At the end of 2022, we saw the achievement of two significant and symbolic milestones in the direction of the EU Green Deal:
  • In November, the publication by EFRAG of the first set of 12 draft European Sustainability Reporting Standards (ESRS) to the European Commission. The final standards are expected in June 2023 following adoption by the European Commission.
  • In December, the publication in the EU Official Journal of the Corporate Sustainability Reporting Directive (CSRD).
This new regulation will have widespread implications, as this will impact not only European entities but also non-European groups which have operations in the EU. Even though this regulation is “only” about reporting, it is designed to be a catalyst for change.
Hence, we can observe an increased level of awareness of all stakeholders globally and a steep acceleration of reporting and transformation projects.
This issue provides an overview of the content of those standards.
But stay tuned - this first set of sector-agnostic standards will be followed by three other sets expected over the upcoming years. They will address sector-specific requirements, of which four are to be published this year, in addition to a standard specific to SMEs.
Enjoy your reading.
Olivier Schérer
Partner PwC

Draft European Sustainability Reporting Standards


EFRAG has been given the mandate to develop the ESRS that will specify the content of the corporate sustainability reporting requirements. This is according to the Corporate Sustainability Reporting Directive (CSRD) published in the EU Official Journal on 16 December 2022 (here).
In November 2022, EFRAG delivered a first set of 12 draft European Sustainability Reporting Standards (ESRS) to the European Commission (here).
This first set of standards is sector-agnostic and includes two cross-cutting standards, applying to all sustainability matters, and ten topical standards covering environment, social and governance (see illustration below).
EFRAG's advice package consists of the following
12 draft ESRS (sector-agnostic standards)
Additional material
Cross-cutting Standards
Explanatory note, including its Annex, of how draft ESRS take account of the initiatives and legislation
Appendix I –Disclosure Requirements index
Appendix II–CSRD requirements for the development of sustainability reporting standards and their coverage by the draft ESRS
Appendix III–Datapoints in accordance with EU laws in the ESRS
Appendix IV –TCFD Recommendations and ESRS reconciliation table
Appendix V–IFRS Sustainability Standards and ESRS reconciliation table
Appendix VI–Acronyms and glossary of terms
12 standards
~350 pages
>80 DRs
>1000 Datapoints*
~20 templates
The advice package from EFRAG includes the cover letter, appendices and basis for conclusions (not yet published). This additional material has no authoritative status as it is not part of the standards.
The first set of standards shall be adopted as Delegated Acts by the European Commission before 30 June 2023. This will be followed by a scrutiny period by the European Parliament and the Council. If no objections are raised, the ESRS will be directly applicable to companies within the scope of the CSRD (our fifth edition of the EU Newsletter Sustainability Reporting here provides a comprehensive insight into the scope of the CSRD). In the intervening period, the European Commission will consult several EU authorities, such as ESMA (European Securities and Markets Authority) and expert groups.
Main changes compared to the ESRS exposure drafts
There were concerns expressed during the public consultation on the ESRS exposure drafts (EDs) ending in August 2022. This led to structural and content-related changes to the standards. Below is an overview of the changes that resulted in the first set of 12 draft ESRS.
There were concerns expressed during the public consultation on the ESRS exposure drafts (EDs) ending in August 2022. This led to structural and content-related changes to the standards. Below is an overview of the changes that resulted in the first set of 12 draft ESRS.
The re-deliberation process conducted by EFRAG significantly reduced the number and granularity of the disclosure requirements (DR). Phase-in provisions also provided reliefs, and the expected reporting burden should be lower than the proposals in the EDs. However, a significant part of the reduction is due to the merging and restructuring of sub-topics, DRs and datapoints. For example, the four separate DRs on GHG emissions included in the climate change ED were merged into one DR in the climate change standard (E1-6 - Gross Scopes 1, 2, 3 and Total GHG emissions). Despite the significant reduction and simplifications in reporting requirements and datapoints, the number of pages has only decreased by 11%. The ESRS still require comprehensive and detailed sustainability disclosures.
For more information on the main changes compared to the ESRS EDs, read our fifth edition of the EU Sustainability Reporting Newsletter here.

