CSRD and ESRS: the relationship explained

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CSRD and ESRS: the relationship explained

There are a dizzying array of acronyms regarding the Corporate Sustainability Reporting Directive (CSRD): the new ESG regulation which will come into force across the EU from the 1st January 2024. This quick-read article aims to demystify them and to explain how they interlink and what they mean with regards to achieving CSRD compliance.

A quick explanation of the acronyms:

CSRD – the Corporate Sustainability Reporting Directive is a new ESG reporting regulation which has been passed by the European Commission (EC). Its purpose is to improve the consistency and comparability of ESG disclosures for organisations in the EEA. It replaces the Non-Financial Reporting Directive (NFRD) and forms part of the EU’s Green Deal.

ESRS – the European Sustainability Reporting Standards are the reporting standards and requirements which must be adhered to by organisations who are complying with CSRD.

We’ve put together an Introductory guide to CSRD, but to fully understand these new regulations, managers need to familiarise themselves with the European Sustainability Reporting Standards (ESRS). This blog provides an introductory overview to ESRS, but for more detail on the individual metrics within each of the standards, download our whitepaper: The ultimate guide to CSRD compliance.

What are the European Sustainability Reporting Standards (ESRS)?

The ESRS are a set of standards that outline the non-financial disclosures businesses must make with regards to Environment, Social, and Governance (ESG) metrics. The aim of the ESRS is to instil within businesses greater transparency, improved accountability, and more responsibility with regards to their environmental and societal impact.

The European Commission adopted the ESRS when putting together the CSRD. The ESRS is therefore not a separate or competing entity working alongside the CSRD – they are the explanation of what, how and where companies need to report their ESG findings in order to comply with CSRD.

Introduction to the ESRS

The ESRS is structured into a set of 12 overarching standards which includes two cross-cutting standards, five environmental standards, four social standards and one governance standard. The two cross-cutting standards (general requirements and disclosures) are mandatory for all companies reporting CSRD, and the remaining 10 topical standards are required depending on the company’s double materiality assessment. The four key pillars or ESRS are as follows:

Cross-cutting Standards (Pillar 1)

ESRS1: General requirements
ESRS2: General disclosures

Environmental Standards (Pillar 2)

ESRS E1: Climate change
ESRS E2: Pollution
ESRS E3: Water and marine resources
ESRS E4: Biodiversity and ecosystems
ESRS E5: Resource use and circular economy

Social Standards (Pillar 3)

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

Governance Standards (Pillar 4)

ESRS G1: Business conduct


The CSRD represents the next evolution of the EU’s earlier Non-Financial Reporting Directive (NFRD). Firms that were previously adhering to NFRD legislation will be the first to respond to the CSRD, with other companies added to the roster more gradually.

1st January 2024:
Entities that were previously subject to the Non-Financial Reporting Directive (NFRD) will transition to ESRS. Consequently, they will be reporting in 2025, based on data from 2024.

1st January 2025:
Large companies not currently managed under the NFRD will start adhering to the CSRD. Their first reports, based on 2025 data, will be due in 2026. Qualifying companies must have two of the following characteristics:

  1. Balance sheet total of over 25mn Euros
  2. Net turnover exceeding 50mn Euros
  3. Over 250 employees

1st January 2026: Listed small and medium-sized enterprises will come onboard the regime. These businesses are expected to report in 2027, utilising 2026 data. Qualifying companies must have two of the following characteristics:

  1. Balance sheet total of over 5mn Euros
  2. Over 10mn Euros in net turnover
  3. Average of 50 employees during the financial year

1st January 2028: The CSRD's reach will further expand to encompass non-EU companies that generate net turnover exceeding 150mn Euros in the EU for each of last two consecutive financial years at the consolidated level (or at the individual level if not applicable), and that have at least one EU subsidiary in scope of CSRD, or one branch which generated in excess of 40mn Euros in the preceding financial year. These entities will then report in 2029 using the data collected in 2028.

These timelines reiterate the EU's commitment to fostering an environment of transparency, diligence, and responsibility across both EU and non-EU entities. The phased approach ensures organisations have time to adapt, align, and drive their sustainability objectives in tandem with increasingly stringent ESRS criteria.

Decoding Double Materiality:

At the heart of the ESRS is the principle of double materiality – a two-part perspective encompassing both impact and financial materiality.

Impact Materiality:

Impact materiality considers the influence (both positive and negative) an entity exerts on societal and environmental spheres across various timeframes. Evaluations under this category weigh up the scale, scope, and irremediable nature of the impact that the firm makes.

Financial Materiality:
Financial materiality focuses on risks and opportunities, along with the potential repercussions these can have on a company's finances, such as cash flow, profit performance, cost of capital, etc. These assessment metrics revolve around the likelihood and magnitude of potential financial ramifications.

CSRD has been in the pipeline for a while, but the specific requirements were only been released in July 2023. With the adoption of ESRS, there has been a significant step towards making sustainability reporting as standardised as financial reporting.

First, a double materiality assessment will be conducted. This assessment will review the impact of the company and establish which metrics need to be reported on. These tests are mandatory and must be carried out prior to any disclosures.

Once the relevant disclosures have been ascertained, the real fun can begin! That’s where KEY ESG comes in. Our software guides companies through the metric selection process to ensure they’re tracking all of the relevant data points correctly and comparatively, so that they don’t come unstuck further down the line. Our platform then features automated data capture capabilities (integrating with all major business applications) and data validation checks in place which results in a streamlined and improved data set.

Take a look at our CSRD whitepaper for a more comprehensive overview of what’s coming from 2024 onwards. And, as always, feel free to contact our team if you have any questions at all.

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