Even though not all standards will include all elements of this, identifying this pattern will support you in understanding the standards and the DRs better while reading. Likewise, the policies, actions, and targets (PAT) DRs are similarly structured. So, understanding this structure once will facilitate understanding the other standards. 

5. 2. How to read a disclosure requirement?

A disclosure requirement consists of multiple paragraphs, usually at least 3. 

• The first paragraph summarizes the requirement (printed in bold). “The undertaking shall…”
• The second paragraph states the objective that shall be fulfilled by the disclosure. “The objective of this Disclosure Requirement is to…” 
• Sometimes the third paragraph provides references to other parts of the standard, although this is not regularly the case.
• Otherwise, the third and following paragraphs break down the requirement into individual parts (with sub-paragraphs) that list the individual data points, which need to be included in order to satisfy the requirement as stated in the first paragraph. It is often phrased as “The disclosure required by paragraph xx shall include…”.*
  • This may include voluntary data points and further specifications.
• The last paragraph sometimes provides information on how to handle the disclosure requirement, if the required information is not available to the undertaking. This is generally phrased as “Where data is not available, the undertaking shall estimate the number and state that it has done so.” or as “If this is not covered by a policy, the undertaking shall state this to be the case and provide reasons for not having adopted such a policy. The undertaking may disclose a timeframe in which it aims to adopt such a policy.”*

*Please note that these are only examples and can vary by standard.

5. 3. Understanding and implementing important elements of an ESRS disclosure requirement

Understanding this structure will help you identify the most relevant parts of a DR and where to focus your attention. The application requirements then have the same authority as the DRs themselves. Therefore, these should always be considered carefully. They include further data points (voluntary and mandatory), general guidance and definitions, calculation guidance and formulas, as well as suggestions for portraying the disclosed information (i.e. in a table).

Our software tool includes all the abovementioned parts of a requirement but also rephrases it in a shorter and more understandable description. This way you will know directly what to do, but also have the opportunity to read up on the original standard formulation. Furthermore, it breaks down complex and large requirements to smaller sub-requirements to which it is easier to respond.

It is recommended that you go back to each disclosure requirement before and after collecting the information and data to ensure that your disclosure fulfills all elements of the DR and the attached ARs. 

6. ESRS original texts are essential

The European Sustainability Reporting Standards (ESRS) are a comprehensive set of rules that prepare companies for sustainability reporting. Although the document is very broad, we recommend reading the original texts, especially ESRS 1 and ESRS 2, in order to develop a solid understanding of the reporting process. It is important to deal with the relevant content in a step-by-step and structured manner. With this guide in hand and the supporting software tools, you should now have a basic understanding of the ESRS and be well prepared for the first reporting year 2025. Enjoy reading!