Cross-cutting standards

Overall architecture and interaction of standards
There are two cross-cutting standards:
  • ESRS 1 General requirements providing general guidance on the conceptual requirements of the CSRD and laying a foundation of general reporting principles.
  • ESRS 2 General disclosures providing DRs on general reporting issues, governance, strategy and business model and the double materiality assessment process of sustainability impacts, risks and opportunities.
The two cross-cutting standards define the basic architecture of future sustainability reporting, general reporting principles and transversal disclosures. They apply to all companies across all sustainability matters and interact with the topical standards for the Environment, Social and Governance (ESG) (see illustration below).
The previous three pillar structure of the ESRS EDs has been replaced by a new four pillar structure to enhance international interoperability: Governance, Strategy, Impact, risk and opportunity (IRO) management, and Metrics and targets. This is similar to the architecture of the TCFD and ISSB. All topical standards have been changed to mirror the new four pillar structure.
The first three reporting pillars ‘Governance’, ‘Strategy’ and ‘Impact, risk & opportunity (IRO) management’ are covered by ESRS 2 General disclosures. These should be assessed for the company as a whole. Each topical standard covers the policies and actions in the third reporting pillar 'Impact, risk & opportunity (IRO) management' and fourth reporting pillar 'Metrics & targets' on a topic/subtopic level. In addition, the topical standards refer back to ESRS 2 by providing additional focused DRs for the first three reporting pillars from a topical standpoint.
For example, ESRS E1 contains a topic-specific DR related to ESRS 2 and the Governance pillar (ESRS 2 GOV-3) requires the company to disclose whether the performance in incentive schemes of members of the administrative, management and supervisory bodies has been assessed against the GHG emission reduction targets.
ESRS 1 General requirements
ESRS 1 contains no DRs and sets out the general requirements that companies shall comply with when preparing and presenting sustainability- related information under the CSRD. This includes generally accepted reporting principles such as presenting comparative information, estimating under conditions of uncertainty and reporting errors in prior periods. Furthermore, ESRS 1 provides guidance on the application of the fundamental concepts of the CSRD like double materiality, reporting boundaries and value chain, as well as on the transitional provisions. Below are selected aspects in more depth.
Double materiality
The central CSRD concept is double materiality. This remains unchanged compared to the ESRS EDs. A sustainability matter is considered ‘material’ when it meets the criteria defined for impact materiality or for financial materiality or both, as illustrated below.
Revised materiality approach
The ‘rebuttable presumption’ has been removed compared to the ESRS EDs. This is when all DRs are presumed material unless the company has reasonable and supportable evidence to rebut this.
A materiality assessment must still be prepared but with a reduced scope since mandatory disclosures have been introduced. The mandatory disclosures that are to be reported irrespective of the outcome of the materiality assessment encompass:
  • The entire cross-cutting standard ESRS 2 General disclosures and the entire topical standard ESRS E1 Climate change.
  • Mandatory disclosures in cross-cutting and topical standards that emanate from relevant EU legislation, in particular the Sustainable Finance Disclosure Regulation (SFDR) (see ESRS 2, Appendix C).
  • For companies with 250 or more employees, the DRs S1-1 to S1-9 in ESRS S1 Own workforce.
EFRAG provides guidance on how to do a materiality assessment:
  • There is a mandatory list of topics to go through (see in E, S and G sections the list of mandatory topics)
  • The revised materiality approach has a list of sustainability matters to be included in the company’s materiality assessment (ESRS 1, Appendix B). See what needs to be included in the materiality assessment of the environmental, social and governance matters below.
  • There are criteria to assess if a topic is material from the double materiality perspective:
    • To assess impact materiality, for example the identification of actual negativei mpacts (determined by the severity of the impact) and potential negative impacts (determined by the severity and likelihood of the impact). During this process, the undertaking needs to engage with relevant stakeholders to understand the context in relation to its impacts. This includes its activities, business relationships, sustainability context and stakeholders. In addition, thresholds shall be adopted to determine the impacts to be covered in the sustainability statement.
