European Commission adopts the European Corporate Sustainability Reporting Standards

On 31 July 2023, the European Commission (the “Commission”) announced (here) its adoption of Delegated Regulation (here) containing European sustainability reporting standards (the “ESRS”) for use by all European companies subject to the Corporate Sustainability Reporting Directive1 (the “CSRD”).


The CSRD, which came into effect in January 2023 and must be transposed by Member States by July 2024, requires in-scope companies to report sustainability information in accordance with sustainability reporting standards adopted by the Commission. Our briefing on the CSRD can be found here.

The European Financial Reporting Advisory Group (the “EFRAG”), which was appointed by the Commission to assist in developing the ESRS, formally submitted draft ESRS to the Commission in November 2022. After considering EFRAG’s draft standards, the Commission published draft Delegated Regulation in June 2023 and launched a four-week consultation period.

The consultation period ended on 7 July 2023, and the Commission has now adopted Delegated Regulation which sets out the final form of the ESRS. The ESRS will be supplemented in the future to provide for sector-specific disclosures, as well as a simplified disclosure standard that can be used by SMEs. The ESRS will also be subject to formal review by the European Commission every three years, taking into account technical advice to be provided by EFRAG.

Application of the ESRS

The ESRS will help investors to understand the sustainability impact of the companies in which they invest.  There are 12 ESRS, covering the full range of sustainability issues, comprised of two cross-cutting standards (ESRS 1 and ESRS 2) and 10 topical standards.

  • ESRS 1 General requirements
  • ESRS 2 General disclosures
  • 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 Consumers and end-users
  • ESRS G1 Business conduct

Notably, when compared to EFRAG’s draft ESRS, the final form ESRS published by the Commission provide greater flexibility for companies to decide what information is “material”, and should therefore be reported, although this has proven controversial (see below).

The Commission has stated that its final form Delegated Regulation reflects discussions with the International Sustainability Standards Board (“ISSB”) and the Global Reporting Initiative (“GRI”), and is aimed at ensuring a high level of alignment between EU and global standards to prevent unnecessary double reporting by companies that operate globally.


The publication of the final form ESRS gives in-scope companies some welcome clarity with respect to the general ‘sector agnostic’ reporting obligations they will be subject to under CSRD. One of the main features of CSRD and the ESRS is the focus on the ‘double-materiality’ perspective, which obliges companies to report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for the company.

However, since publication of the draft ESRS in June, the Commission has been heavily criticised for changing the approach taken by EFRAG, by making all topical standards and individual disclosure requirements, and datapoints within them, subject to a materiality assessment (the only mandatory disclosures are those contained in the cross-cutting ESRS 2 general disclosure standards). A statement issued jointly by the European Fund and Asset Management Association (“EFAMA”), the European Sustainable Investment Forum (“Eurosif”), the Institutional Investors Group on Climate Change (“IIGCC”), the PRI and the United Nations Environment Programme Finance Initiative (“UNEP FI”), as well as ninety-two investors and financial market participants, following the initial publication of the draft ESRS in June, expressed the view that the Commission’s proposed standards represented “a significant rollback of ambition”, compared to earlier recommendations by EFRAG, which “would limit investor access to the consistent, comparable and reliable information needed to inform decisions and allocate capital in line with sustainability goals.”

Many commentators also pointed out that sustainability reporting standards, recently finalised by the International Sustainability Standards Board (the “ISSB”) (here), require mandatory disclosure of certain information (such as greenhouse gas emissions) even though those standards only oblige companies to report on a single (financial) materiality basis.

The European Commission has stressed that disclosure requirements subject to materiality are not voluntary. The information in question must be disclosed if it is material, and the undertaking's materiality assessment process is subject to external assurance. In addition, specifically in relation to climate change, the Commission’s final form ESRS provide that if a company concludes that climate change is not a material topic and therefore does not report in accordance with that standard, it has to provide a detailed explanation of the conclusions of its materiality assessment with regard to climate change. This requirement reflects the fact that climate change has wide-ranging and systemic impacts across the economy.

However, it seems clear that the integrity of the materiality assessment exercise carried out by companies and the external assurance of that process will play an outsized role in determining whether the new ESRS achieve their goal of ensuring that companies make meaningful, consistent and comparable disclosures under the new CSRD regime or if the inconsistency and subjectivity of each company’s (and auditor’s) approach will undermine the new reporting regime from the outset.

  1. Directive (EU) 2022/2464.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.