Navigating the ESRS: A Practical Guide to Implementation (With ESRS Checklist)

As the Corporate Sustainability Reporting Directive (CSRD) takes center stage, companies operating within the European Union (EU) are gearing up to meet the extensive directive’s reporting standards. 

To successfully navigate the complex landscape of the EU Sustainability Reporting Standards (ESRS) and ensure compliant reporting practices, implementing efficient workflows and determining the data necessary to collect in accordance with the ESRS is crucial. 

The final texts of the ESRS have been adopted as a delegated act by the European Commission, which includes some changes to the previous drafts. Based on the finalized ESRS, you can start to get familiar with the general structure and scope of the standards to assess which processes and data will be required for reporting.
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In this practical guide, we will walk you through the process of streamlining your reporting procedures, while utilizing software to simplify the journey. This guide is structured according to the comprehensive framework of the ESRS, starting with the concept and the foundation for your reporting and then delving deeper into the disclosures for each Environmental, Social, and Governance (ESG) standard.

The ESRS checklists will provide you with insights to navigate the specific data requirements linked to CSRD more effectively, empowering your organization to meet reporting obligations while driving sustainable practices forward. 

What Are the ESRS?

The EU Sustainability Reporting Standards (ESRS) are a comprehensive set of reporting standards that all companies subject to the CSRD must adhere to. 

Developed by the European Financial Reporting Advisory Group (EFRAG), these standards aim to streamline sustainability reporting by providing a unified framework for companies across the EU.

The ESRS were adopted as a delegated act by the European Commission on July 31, 2023.

What Forms the Basis of the ESRS?

The development process of the ESRS was based on key frameworks, including the EU Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR), as well as existing international sustainability standards and disclosure recommendations from initiatives such as the Global Reporting Initiative (GRI) or the Task Force on Climate-Related Financial Disclosures (TCFD).

Further, EFRAG works closely with the IFRS Foundation’s International Sustainability Standards Board (ISSB). 

While the ISSB standards aim at creating a global basis of sustainability-related financial language on which countries can base their building blocks, the ESRS take a multi-stakeholder perspective to also fulfill the broader information requirements of stakeholders other than investors.

Therefore, the ESRS go further where needed and require companies to report a wider range of information to meet the EU’s ambitions consistent with the EU’s legal framework.

How to Navigate ESRS Requirements 

The European Sustainability Reporting Standards can be understood as

(1) the cross-cutting standards representing the foundation of your reporting, and
(2) the topical ESG standards covering environment, social, and governance, each of which need to cover the four disclosure areas (1.Governance, 2. Strategy, 3. Impact, risk and opportunity management, 4. Metrics and targets) that are specified within the general disclosures.

Following the Cross-Cutting Standards: How to Establish a Solid Reporting Foundation

The cross-cutting standards provide the framework and structure on what to include and how to present information in your final report. As such, they set the baseline for appropriate, systematic reporting practices, providing guidance and disclosures on how you can identify risks, impacts and opportunities and assess your double materiality.

ESRS 1: General Requirements

The general requirements of ESRS 1 outline the disclosure expectations from applicable companies. They explain the mandatory concepts and principles to apply when preparing sustainability statements under the CSRD and state that a company must disclose all material information about its sustainability-related impacts, risks and opportunities in accordance with the ESRS. 

In this context, you are required to identify your company’s two main stakeholder groups:

• Affected stakeholders: individuals or groups that have interests that are or could be affected — positively or negatively — by the company’s activities and through its value chain 
• Users of sustainability reporting: stakeholders with an interest in the undertaking

ESRS 2: General Disclosures

ESRS 2 presents cross-cutting requirements for general disclosures in the sustainability reporting that also need to be covered within the topical standards. It also requires you to disclose specific compliance information such as approximations in relation to your company’s value chain and boundaries. 