    • To assess financial materiality, an undertaking needs to consider the existence of triggers of iality of these triggers. Those triggers that generate risks or opportunities that have a material influence (or are likely to have a material influence) on the undertaking’s cash flows, development, performance, position, cost of capital or access to finance over short-, medium- and long-term time horizons.
    • Impact materiality and financial materiality assessments are inter-related and the s shall be considered.
  • The revised materiality approach contains a set of mandatory DRs and datapoints, to be disclosed irrespective of the outcome of the materiality assessment.
For the remaining disclosures and entity and sector specific matters, there are specific provisions to identify the information to be reported in the event that a sustainability matter is material according to the company’s materiality assessment (see illustration below).
If a company concludes that a certain sustainability matter is not material and omits all the DRs in a topical ESRS, it is required to explain the conclusions of its materiality assessment for the matter.
If a company comes to the conclusion that a certain sustainability matter is material, all DRs and datapoints related to policies, actions and targets shall be disclosed. If the company has no policies, actions or targets for the material sustainability matter, the company shall disclose this and it may report a timeframe to have these in place, as these DRs and datapoints can not be omitted. In addition, all ESRS 2 topic-specific DRs included in the relevant topical standard shall be applied.
When reporting on metrics, the company may omit specific DR(s) or datapoint(s), if the company assesses those not to be material. In this case, such information is considered to be implicitly reported as not material for the company.
Value chain
Compared to the ESRS EDs the approach to the value chain has been simplified and refocused (see illustration below).
The reporting boundary would be based on the financial statements. It is expanded to cover material impacts, risks and opportunities related to the upstream (for example suppliers) and downstream (for example customers) value chain. This means that value chain information is not required for each disclosure, but only when specific provisions in the topical standards require it to do so. It is generally limited to material impacts, risk or opportunity, and most metrics only cover the company’s 'own operational' level. Exceptions to this can be found in ESRS E1 where value chain information is to be included for the disclosure of Scope 3 GHG emissions.
In addition, ESRS E1 foresees specific requirements for the assessment and disclosure of GHG emissions when a company has to apply the concept of 'operational control' to defining its value chain. If the company has operational control over an equity accounted entity (associate, joint venture or unconsolidated subsidiary) the full Scope 1 and 2 GHG emissions of this entity have to be included in the reporting company’s Scope 1 and 2 GHG emissions (see ESRS E1 paragraph 44). Operational control means that the company has the ability to control the operational activities and relationships of an entity and manage the GHG emission reduction.
The inclusion of value chain information may be postponed by three years, except for datapoints mandated by other EU regulation, ESRS 2 General Disclosure and ESRS E1 Climate change (see next page the section on 'Transitional provisions and phased-in disclosures').
Transitional provisions and phased-in disclosures
In order to support companies in the first years of implementation, transitional provisions have been introduced to various DRs and datapoints (see where they relate below).
ESRS 2 General disclosures
ESRS 2 contains the general disclosures that apply to all companies regardless of their sector of activity (sector agnostic) and apply across sustainability topics (cross-cutting).
The number of DRs has been reduced from 22 DRs in the ED ESRS 2 to 12 DRs in ESRS 2. The reduction is due to a reorganisation where several DRs have been merged and simplified. The entire ESRS 2 is to be applied by all companies irrespective of the outcome of the materiality assessment.
The structure of ESRS 2 has changed according to the revised four pillar structure. See an overview of the content of ESRS 2 below.

