ESRS 1 and ESRS 2: A Deeper Look into Sustainability Reporting
Maya Jonkman (Kulyabina)
ESG Academy / Master of Business Administration / Regional Sustainability and Continuous Improvement Manager
In our ongoing journey to understand the European Sustainability Reporting Standards (ESRS), let's consider the two foundational components: ESRS 1 (General Requirements) and ESRS 2 (General Disclosures) and how they lay the groundwork for comprehensive sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD).
Cross-cutting Standards: ESRS 1 and ESRS 2
ESRS 1: General Requirements
ESRS 1 is all about setting the stage for sustainability reporting. It provides mandatory concepts and principles for creating sustainability statements within the CSRD framework. Companies subject to the CSRD must disclose material information about their sustainability-related impacts, risks, and opportunities, following the applicable ESRS.
Under ESRS 1, certain sustainability information must be disclosed regardless of a company's judgment of its materiality. This includes data related to governance, strategy, management of impacts, risks, and opportunities, as well as metrics and targets associated with climate change.
It's essential to note that while ESRS 1 mandates these disclosures, companies may omit specific requirements and data points if they can achieve the reporting objective through alternative means.
Understanding Stakeholder Influence
Sustainability information holds value when it can predict future outcomes or confirm existing ones. Stakeholders, those who can impact or be impacted by a company's actions, play a vital role in determining this value.
Companies must identify two main groups of stakeholders: affected stakeholders and users of sustainability reporting. Affected stakeholders are those with interests that could be positively or negatively affected by a company's activities. Users of sustainability reporting encompass a broad range, including investors, creditors, business partners, trade unions, civil society organizations, and more.
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ESRS 2: General Disclosures
ESRS 2 builds on the groundwork laid by ESRS 1. It outlines disclosure requirements for sustainability reporting that apply universally. This includes general characteristics of the company, an overview of its business operations, and specific disclosures on compliance matters.
The standard covers various aspects, including:
ESRS 2 aligns with a four-pillar structure, mirroring the TCFD (Task Force on Climate-Related Financial Disclosures) and ISSB (International Sustainability Standards Board) framework. This structural harmony fosters consistency and comparability across different reporting standards.
Unpacking the ESRS Journey
Our exploration of ESRS 1 and ESRS 2 is just the beginning of a comprehensive understanding of the European Sustainability Reporting Standards. These foundational standards create a strong framework for transparent and meaningful sustainability reporting, addressing both the mandatory requirements and universal disclosures.
Stay tuned as we unravel more layers of sustainability reporting standards in the coming weeks.
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