Key features of ESRS

• Double materiality refers to two dimensions of materiality – ‘financial’ and ‘impact’.
• Companies will need to perform materiality assessments for both dimensions and report matters that are material in either dimension for all sustainability-related topics.

• ESRS require disclosures on material impacts, risks and opportunities across a broad range of environmental, social and governance topics. 
• Following a materiality assessment, companies need to ensure they have the data, processes and expertise to report on topics that may be new to them, such as biodiversity or the circular economy.

• Companies need to clearly set out their governance of how they address sustainability-related topics, including how sustainability key performance indicators (KPIs) affect remuneration. 

• Companies in scope will prepare a sustainability statement including the disclosures required by the ESRS as part of their management report, published at the same time as the financial statements.
• It will be challenging for many companies to gather data in time.

• The standards require companies to identify and report on impacts, risks and opportunities from across the value chain.
• Companies need to understand how this feature will impact their reporting and data gathering, even though the extent of data required from the value chain has reduced since the original drafts, and phase-in reliefs are available.

• Companies need to be ready for the transparency of providing granular disclosures about their policies, action plans and targets across all material topics. 
• While the standards themselves do not require companies to put in place new targets or implement new policies, the standards will bring greater visibility and scrutiny of their plans. Undertaking an implementation project therefore represents an opportunity to identify and address areas where companies are less mature than they would want to be.

• Companies need to be prepared for disclosures to be subject to assurance. 
• This will require a clear audit trail and documentation of processes and controls to support the disclosures provided.

Under the first set of ESRS, only ESRS 2 General disclosures includes mandatory disclosure requirements. A list of mandatory disclosure requirements (i.e. disclosures not subject to materiality assessment) has been removed, in particular related to ESRS E1 Climate change and ESRS S1 Own workforce. They are now all subject to a materiality assessment. However, when companies conclude that ESRS E1 is not material, they will provide a detailed explanation of their conclusion. 

Financial companies need certain datapoints to meet disclosure requirements under other EU law, for example SFDR³. If companies conclude that such datapoints are not material, then they need to make an explicit statement for each datapoint.

EFRAG² is currently developing additional guidance on how companies can perform the double materiality assessment. 

To give companies, especially smaller companies, more time to implement the data collection and reporting processes, the first set of ESRS introduces relief measures for one, two or three years. 

All companies, regardless of size, may opt out of disclosing the expected financial impacts related to risks from environmental issues for the first year of reporting. Companies can provide qualitative disclosure only on these financial impacts for a further two years.

Additionally, certain disclosures related to own workforce (social protection, people with disabilities, work-related illnesses and work-life balance) can be omitted in the first year of reporting.

Companies with less than 750 employees may also omit:

• the disclosure of Scope 3 greenhouse gas emissions (ESRS E1) and other disclosures on their own workforce (ESRS S1) in the first reporting year; and
• the disclosures on biodiversity (ESRS E4 Biodiversity and ecosystems), workers in the value chain (ESRS S2 Workers in the value chain), affected communities (ESRS S3 Affected communities) and consumers (ESRS S4 Consumers and end-users) in the first two reporting years.

Some data points were labelled as voluntary in the drafts prepared by EFRAG. The EC has made additional disclosure requirements or data points voluntary, for example:

• biodiversity transition plans;
• certain indicators on 'non-employees' in the company's workforce; and
• an explanation of why the company has deemed a particular sustainability topic (i.e. the disclosure requirements of a topic-specific standard as a whole) to be non-material.