Topical standards (environment, social and governance)

Environment standards
The environment section has five standards relating to the environment. These are climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy.
The standards should be read in conjunction with the cross-cutting standards, ESRS 1 and ESRS 2, where the structure of the standards is based on the revised architecture with the four pillars. Each environment standard is also divided into four pillars mirroring the architecture of ESRS 2.
Here are overviews and some high-level quantitative metrics for each standard.
ESRS E1 Climate change
The importance of climate change is demonstrated by the fact that the application of ESRS E1 is mandatory for all companies irrespective of the outcome of the materiality assessment.
ESRS E1 became mandatory, as Scope 1, Scope 2 and Scope 3 (where relevant) were added to the information that companies are to disclose about environmental factors in the final text of the CSRD.
The structure of the ESRS E1 has changed according to the revised four pillar structure. See below an overview of the content of ESRS E1.
What are the metrics included?
It is important to note that each high-level metric can further be divided into additional metrics. Energy consumption and mix, for example, could be disaggregated into more detailed metrics.
ESRS E2 Pollution
The structure of ESRS E2 has changed according to the revised four pillar structure. See below an overview of the content of ESRS E2.
What are the required metrics?
ESRS E3 Water and marine resources
The structure of the ESRS E3 has changed according to the revised four pillar structure. See below an overview of the content of the ESRS E3.
What are the required metrics?
ESRS E4 Biodiversity and ecosystems
The structure of ESRS E4 has changed according to the revised four pillar structure. See below an overview of the content of ESRS E4.
What are the metrics included?
ESRS E5 Resource use and circular economy
The structure of ESRS E5 has changed according to the revised four pillar structure. See below an overview of the content of ESRS E5.
What are the metrics included?
Social standards
There are four social standards. Each standard addresses a specific type of stakeholder: the S1 standard is about the company’s own workforce, the S2 standard discusses its value chain workers, the S3 standard targets the communities affected by its operations and the S4 standard considers its consumers and end- users.
ESRS S1 Own workforce
The structure of ESRS S1 has changed according to the revised four pillar structure. See below an overview of the content of ESRS S1.
What are the metrics included?
ESRS S2 Value chain workers, S3 Affected communities and S4 Consumers and end-users
DRs contained in the ESRS S2, S3 and S4 are all the same and relate to the impacts, risk and opportunities management of the company. There are no quantitative metrics (or any template) for these standards as these indicators will be developed at the sector level.
The structure of the ESRS E3 has changed according to the revised four pillar structure. See below an overview of the content of the ESRS E3.
Governance standard
The public consultation revealed concerns on the governance ED as they went beyond sustainable governance. The final text of the CSRD was refined for the governance standards to consider only sustainability matters. The result was several DRs have been deleted, and others have been refocused to only cover sustainability matters.
The governance standards have been reduced to one standard: ESRS G1 Business conduct. It discusses the business conduct of the company, notably corruption, bribery and corporate culture. The standard has six DRs and includes several quantitative metrics.
The ESRS G1 should be read in conjunction with the cross-cutting standards, ESRS 1 and ESRS 2, where the structure of the standard is based on the revised four pillar architecture.
ESRS G1 Business conduct
The structure of ESRS G1 has changed according to the revised four pillar structure approach. See below an overview of the content of ESRS G1.
What are the metrics included?

Key comments from the opinion letters of the ESMA, EBA, EIOPA and ECB

As of February 2023, the following supervisory authorities released their opinion letters on the ESRS:
These European agencies broadly support the revised set of sustainability reporting standards and acknowledge the significant improvements, as compared with the initial draft standards issued for comment.
In particular, there is a common view that the proposed standards will allow a sufficient level of interoperability with international standards. It is also considered that they will promote and improve the quality of sustainability reporting.
However, these agencies have stressed the importance of providing additional guidance on materiality assessme t and emphasised the need for interpretative support and proper maintenance of the standards over time.

Next steps

The adoption of the first set of ESRS (cross-cutting and topical standards) by the European Commission is expected by 30 June 2023 through the Delegated Acts. The development of the second set of ESRS (sector- specific standards) is underway and the first drafts should be released for public consultation in April 2023. On the financial institutions side, due to resource constraints, the earliest some guidance (or the entire standards) can be enacted is June 2025 (Set 3, effective in 2026).
The final version of the CSRD was published in the EU Official Journal on 16 December 2022 and is available in all languages here. The CSRD will need to be transposed into the various national laws of the Member States of the European Union by 6 July 2024 (in practice, the CSRD is effective from 1 Jan 2024). Each Member State has the possibility to provide for national provisions that are more stringent than those provided for in the directive and/or to decide on the provisions left to the discretion of Member States.
You can find more information on the recent sustainability reporting initiatives in the EU and globally in our:
For a deeper insight into the CSRD, in particular into the CSRD provisions on scope and first-time application, for example:
  • Which companies are within the scope of the CSRD reporting requirements?
  • When is the first-time application for companies in scope?
  • Which type of standard is to be used for sustainability reporting?
  • Are companies within the scope of the CSRD reporting requirements also within the scope of Article 8 of the Taxonomy Regulation (Regulation (EU) 2020/852)?
  • Are there any specificities, such as exemption possibilities, that should be considered?
Refer to our FAQs 'What you need to know about the Corporate Sustainability Reporting Directive' on Viewpoint (here).

