ESRS Delegated Acts Finalized: What Changed and Why It Matters

What the Finalization of ESRS Means

The European Commission adopted the European Sustainability Reporting Standards (ESRS) as a delegated act in July 2023. The standards were published in the Official Journal of the EU on December 22, 2023, as Commission Delegated Regulation (EU) 2023/2772, giving them legal force (European Commission, 2023a).

This regulation forms the implementation layer of the Corporate Sustainability Reporting Directive (CSRD, Directive 2022/2464). While CSRD answers the question of "who reports and when," ESRS answers "what to report and how" (European Parliament and Council, 2022).

From EFRAG Draft to Final Text: Key Changes

The European Financial Reporting Advisory Group (EFRAG) submitted its ESRS draft to the Commission in November 2022. The finalized text diverges from that draft in several important ways:

Materiality-Based Flexibility

The EFRAG draft treated some disclosure requirements as mandatory regardless of context. In the final regulation, nearly all standards are subject to a double materiality assessment. A topic only needs to be reported if it is material to the company.

Exceptions:

• ESRS 2 (General Disclosures): Mandatory for all companies — exempt from the materiality assessment
• ESRS E1 (Climate Change): If a company determines climate is "not material," it must provide a detailed explanation of why

This change aims to reduce the reporting burden for smaller companies. However, claiming "climate is not material" triggers a significant justification obligation.

Phase-in Provisions

The final ESRS introduces transitional periods for several topics:

Streamlining of Data Points

EFRAG's initial draft contained approximately 2,000 data points. The Commission process did not reduce the total number, but made the vast majority conditional — tied to the double materiality assessment. The number of unconditionally mandatory data points was significantly narrowed.

Double Materiality: The Core ESRS Approach

ESRS adopts the principle of "double materiality," evaluating sustainability matters from two perspectives:

• Impact materiality: The actual or potential effects of the company's activities on people and the environment
• Financial materiality: The actual or potential effects of sustainability matters on the company's financial position, performance, and cash flows

A matter must be reported if it is material from either perspective. This approach is the defining feature that distinguishes ESRS from IFRS S1/S2, which focus solely on financial materiality (EFRAG, 2023).

Structure of the Standards

ESRS is organized in a modular architecture comprising 12 standards:

Cross-Cutting Standards:

• ESRS 1 — General Requirements
• ESRS 2 — General Disclosures (mandatory for all companies)

Environmental Standards:

• 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

Social Standards:

• ESRS S1 — Own Workforce
• ESRS S2 — Workers in the Value Chain
• ESRS S3 — Affected Communities
• ESRS S4 — Consumers and End-Users

Governance Standard:

• ESRS G1 — Business Conduct

Implementation Timeline

The CSRD's phased rollout determines when ESRS applies to which companies:

Listed SMEs have the option to opt out until fiscal year 2028 (European Parliament and Council, 2022).

Why This Matters Beyond the EU

ESRS directly applies only to companies within the EU's scope. However, companies outside the EU are affected in the following situations:

• Subsidiaries or parent companies in the EU: Inclusion in consolidated reporting under group reporting requirements
• EU supply chains: Value chain disclosures require EU customers to request data from non-EU suppliers
• Dual listings: Companies traded on both local and EU exchanges
• Standard convergence: While Turkey's TSRS is based on IFRS, EU customers and investors may expect ESRS comparability

How to Prepare

Prioritize the Materiality Assessment

The starting point for ESRS reporting is the double materiality assessment. This analysis determines which standards and data points apply to your company, narrowing the reporting scope and preventing wasted resources.

Map Your Existing Reporting Infrastructure

Companies already reporting under GRI, CDP, or TCFD frameworks can benefit from significant overlaps with ESRS. Mapping existing data to ESRS data points prevents duplication of effort.

Build a Value Chain Data Strategy

ESRS expects disclosures that extend beyond the company's own operations across the value chain. Planning supplier and customer data collection capacity now is critical.

Practical Tip: ESRS 2 (General Disclosures) is mandatory for all in-scope companies — regardless of the materiality assessment. Starting your preparation with this standard is the most efficient approach.

References

1. European Commission (2023a). Commission Delegated Regulation (EU) 2023/2772 — European Sustainability Reporting Standards. Official Journal of the EU, L series, December 22, 2023.
2. European Parliament and Council (2022). Directive 2022/2464 (CSRD) — Corporate Sustainability Reporting Directive. Official Journal of the EU, L 322, December 16, 2022.
3. EFRAG (2023). ESRS Technical Advice and Draft Standards. European Financial Reporting Advisory Group.
4. IFRS Foundation (2023). IFRS S1 and IFRS S2 — Comparative Analysis. International Sustainability Standards Board.

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