The adoption of the standards marks a key milestone for reporting under the CSRD.

By Paul A. Davies, Michael D. Green, and James Bee

On 31 July 2023, the European Commission (Commission) adopted the European Sustainability Reporting Standards (ESRS),[1] following a four week-long public consultation period.

Background to the CSRD and ESRS

The ESRS represent the standards which set out the specific disclosure requirements for companies that will be required to report on sustainability-related impacts, risks, and opportunities under the EU’s Corporate Sustainability Reporting Directive (CSRD).

The CSRD was announced in 2021 as part of the European Green Deal. The CSRD will amend existing reporting requirements under the Non-Financial Reporting Directive (NFRD) and the EU hopes that CSRD will enhance the comparability and consistency of reported sustainability information from companies in the EU (and beyond). The CSRD will considerably increase the scope of companies required to report, as well as the level of detail required within disclosures.

For further background to the CSRD and ESRS, refer to the developments timeline below with links to relevant thought leadership at key stages of the process.

Developments Timeline

Date Topic Development
April 2021 CSRD The Commission presented the CSRD proposal as part of the European Green Deal and the Sustainable Finance agenda, alongside the EU Taxonomy Climate Delegated Act. Read more in Latham’s blog post.
April 2022 ESRS EFRAG (the technical working group tasked with developing the ESRS) opened the first draft ESRS standards for public consultation. EFRAG is an independent advisory body, which produced draft standards with the involvement of a number of stakeholders including investors, companies, academics, and national standards-setters among others.
June 2022 CSRD The European Parliament and European Council reached a provisional political agreement on the terms of the CSRD. The agreement included details of the scoping, reporting timeline, and main requirements under the CSRD. Read more in Latham’s blog post.
November 2022 CSRD EFRAG submitted draft standards to the Commission in November 2022, following the public consultation on the draft standards. The consultation prompted key changes, such as substantially reducing the number of reporting requirements in order to limit the reporting burden on companies. The CSRD was approved by the European Parliament on 10 November 2022, and European Council on 28 November 2022. Read more in Latham’s blog post.
December 2022 CSRD The EU adopted the CSRD into law, and it was published into the EU Official Journal. Read more in Latham’s Client Alert.
June 2023 ESRS After additional consultation with the European Supervisory Authorities and Member States, the Commission opened a consultation on a revised version of the ESRS. The version of the ESRS consulted on resulted in noteworthy changes from EFRAG’s drafts, including in relation to materiality, phase-in of requirements, and allowing companies to make certain disclosures on a voluntary basis. Read more in Latham’s blog post.
July 2023 ESRS The Commission adopted the ESRS. The ESRS will be formally transmitted to the European Parliament and European Council in the second half of August 2023, and those institutions will have two months (extendable by an additional two months) to accept or reject the ESRS. No further amendments may be made.
June 2024 ESRS The Commission is now required to develop subsequent sets of ESRS to be adopted by 30 June 2024. EFRAG are currently developing draft versions of proportionate standards for listed small and medium-sized enterprises (SMEs), sector-specific ESRS, “complementary” ESRS, and ESRS in relation to global group reporting under Article 40a of the CSRD.

The CSRD includes a phase-in approach for companies required to report, with requirements beginning in 2025 in relation to the 2024 financial year. See the below table for further details.

Future Reporting Requirements

Date In-Scope Companies Reporting Timeframe
2024 Companies previously subject to the NFRD, and large non-EU listed companies with more than 500 employees. 2024 financial year with reports published in 2025.
2025 Other large companies, including non-EU listed companies. 2025 financial year with reports published in 2026.
2026 Listed SMEs, including non-EU listed SMEs. 2026 financial year, using standards specific for SMEs, with reports published in 2027. A two-year opt-out period is available.
2028 Non-EU companies which meet the threshold for reporting will be required to report under the ESRS at a consolidated group level. 2028 financial year with reports published in 2029.

Q&A on Adopted ESRS

The Commission also released a Q&A document on the adoption of the ESRS. Key points include:

Materiality assessment process — As per the Commission’s consultation in June 2023, all disclosure requirements, with the exception of those under ESRS 2, are subject to a materiality assessment.

In the Q&A, the Commission stresses that these disclosure requirements are not voluntary, and there must be disclosure if information is material.

The standards require a robust materiality assessment to ensure the disclosure of all sustainability information necessary to meet the objectives and requirements of the amended Accounting Directive.

In particular, the Commission notes that if climate change is not considered a material topic, and therefore no disclosures are made under the climate standard ESRS E1, the undertaking is required to provide a “detailed explanation” of the materiality assessment and conclusions that led to the determination that climate change was not a material topic. This obligation reflects the Commission’s view of the “wide-ranging and systemic impacts” of climate change across the economy.

Some commentators have expressed disappointment that the Commission has opted to move away from the mandatory core sustainability disclosures, as proposed in the original drafts from EFRAG in which key climate disclosures such as Scope 1, 2, and 3 emissions were mandatory. The groups highlight the importance of assurance work to ensure that all material topics are included in the sustainability statements for increased reliability and comparability.

Guidance on the application of the ESRS EFRAG will periodically publish additional non-binding technical guidance on the application of the ESRS.

The Commission has suggested that EFRAG should prioritise guidance on the topics of materiality assessment and value-chains reporting. EFRAG expect to publish draft guidance on these issues for public consultation.

EFRAG will soon launch a portal for technical questions that companies or other stakeholders may have on the application of the ESRS.

The Q&A document contains further information on the ESRS, timeline of application, and alignment with global standards including ISSB.

Latham & Watkins will continue to monitor relevant sustainability reporting developments globally.


[1] The 12 ESRS that have been published include two cross-cutting ESRS (ESRS 1 General Requirements and ESRS 2 General Disclosures), and 10 topical ESRS (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, ESRS S1 Own Workforce, ESRS S2 Workers in the Value Chain, ESRS S3 Affected Communities, ESRS S4 Consumer and End-Users, and ESRS G1 Business Conduct).