Regulatory update

Publication of Taxonomy Regulation FAQs

Non-financial companies in scope of the Taxonomy Regulation are required for the first time to report on Taxonomy-alignment for the financial year 2022. This is in relation to the environmental objectives, climate change mitigation and climate change adaptation. Building on prior year’s disclosures on eligibility reporting, companies have to indicate the extent their turnover, capital expenditure (CapEx) and operating expenditure (OpEx) are related to economic activities that are Taxonomy-aligned. That is activities that meet all technical screening criteria (substantial contribution, do no significant harm (DNSH) criteria, as specified in the Climate Delegated Act ((EU) 2021/21 9) and the minimum safeguards according to Article 18 of the Taxonomy Regulation ((EU) 2020/852).
On 19 December 2022, the European Commission (EC) published two additional frequently asked questions (FAQ) documents in the form of draft commission notices. One batch of FAQs includes 34 FAQs on the disclosure requirements (here) that are specified in the Disclosures Delegated Act ((EU) 2021/2178). The other batch dedicates 187 FAQs to the technical screening criteria (here) listed in the Climate Delegated Act. These publications complement the documents published in December 2021 and February 2022 (publication in the Official Journal of the EC on 6 October 2022). The information given by the EC in the FAQ-documents serve as clarification of the applicable legal provisions. They are not legally binding and do not extend the rights and obligations arising from the Taxonomy Regulation. The FAQ will be translated into all official languages of the EU and subsequently published in the Official Journal. The documents currently still marked as drafts are considered formally adopted with this publication. Based on the commission notice of February 2022, no changes to the content are expected as part of this process.
The scope of the documents illustrates the considerable need for interpretation of the Taxonomy Regulation and the delegated regulations. The high number of FAQs also gives an indication of the extensive feedback from practitioners provided to the EC. These extensive clarifications were published very late in the current reporting period. Companies should not delay in dealing with the FAQs and compare their approaches and interpretations with the explanations given by the EC.

Latest updates from the ISSB, GRI and SEC

The ISSB held a few board meetings these past months regarding its draft sustainability standards (here), IFRS S1 and IFRS S2. Some of the key proposals, recommendations and decisions include:
  • Draft IFRS S1 (General Sustainability-related disclosures)
    • Expanding and clarifying aspects of the illustrative guidance to help entities identify sustainability-related risks and opportunities, as well as material information about those risks and opportunities.
    • Adding an exemption that would permit entities, in limited circumstances where information is not already publicly available, to exclude information about sustainability-related opportunities when the information is commercially sensitive.
    • Companies may consider ESRS as a source of guidance, in the absence of a specific ISSB standard, to identify metrics and disclosures if they meet the information needs of investors.
  • Draft IFRS S2 (Climate-related disclosures)
    • Removing the requirement for an entity to disclose its Greenhouse Gas (GHG) emissions intensity and not explicitly requiring an entity to disaggregate its GHG emissions by constituent gases.
    • Adding specific reliefs for an entity Scope 3 GHG emissions.
  • Adding the concept of ‘reasonable and supportable information available at the reporting date without undue cost or effort’. This is information that can help an entity provide clarity on the application of certain disclosure requirements.
  • Clarifying that an entity is required to provide quantitative and qualitative information about the current and anticipated effects of sustainability- related risks and opportunities on the entity’s financial position, performance and cash flows. If the entity is unable to provide quantitative information, it is still required to provide qualitative information.
  • Requiring an entity to consider its degree of exposure to climate-related risks and opportunities. The entity needs to consider the skills, capabilities and resources it has available when determining an approach to climate-related scenario analysis. This is in line with the stages of progression approach from the Task Force on Climate-Related Financial Disclosures (TCFD).
  • The standards are expected to be issued at the end of Q2 2023, and to become effective as of January 2024.
  • Next steps: the board will consult on a series of issues, including reporting on biodiversity, human capital, human rights, and the connectivity between financial and sustainability reporting.
The Universal Standards 2021 (here) from the Global Reporting Initiative (GRI) are now effective starting 1 January 2023. The GRI sustainability reporting standards set the highest level of transparency for impacts on the environment, economy and society. The standards were revised in 2021 to include full alignment with the due diligence set out in intergovernmental legislations on sustainability impacts.
We still await news of the finalisation of the United States Securities and Exchange Commission (SEC) rule regarding climate-related disclosures - we currently expect it to be released in March 2023. The SEC also intends to issue a final rule on the disclosure of cybersecurity incidents, as well as a proposal on human capital management disclosures in the first half of 2023.
For more information, read our Global Sustainability Reporting Newsletters here.

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