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The First Set of EU Sustainability Reporting Standards: Should you already use it or not?

Published: 13-02-2023

The legislative environment for large entities has been experiencing waves of change over recent years. Unfortunately, it is not smooth sailing quite yet.

In November 2022 the first draft of the European Sustainability Reporting Standards (ESRS) [1] was published by the European Commission comprised of additional and specific disclosure requirements for financial institutions and corporations. These disclosure requirements support the transparency and unification on sustainability reporting of entities.  See also the figure below on the ESR-Standards. 



Being the most recent EU legislation in sustainability reporting standards, the ESRS aims to provide clarification on promoting ESG standards throughout the operation and value chain of a company. This draft is an elaboration on the Corporate Sustainability Reporting Directive (CSRD) [2] and is also related to the Sustainable Finance Disclosure Requirements (SFDR) [3], the European Taxonomy Regulation [4], and others that are applicable throughout the EU. While the aforementioned legislations are relevant to this discussion, it is important to note they are not the exclusive measures regarding sustainability and transparency for reporting entities. Please refer to our previous article for further insight into these measures [5].  



EU transparency on sustainability requirements for financial and non-financial parties 






Financial market participants offering investment products and financial advisors 


Disclosure of sustainability risks and principle adverse impacts at entity and product level 

From 10 March, 2021 

Taxonomy Regulation 

Financial market participants and all companies covered by the CSRD 

Turnover, capital, and operating costs of its products or activities related to the Taxonomy 

From 1 January, 2022 


All large EU companies and all listed companies (except listed micro companies) 

Reporting based on formal reporting standards and subject to external audit 

From 1 January, 2024 


Phased reporting for listed large EU companies from the CSRD and SMEs 

Required elements and methods of preparing and presenting sustainability-related information  

Currently stated to adopt as delegated acts on 30 June, 2023. Expected applicability from 1 January, 2024  



Even though these ESRS standards provide deeper granularity, there are discrepancies between previous legislation, such as the EU Taxonomy, or the SFDR, and the first set of ESRS. Following the regulations and directives themselves, in addition to noting the opinion of the European Securities and Markets Authority (ESMA), additional clarifications are needed in the form of more elaborate reporting, further definitions, and/or omitting information to reduce misinterpretations. ESMA released their review on the standards on 26th of January 2023 [7], notably complimenting the comprehensive nature and complexity the ESRS addresses; nonetheless, also urging the Commission to address some deficiencies.  


How does this impact sustainability reporting?  

The fact that all these regulations are related, is why alignment and clarification is crucial for the unification of reporting throughout the Union, and to increase the ability to understand the sustainability reports of reporting companies. The CSRD states prior to 30 June, 2023 the Commission should adopt the ESRS legislation; however, the ESMA is recommending additional development of the legislation prior to its application [7]. A more feasible option may be a phased approach from the Commission to allow for amending the minor alterations before June, and allowing more time for the consideration of bigger discrepancies before the official adoption of the ESRS by the Commission.  

It is important the Commission addresses the various inconsistencies in order to enhance the transparency and harmonization across the EU, reducing the risk of misinterpretation. A few examples of ESMA’s critiques are [7]: 

  • When reporting directives are implying different disclosures due to phrasing, such as shall consider as stated throughout some ESRS topics, when previous legislation has stated it mandatory to disclose such information, it can be easily misunderstood as to which document takes priority.  
  • When reading the ESRS’s, it can be interpreted that the elements of Article 8 of the Taxonomy Regulation should be included in the materiality assessments. This means then, undertakings may omit elements of Article 8 Taxonomy Regulation due to non-materiality, which is not in line with the aforementioned article.  
  • Another issue regarding the materiality assessments is how to apply the materiality concept for the 'always-to-be-disclosed' disclosure requirements, versus not leaving information out of reports. In this materiality approach the disclosures may lead to less detailed information due to the assessment, but not leaving out information due non-materiality.  
  • There is also a lack of clarity on the disclosure transition timeline presented in ESRS 1 General Requirements, in comparison to the Accounting Directive [6] which currently mentions reporting timelines, leading to potential variance at the start of the application process. These different reference points cause potential different start dates on reporting based on the interpretation of either directive. 
  • Several Social topics of the ESRS’s are only applicable to undertakings with more than 250 employees. There is not substantial support of why these sections should be treated with more discretion than the other Social standards. ESMA therefore is recommending the clear separation of disclosures that are always mandatory versus those that are not, and ultimately advising the removal of the 250-employee threshold since it is not appropriate in this context.  


These are important examples of the clarification and adjustments still needed from the Commission prior to successful application. 


What’s next?  

The European Financial Reporting Advisory Group (EFRAG) is working on further development of ESRS while ESMA continues to advise and provide explicit recommendations on enhancing interpretation and application of the existing standards. Currently, the first draft of the ESRS is expected to be altered to accommodate the recommendations from the various expert groups. While it is important to watch for the 30th of June, this set of ESRS documents provides broadly consistent information regarding sustainability related legislation and is overarchingly capable of delivering the intended outcomes. The advice EFRAG collects will enable better understanding from undertakings through reducing discrepancies, omitting unnecessary disclosures, and adding additional reporting where needed to overall increase the consistency and successful implementation of the sustainability standards.    

Although the ESRS standards are not final yet, we recommend entities to start with an impact analysis and the necessary materiality assessments to determine the materiality of ESG elements on the entity. Waiting until the publication of the final ESRS standards reduces the time available to comply with the CSRD and ESRS reporting standards which often comes at the expense of the quality of the reporting. 


For more information on this topic, please contact Miranda Haak (





[1] First Set of draft ESRS - EFRAG  

[2] CSRD - Corporate Sustainability Reporting Directive 

[3] SFDR - Sustainable Finance Disclosure Regulation 

[4] EU Taxonomy Regulation 

[5] New Strategy for Sustainable Finance – What are the interactions with the SFDR, CSRD, and Taxonomy Regulation? 

[6] Accounting Directive 2013/34/EU of the European Parliament and of the Council. *This Directive is being changed by the CSRD. 

[7] ESMA Opinion  of 26 January 2023 on the technical advice by the European Financial Reporting Advisory Group on European Sustainability Reporting Standards (Set 1)