CSRD's ESRS 1: General Requirements

March 26, 2024
Sustainability in Business
We are starting a series on Navigating CSRD Requirements. In each instalment of this series, we deep dive into a specific section or disclosure requirement of the CSRD. In this first instalment, we look at CSRD Annex 1 European Sustainability Reporting Standards (ESRS) 1 - General Requirements.

We are starting a series on Navigating CSRD Requirements. In each instalment of this series, we deep dive into a specific section or disclosure requirement of the CSRD. In this first instalment, we look at CSRD Annex 1 European Sustainability Reporting Standards (ESRS) 1 - General Requirements.

General architecture of ESRS

Annex 1 of the CSRD, which is published in the Official Journal of the European Commission, includes two out of the three categories of ESRS: the cross-cutting standards and the topical standards. It does not include the sector-specific standards which are currently being drafted. The current timeline for the adoption of the sector-specific standards is June 2026.

ESRS 1 and ESRS 2 are the cross-cutting standards. ESRS 1 General Requirements outlines the general requirements of sustainability reporting. It contains no disclosure requirements. ESRS 2 General Disclosures outlines a set of disclosure requirements at a general level across all material sustainability matters across the dimensions of reporting (governance, strategy, impact, risks and opportunities (IRO), metrics and targets).

The disclosure requirements in the ESRS standards are organised by themes: GOV disclosures referring to the governance process and procedures; SBM disclosures referring to how the strategy and business model interacts with material impacts, risks and opportunities; IRO disclosures referring to how material sustainability matters are identified and managed; and Metrics and Targets to measure sustainability performance. For reporting on policies, actions, metrics and targets, ESRS 2 also includes Minimum Disclosure Requirements (MDR) which needs to applied in the topical and sector-specific standards.

ESRS E1 to E5, S1 to S4 and G1 are topical standards covering the topical areas for Environment, Social and Governance. Sustainability topics, sub-topics, and sub-sub-topics are covered by the topical standards, and are collectively referred to as sustainability matters. Reporting on material sustainability matters is mandatory. Some disclosure requirements covered under ESRS 2 can be included in topical standards, and information criteria from the general disclosure (ESRS 2) applies to the particular topical standard. Some examples of this type of disclosures include SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model, which appears in ESRS 2 as well as ESRS E1, ESRS E4, ESRS S1, ESRS S2, ESRS S3 and ESRS S4.

The reporting of the topical standards is based on the initial materiality assessment which should be designed to identify the list of sustainability matters for reporting. If a topic emerges from the materiality assessment as being material but is not included in the current topical standards, the ESRS provides a set of Entity Specific Disclosures guidance for such topics.

Qualitative characteristics of information

ESRS 1 General Requirements recognises two types of qualitative characteristics of information. The fundamental qualitative characteristics of information are relevance and faithful representation, and the enhancing qualitative characteristics of information are comparability, verifiability, and understandability. These terms are defined and explained in Appendix B Qualitative characteristics of information.

Double materiality as the basis of sustainability disclosures

ESRS 1 General Requirements places emphasis on the concept of Double Materiality as the basis of sustainability disclosure. It emphasises the following points regarding the materiality assessment process

Due diligence

The integration of Due Diligence in sustainability management and reporting is reflected through ESRS-2 Disclosure Requirements in various sections.

Value chain information

While ESRS 1 General Requirements mandates the reporting of value chain information (those that are connected through direct and indirect business relationships in the upstream and/or downstream value chain), such information is only required for material impacts, risks and opportunities and not on “each and every actor in the value chain.”

ESRS 1 General Requirements allows reporting organisations to estimate value chain information when it is decided to be challenging after making reasonable efforts to do so. These estimations could be based on reasonable and supportable information such as sector-average data and other proxies.

Time horizon of reporting

The reporting period of the sustainability statement should be consistent with the reporting period of the financial statements. The initial definition of short-term is the year of reporting of the sustainability statement, while medium-term is defined as less than 5 years and long-term is defined as more than 5 years. However, this definition of medium-term and long-term could be adjusted if time horizon definitions in other topical or sector-specific ESRS are different. Furthermore, if the reporting organisation’s industry or business situation involves circumstances that dictates a different definition of medium- and long-term, the reporting organisation is allowed to adopt different definitions of time horizons for medium- and long-term.

Preparation and presentation of sustainability information

Structure of the sustainability statement and linkages to other corporate reports

The sustainability statement should be structured in four parts: General, Environment, Social, and Governance.

The sustainability statement should include a section for the disclosures related to the EU Taxonomy regulation. The disclosures relating to each of the environmental objectives defined in the Taxonomy Regulation should be presented together in a clearly identifiable part of the Environmental section of the sustainability statement.

When information in one part refers to information in another part, such information can be cross-referenced to avoid duplication. When referencing other legislations that require the disclosure of sustainability information or other generally-accepted sustainability reporting standards and frameworks (e.g., GRI and ISSB), these references should be clearly identified and meet the requirements for Qualitative Characteristics of Information.

The reporting organisation may use references to respond to a particular Disclosure Requirement or data point. These references could be i) another section of the management report, ii) the financial statements, iii) the corporate governance statement, iv) the renumeration report, v) the universal registration document, or vi) public Pillar 3 disclosures. These references have to satisfy a set criteria, for example, they are clearly identified in the sustainability statement, they should be published on or before the management report, they should be in the same language, and they should be subject to the same level of assurance and meet the same technical digitalisation requirements.

Transitional provisions

Other major phase-in requirements as presented in Appendix C List of Phase-in Disclosure Requirements are:

For those organisation with less than 750 employees during the financial year, the following disclosure phase-ins apply:

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