CSRD and ESRS: Your questions answered
Double materiality
What is the best approach to assess the double materiality aspects of my company? Are there any methodologies you could recommend? Is there a specific framework/template for the double materiality assessment?
The ESRS require you to assess the materiality of each prescribed sustainability matter (and any sector- or entity- specific sustainability matters that are not already prescribed by the ESRS).
Materiality is assessed across two independent dimensions:
- Impact materiality: The impact the company has on people and the environment
- Here impacts are the units of analysis
- Impacts are assessed in terms of their severity and their likelihoods
- Severity in-turn is calculated based on assessments of the underlying criteria: scale, scope and irremediability
- Financial materiality: The anticipated financial effects that could affect the company itself.
- Here, risks and opportunities are the units of analysis
- Risks and opportunities are assessed in terms of (i) the size of the financial effects in the business (measured in terms of currency) and (ii) the likelihood of their occurrence.
Each company has the liberty to define their own methodology for the double materiality assessment, however, the process must fulfill the requirements prescribed by the standards. Companies may invoke their own scoring formulas and thresholds but these should be described for transparency and traceability. They must describe their process and it must be done in a manner that is consistent with the ESRS requirements including the application of appropriate thresholds and documenting the rationales for each assessment
The use of the right tools for documentation is a key success factor. We recommend that companies approach their first ESRS-style double materiality assessment with the support of expert advisors, who can also educate and equip them to run the process themselves in the future
Is the double materiality assessment a good starting point?
The double materiality assessment is a best first step for companies to begin their journey towards compliance with the CSRD. It will set the frame for which topics the company will need to report on and it will enable companies to omit the topics that are not material. This will then make the exercise of doing a gap analysis more efficient. The gap analysis using Position Green’s support will provide the basis by which to develop a CSRD-compliance action plan. Furthermore, the examination into material impacts, risks and opportunities will form the foundation for a clear sustainability strategy.
Reporting requirements
Will it be mandatory for the sustainability report to be integrated in the management report? Do the adopted CSRD/ESRS say exactly how the information should be presented and structured in the report?
Yes, the report shall be published as part of the management report and the company shall report all the applicable disclosures required by ESRS within a single section of the management report in the form of a sustainability statement.
The sustainability statement shall be structured in the following way:
- General information
- Environmental information (including environmental objectives defined in the Taxonomy Regulation)
- Social information
- Governance information
The EU taxonomy report shall be included in the sustainability statement and be separately identifiable.
Information could also be included by referring to other parts of the corporate reporting. However, this is limited to the following reporting elements: another section of the management report; the financial statements; the corporate governance report (if not part of the management report); the remuneration report required by the Shareholders Right Directive and public disclosures under the Capital Requirements Regulation, Pillar 3 (credit institutions) and the Solvency II directive (insurance).
When the CSRD takes effect, the materiality assessment will dictate the contents of Sustainability Statements in the Management Report.
How does the timeline apply to companies whose fiscal year is not aligned with the calendar year, e.g. ending 31 March, 30 June or 30 September?
For companies with fiscal years ending on dates other than 31 December, the spirit of the original timeline still applies. They will be expected to report the results within six months of the end of their financial year, if it ends on or after the end of the respective calendar year in which they would have been subject to compliance.
- Example 1: Company ABC is a large enterprise that is to implement the CSRD when reporting their 2025 results. Their fiscal year ends on 31 March. As such, they will be expected to comply with the CSRD when reporting their 2025 full-year results within the six-months period following 31 March 2026.
- Example 2: Company XYZ is a listed SME and is to adhere to the CSRD when reporting their 2026 results. Their fiscal year ends on 30 September. As such, they will be expected to comply with CSRD when reporting their 2026 full-year results within the six-month period following 30 September 2027.
Disclosure requirements, data points and gap analysis
How many disclosure requirements and data points are mandatory?
According to the adopted ESRS published July 2023, only the General Disclosures (ESRS 1 and ESRS 2) are mandatory for all companies. The remaining topical standards will depend on the results of each companies’ respective double materiality assessments.
Furthermore, companies will continue to need to disclose any other sustainability-related data points that are required by other EU or national legislation which companies may be subject to (ESRS 2 Appendix C provides a list of the ESRS data points that are attributed to other EU legislation).
Do the ESRS (mandatory disclosure requirements) link to the PAIs (Principal Adverse Indicators) of the SFDR?
Yes, several of the data points in ESRS 2 Appendix C: List of data points in cross-cutting and topical standards that are required by EU law are directly linked to the SFDR PAI indicators.
How do you get started with a gap analysis?
We recommend that our clients implement Position Green’s ESRS reporting software to conduct an examination of their current information availability and quality vs. the ESRS requirements. This gap analysis will provide a transparent overview of all the gaps between their current situation and where they will need to be for full compliance with the ESRS. This overview creates a common understanding of the scale and scope of work required to achieve compliance and serves as a basis for developing an action plan for CSRD-compliance. This exercise is best conducted by an internal task-force of sustainability subject matter experts with additional support and analysis provided by Position Green Advisory.
Relationships to other standards: GRI, ISSB, TCFD, SFRD, CSDD, EU Taxonomy & SEC proposal
How are the ESRS similar to GRI? To what extent will the CSRD and ESRS overlap with GRI?
The ESRS have been informed by leading sustainability reporting standards including Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI). In particular, some principles in relation to impact materiality have been influenced by the GRI. GRI published their own Q&A covering this question in detail. During 2023, GRI will also publish a technical guidance document for interoperability between GRI and the ESRS.
Will the ESRS now become the integrated sole standard as opposed to the existing frameworks of GRI, SBTi etc.? If so, what will happen to the GRI Standards?
Within Europe, it is expected that the ESRS will come to replace many of the aspects of the GRI Standards and other frameworks. However, some companies may report in line with multiple standards for a period of time, especially in the case of industry-specific or entity-specific standards that do not fit well into the ESRS framework.
Outside of Europe, other government-driven standards may emerge over time and many of these may be influenced by the ESRS, especially since foreign-domiciled entities with a material presence in the EU will need to comply with the CSRD by 2028. However, it is entirely plausible that some governments may choose to develop standards that are significantly different from ESRS and that foreign companies may continue to use legacy standards frameworks.
General information
Where can I find the CSRD and ESRS? Are they available now?
You can find the latest revisions of the CSRD and ESRS under the following links:
- ESRS – European Sustainability Reporting Standards
- CSRD – Corporate Sustainability Reporting Directive
