ESRS – Definition & Explanation of ESG Reporting Standards
The ESRS (European Sustainability Reporting Standards) constitute the mandatory EU framework for corporate sustainability reporting under CSRD regulations, effectively defining ESG compliance expectations for SME suppliers.
ESRS – Definition & Explanation
ESRS (European Sustainability Reporting Standards) are unified European standards for sustainability reporting, developed under the framework of the CSRD (Corporate Sustainability Reporting Directive). They define detailed requirements on how companies must conduct their ESG reporting, covering their environmental, social, and governance impacts as well as associated financial risks.
The Role of ESRS in the EU Green Deal
ESRS forms the technical backbone of Europe's transparency initiative. While the CSRD determines which companies are subject to reporting, the ESRS prescribes how they must report. The objective is to make sustainability data as comparable and reliable as traditional financial reporting.
Why ESRS is Relevant for Non-Obligated SMEs
Although the comprehensive ESRS requirements primarily target large, capital-market-oriented enterprises, SMEs face direct consequences:
Supply Chain Pressure: Large corporations require supplier ESG data (often from SMEs) for their own ESRS disclosure, particularly regarding Scope 3 emissions
Banking & Finance: Financial institutions increasingly request sustainability data aligned with ESRS logic to calculate Green Asset Ratios
Competitive Advantage: Companies proactive in ESG reporting position themselves as reliable partners in global value chains
Structure of the Standards
The ESRS framework is divided into three categories:
Cross-cutting Standards: ESRS 1 and ESRS 2 form the mandatory foundation for all reporting entities
Topical Standards: Environment (E1–E5: climate change, water, circular economy), Social (S1–S4: own workforce, value chain workers), and Governance (G1: business conduct)
Sector-specific Standards: Currently under development for high-impact sectors
The Double Materiality Principle
ESRS-compliant sustainability reporting requires the analysis of two perspectives:
Impact Materiality: The company's external impact on people and the environment (inside-out perspective)
Financial Materiality: Sustainability risks and opportunities affecting the company's financial performance (outside-in perspective)