The four reporting areas according to ESRS 2 cover:

• Governance (GOV): Includes the governance processes, controls and procedures used to monitor and manage impacts, risks and opportunities‍
• Strategy (SBM): How the business model/strategy interacts with its material impacts, risks and opportunities, including the strategy for addressing them‍
• Impact, risk and opportunity management (IRO): Includes the process by which impacts, risks and opportunities are identified, assessed and managed through policies and actions‍
• Metrics and targets (MT): How a company measures its performance, including progress toward its goals and targets

The “General disclosures” standard is structured in a four-pillar system analog to TCFD (Task Force on Climate-Related Financial Disclosures) / ISSB (International Sustainability Standards Board), allowing for alignment with these standards.

While ESRS 2 is mandatory for all companies, further disclosure requirements result from your double materiality analysis.

Disclosing Topical Standards: Fulfill the Requirements You are Subject to Within Each ESG Standard

Disclosures related to the topical ESG standards that apply to you will be derived from your double materiality assessment for each of these standards. 

The standards also aim to teach companies how to adapt their business practices in line with the transition toward a sustainable economy, and how these changes contribute to the objectives of the European Green Deal and other EU strategic and regulatory frameworks.

ESRS E1-E5: Environment

The topical environmental standard outlines disclosures for companies to report on specific environmental topics. Further, it gives companies an understanding of actual or potential impacts from their resource use and/or distribution and commercialization.

• ESRS E1 Climate Change‍
• ‍ESRS E2 Pollution ‍
• ‍ESRS E3 Water and Marine Resources
• ESRS E4 Biodiversity and Ecosystems ‍
• ‍ESRS E5 Circular Economy 

ESRS S1-S4: Social

The topical social standard provides a disclosures for companies to report on four specific social topics related to human-centric issues, both internally and externally. 

• ‍ESRS S1 Own Workforce 
• ESRS S2 Workers in the Value Chain 
• ESRS S3 Affected Communities
• ESRS S4 Consumers and End-Users
  

ESRS G1: Governance

The topical governance standard sets a reporting standard for companies to disclose their business strategy and approach, processes, procedures and performance.

• ESRS G1 Business Conduct ‍
  

Sunhat’s ESRS Disclosure Checklists: How to Efficiently Collect Required Data for Disclosures

Use Sunhat’s embedded ESRS checklists to identify gaps and get started with your implementation plan for the upcoming reporting standards. By breaking down the extensive policy documents and requirements into manageable checklist items within the Sunhat workspace, the software solutions helps you to tackle disclosures preparations right away: 

1. Identify which processes and data you already have at hand and which are missing to commence your reporting preparations. 

If you have not started reporting yet, you can use the checklist as a starting point for your project management. Tick off each item, once you establish the corresponding processes. 

2. Keep track of the data collections you need to implement based on your initial data gap analysis, and use the suggested set of tasks to get started with collecting and maintaining data in a consistent and continuous manner. 

It is important to be able to provide information and context on how data is collected, analyzed and reviewed internally or by third parties such as suppliers and partners to report auditable disclosures

Sunhat’s checklists catalog all disclosures of ESRS 2 and the topical standards. For example, the topical standard ESRS E1 Climate Change encompasses 9 disclosures ranging from subjects on transition plan for climate change mitigation (ESRS E1-1) to potential financial effects from material physical and transition risks and potential climate-related opportunities (ESRS E1-9). In addition, it includes the ESRS 2 SBM-3 and ESRS 2 IRO-1 both part of ESRS 2 (General Disclosures).

Each disclosure checklist gives an overview on: 

• the objective of the disclosure 
• the list of requirements to report on each main disclosure topic 
• the applicable general disclosures from ESRS 2
• the corresponding application requirements from the appendices, which provide additional guidance on how to disclose requirements, e.g. tables and calculation formulas 
• guidance in form of the reference texts 

To enhance your understanding of the specific data requested within the ESRS, we will provide an example checklist from Sunhat’s CSRD module to disclose on the main requirements of first disclosure with the climate change topical standards: ESRS E1-1 Transition plan for climate change mitigation.

