What is ESRS? The European Sustainability Reporting Standards

The European Sustainability Reporting Standards (ESRS) offer a framework for companies to disclose information on environmental, social, and governance (ESG) issues. Drafted by the European Financial Reporting Advisory Group (EFRAG), these 12 standards are mandatory for all companies regulated under the Corporate Sustainability Reporting Directive (CSRD)

These standards define what an organization must disclose about its material impacts, risks, and opportunities related to sustainability topics. The ESRS were officially adopted as a delegated act by the European Commission in July 2023, following the CSRD’s implementation in January.

In 2025, the European Commission implemented omnibus legislation to revise and simplify sustainability standards, including the ESRS. EFRAG prepared an updated ESRS and submitted it to the Commission for approval in November 2025. The updates include:

• Over 60% reduction in mandatory data points and removal of voluntary data points
• More streamlined double materiality assessment (DMA)
• Greater integration with other frameworks (IFRS S1, IFRS S2, and the Greenhouse Gas Protocol) to reduce redundancies in European sustainability reporting standards

What are the ESRS?

The standards focus on forward-looking information to evaluate companies’ long-term sustainability plans.

There are three categories of ESRS:

• Cross-cutting standards;
• Topical standards (Environmental, Social, and Governance standards); and
• Sector-specific standards.

Cross-cutting standards and topical standards are sector-agnostic, meaning they apply to all undertakings, regardless of the sector or sectors in which they operate.

Cross-cutting standards

ESRS 1: General requirements

• This standard describes the broad structure of the ESRS, laying out general requirements for preparing and presenting compliant sustainability reports.

ESRS 2: General disclosures

• The second cross-cutting standard establishes the disclosure requirements for high-level reporting on areas such as impact, risk, and opportunity management.

Topical standards: Environmental, Social, and Governance

Environmental standards 

ESRS E1: Climate change

• This is the key environmental standard that will apply to most companies. The standard addresses climate change adaptation and mitigation, a company’s energy consumption, and climate-related risks and opportunities.

ESRS E2: Pollution

• Companies must report on issues such as microplastics and any pollution of air, water, soil, or food resources.

ESRS E3: Water and marine resources

• This standard addresses a company’s water consumption, withdrawal, and discharges, as well as the extraction and use of other marine resources.

ESRS E4: Biodiversity and ecosystems

• Companies must consider their impact on biodiversity loss, species status, and the extent and condition of ecosystems.

ESRS E5: Resource use and circular economy

• Resource inflows, outflows related to products or services, and waste are included under this standard.

Social standards 

ESRS S1: Own workforce

• This standard requires companies to report on working conditions, equality, and diversity among their employees.

ESRS S2: Workers in the value chain

• Companies must also address the working conditions, treatment, and opportunities for workers in the value chain.

ESRS S3: Affected communities

• This standard addresses the rights of communities affected by the business’s operations.

ESRS S4: Consumers and end-users

• The personal safety, privacy, and social inclusion of consumers and end users must also be considered.

Governance standards

ESRS G1: Business conduct

• The final topical standard addresses corporate culture, including factors such as political engagement, corruption and bribery, animal welfare, and whistleblower protection.

Sector-specific standards

The standards apply to all sector undertakings and address impacts, risks, and opportunities material to that sector that are not covered by topical standards. Sector-specific standards are intended to be multi-topical.

In 2022, EFRAG began developing four sector standards:

1. Mining, quarrying, and coal mining;
2. Oil and gas;
3. Road transportation; and
4. Agriculture, farming, and fisheries.

EFRAG subsequently began work on four additional sector standards, which are at an earlier stage of development: (1) motor vehicles; (2) energy production and utilities; (3) food and beverages; and (4) textiles, accessories, footwear, and jewelry.

What is Double Materiality?

The double materiality approach encourages companies to consider both how external sustainability issues affect their business and how their business practices affect the world around them.

It recognizes two dimensions of materiality:

• Financial materiality: This aspect assesses how ESG issues affect a company’s financial performance. It focuses on the risks and opportunities these issues pose to the business, such as regulatory changes, reputational risks, and market shifts.

• Environmental and social materiality: This dimension looks at how a company’s operations impact the environment and society. It assesses the effects of the company’s activities on climate change, biodiversity, human rights, and community well-being, even if these do not directly affect the company’s financial results.

What is the timeline of ESRS?

Companies will need to start reporting under ESRS according to the following timetable:

• Companies previously subject to the Non-Financial Reporting Directive (NFRD), including large listed companies, banks, and insurance firms with more than 500 employees, will need to comply starting in the 2024 fiscal year, with their first sustainability report due in 2025.

• Large non-EU listed companies with more than 500 employees will also need to comply.

• Other large companies, including some large non-EU-listed companies: financial year 2025, with their first sustainability statements in 2026, following their financial year 2025.

• Listed SMEs (LSMEs), including non-EU listed SMEs, are expected to comply starting in the financial year 2026, with their initial sustainability statements due in 2027.

However, the SMEs can delay reporting for up to two more years. The latest deadline for a listed SME to begin reporting is the financial year, with the first sustainability statement due in 2029.

Non-EU companies earning over EUR 150 million per year in the EU must report on sustainability impacts at the group level starting with the 2028 financial year, with the first sustainability statement published in 2029. Separate standards will apply in this case.

Why does it matter?

ESRS is pivotal to promoting sustainable business practices across Europe.

The EU is committed to sustainability and ESG, but a lack of unified reporting standards hampers progress. As standards are adopted, regulators will enforce compliance.

In brief, adhering to ESRS standards benefits a company by encouraging the immediate adoption of long-term best practices and building trust with stakeholders such as investors, regulators, and the public.

Conclusion

In practice, ESRS is important because it transforms sustainability from a voluntary narrative into a standardized reporting requirement under CSRD, with double materiality at its core.

Implementing the ESRS offers several benefits to companies:

• Improved transparency and accountability
• Increased stakeholder confidence
• Increased access to capital
• Strengthened reputation and brand equity
• Insight into risks and opportunities
• Improved operational efficiency

For companies, the ESRS is more than a reporting requirement; it also involves compliance, data management, and credibility, impacting access to capital, stakeholder trust, and long-term competitiveness.