The journey toward the European Sustainability Reporting Standards (ESRS) reflects the European Union’s growing commitment to transparent and standardized sustainability reporting. Over the past decade, the EU has moved from loosely defined non-financial disclosures to a structured, enforceable sustainability reporting regime — with ESRS at its core.
The EU’s first step towards formal sustainability reporting came with the Non-Financial Reporting Directive (NFRD, 2014/95/EU). It required large public-interest entities to disclose ESG-related information but allowed wide flexibility in how reports were structured and what frameworks were used. While the NFRD promoted transparency, its effectiveness was limited by inconsistent implementation, weak enforcement, and a lack of comparability across companies and sectors.
To address these gaps, the EU adopted the Corporate Sustainability Reporting Directive (CSRD; Directive (EU) 2022/2464). This directive significantly broadens the scope of companies subject to reporting, strengthens disclosure obligations, and introduces mandatory assurance of sustainability information. Companies must now publish a standardized sustainability statement, integrated into their annual management report. The CSRD came into force on 5 January 2023, with reporting requirements starting for financial year 2024 and first reports due in 2025.
To implement CSRD’s requirements, the European Sustainability Reporting Standards (ESRS) provide detailed and binding disclosure rules. Adopted via Delegated Regulation (EU) 2023/2772, the ESRS were formally approved by the European Commission on 31 July 2023, published in the Official Journal on 22 December 2023, and became effective from 1 January 2024.
The ESRS was created to ensure that companies report comprehensively, transparently, and comparably on environmental, social, and governance aspects. The standards underpin Europe’s Green Deal and net-zero ambitions, aiming to increase investor trust and align with EU sustainability policies. The wider goals are to drive sustainable finance, create a level playing field, and reinforce the integration of sustainability into EU business models. A core principle of ESRS is double materiality:
Financial materiality: How sustainability matters affect the company’s financial value.
Impact materiality: How the company’s operations impact people and the planet.
For example, a chemical manufacturer must assess the financial impact of water pollution risk, while also disclosing the broader environmental harm on local ecosystems—a dual lens on risk and responsibility.
The ESRS is organized into three categories:
These apply across all sustainability topics: ESRS 1: General Requirements - Reporting principles - Materiality assessment - Value chain coverage - Double materiality approach ESRS 2: General Disclosures - Governance, strategy, impact, risk and opportunity (IRO) management - Metrics and targets
These cover specific sustainability topics, divided into three pillars: a. Environment (E) - 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 b. Social (S) - ESRS S1: Own Workforce - ESRS S2: Workers in the Value Chain - ESRS S3: Affected Communities - ESRS S4: Consumers and End-users c. Governance (G) - ESRS G1: Business Conduct
- These will tailor disclosures to specific industries (e.g., banking, agriculture, energy). - Still under development (as of 2025).
Entities in scope: - Large EU companies meeting at least two: >250 employees, €40M turnover, €20M assets. - All listed companies (except micro-enterprises). - Non-EU companies with substantial EU operations (€150M+ revenue, plus subsidiary/branch presence). Timeline and Reporting Roadmap
Phase | Applies to | Table Head |
|---|---|---|
| Jan 2024 (first reports 2025) | Large public-interest entities (500+ employees, NFRD-covered) | 2025 |
| Jan 2025 (first reports 2026) | Large companies not previously covered | 2026 |
| Jan 2026 (first reports 2027) | Listed SMEs (with opt-out until 2029) | 2027 |
| Jan 2028 (first reports 2029) | Non-EU companies with significant EU turnover | 2029 |
The European Sustainability Reporting Standards (ESRS) present several significant challenges for companies preparing to comply:
Gathering accurate, consistent ESG data across global operations and supply chains is complex and often unreliable.
Assessing both financial and impact materiality requires new skills, cross-team input, and stakeholder engagement.
ESRS demands embedding sustainability into strategy, risk, governance, and executive pay, often requiring cultural change.
Preparing for mandatory third-party assurance means stronger data controls, audit trails, and system upgrades.
High disclosure granularity drives costs in systems, training, consultants, and ESG hires especially for SMEs.
Companies face pressure to comply quickly while managing ongoing business and regulatory scrutiny.
Companies should perform early gap analyses of current disclosures, data infrastructure, and sustainability strategy versus ESRS requirements. This reduces the risk of late-stage surprises and regulatory non-compliance.
Embedding double materiality and sustainability into overarching business strategy, governance, and risk management enables organizations to create lasting stakeholder value and proactively identify opportunities for value creation.
Automation, centralized data platforms, and supply chain digitalization are critical to ensuring reliable, assured, and scalable ESRS reporting.
Ongoing training and ESG upskilling, from board level to operational teams, are essential for effective implementation, audit readiness, and adaptation to evolving regulations.
Proactive engagement with investors, suppliers, workers, and affected communities is necessary for both robust impact assessments and authentic reporting.
Cognitud understands the complexities of implementing the European Sustainability Reporting Standards (ESRS) and meeting CSRD requirements. As experienced sustainability consultants and ESG consultants, we provide end-to-end support guiding organizations through the full sustainability reporting journey—from readiness assessments and double materiality analyses to developing ESRS-aligned reporting frameworks.
We help clients identify material topics, close data gaps, and integrate sustainability into core business strategies. As a trusted environmental consulting firm, our team works closely with executives to build reliable ESG data systems, define KPIs, and automate data collection to meet assurance standards.
Through customized training and change management, we equip leadership and teams to navigate evolving regulations with confidence. We also drive stakeholder and value chain engagement to strengthen transparency and reporting quality.
By staying ahead of regulatory updates and industry best practices, we ensure clients not only achieve compliance but also unlock the strategic value of sustainability. At Cognitud, we turn regulatory challenges into opportunities for growth, trust, and long-term resilience.
Abhigyan Gupta
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ESRS (European Sustainability Reporting Standards) are a set of mandatory ESG reporting standards developed by EFRAG. They define how companies under the CSRD must report on environmental, social, and governance (ESG) issues. ESRS ensures consistent and comparable sustainability disclosures across the EU.
The ESRS are technical standards that provide detailed guidance on what sustainability information companies must disclose. They support the EU’s CSRD and cover topics like climate, biodiversity, labor practices, and governance. The goal is to improve transparency and combat greenwashing.
ESRS sustainability refers to reporting ESG-related risks, impacts, and opportunities in line with ESRS requirements. It uses a double materiality lens—focusing on both how sustainability affects the business and how the business impacts people and the planet.
Twelve ESRS standards are mandatory from 2024, including: • 2 General (ESRS 1 & 2) • 5 Environmental (E1–E5) • 4 Social (S1–S4) • 1 Governance (G1) Sector-specific standards are expected in future phases.
CSRD is the EU law mandating sustainability reporting; ESRS are the detailed standards that explain how to report. Think of CSRD as the “what” and ESRS as the “how.” All companies under CSRD must use ESRS for compliance.