Checklist: Transition Plan for Climate Change Mitigation (ESRS-E1-1)

Disclosure objective 

The objective of this disclosure is to enable an understanding of the undertaking’s past, current, and future mitigation efforts to ensure that its strategy and business model(s) are compatible with the transition to a sustainable economy, and with the limiting of global warming to 1.5℃ in line with the Paris Agreement and with the objective of achieving climate neutrality by 2050 and, where relevant, the undertaking’s exposure to coal, oil and gas-related activities. 

Checklist items 

Do you have all the following?

• A transition plan for climate change mitigation
• Alignment with the Paris Agreement’s goal to limit global warming to 1.5℃ 
• Decarbonization levers identified and key actions planned (including changes in product portfolio and new technologies)
• Assurance that all investments and funding support your transition plan
• A qualitative assessment of the potential locked-in GHG emissions from your key assets and products
• Economic alignment with the Taxonomy Regulation (EU) 2020/852 
• Disclosure on whether or not you are excluded from the EU Paris-aligned benchmarks
• Alignment with overall business strategy and financial planning and approval by all administrative, management and supervisory bodies
• Stating progress in implementing the transition plan

This example showcase the type of information that needs to be gathered. By following the ESRS checklists in Sunhat, you can align your workflows to meet the specific requirements outlined by the directive’s standards. The creation of individual tags and references according to your needs helps you to keep an overview and stay organized.

Optimize your Workflows and Set Up a Basis for CSRD Reporting with Sunhat’s Automation Software

To optimize your sustainability reporting process, incorporating software solutions for CSRD can prove valuable. By leveraging Sunhat’s dedicated software features, you can automate data collection, streamline analysis, and facilitate reporting tasks. 

Utilizing software can enhance efficiency, accuracy, and consistency of your internal processes that represent the basis for your digital reporting and third-party assurance.

With the many details and dense PDF which comes with each standard draft, it can be difficult to know where or how to start your transition to aligning with these standards. 

Sunhat’s ESRS checklists help you assess where you already stand, reflect on what work you have already done, and how much work lies ahead.
‍To get started, try to answer the following questions:

• In what ways are you already aligned with ESRS requirements? Where do you need to make changes in order to align your current reporting? 
• How much of the requested qualitative and quantitative data do you already collect? What data points are still lacking?
• How do you collect and maintain the data required for reporting? Do you already track all topical ESRS issues as they relate to your company?
• What existing data collection processes can you build on, where do you need to adjust?
• Do you have a task force ready to take on the responsibilities of ensuring you meet ESRS requirements by your designated deadline?
• How do you ensure that your data and documentation is verified? 
• How do you involve your suppliers and partners in your internal processes to prepare ESRS disclosures?

👉 Sunhat’s CSRD module guides you to set up all disclosure processes to kickstart your reporting preparations for the ESRS. 

The system allows you to oversee your preparation process and saves your progress on disclosures. Any final disclosures are easily accessible for your reporting exports and also serve as inputs to fulfill additional sustainability requirements, such as CDP or EcoVadis. 

With Sunhat, you can update and maintain relevant sustainability disclosures, metrics and data throughout the year to ensure audit-ready disclosures for the next reporting cycle.

Outlook on the next steps for the ESRS

On July 31, the European Commission (EC) published the final first set of ESRS.The presented 12 standards will apply to its first wave of affected companies from January 1, 2024, provided the EU Parliament and the European Council do not raise any objections.

While the first set of standards applies to all industries and sectors, EFRAG is also developing a second set of sector-specific standards which will be applicable to all companies within a specific sector (for example, oil and gas, coal, road transport, motor vehicles, agriculture, farming and fisheries, motor vehicles, food and beverages, energy production, etc.). 

The sector-specific standards address additional impacts, risks and opportunities which are not already covered in the existing requirements. 

Have a look at the official website of the European Commission for the final versions of the standards and the Commission Delegated Regulation from July 31, 2023.