Standard ESRS: challenges and opportunities for companies

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The European Sustainability Reporting Standards (ESRS) are guidelines for sustainability reporting, introduced to ensure transparency on companies' environmental, social, and governance (ESG) issues. The regulatory context of the ESRS is rooted in the Corporate Sustainability Reporting Directive (CSRD), which came into effect on January 5, 2023. The CSRD Directive represents an update of the regulations on non-financial information disclosure, requiring companies to report according to ESRS standards. The main objective of these standards is to provide investors and other stakeholders with clear, accurate, and comparable data, supporting more informed business decisions and promoting transparency in non-financial reporting.

The ESRS standards are twelve in total, two of which are transversal and ten thematic, divided into the categories of environmental, social, and governance. Among the environmental standards, we find, for example, ESRS E1 on climate change, ESRS E2 on pollution prevention, and ESRS E4 on biodiversity. The social standards include ESRS S1 on company personnel and ESRS S4 concerning customers. Among the governance standards, ESRS G1 focuses on corporate conduct. This modular structure allows companies to specifically address the most relevant aspects of sustainability, integrating them into their operating model.

The implementation of ESRS in companies requires a strategic and accurate approach. First, it is essential for companies to conduct a materiality analysis to identify the most pertinent ESG aspects in relation to their operations and value chain. Subsequently, they must develop internal systems for collecting and managing the data needed for reporting, ensuring the accuracy and consistency of the information. Various resources are available to support companies in this transition, including official guidelines, assessment tools, and specialized training platforms. For example, EFRAG provides documentation and support to facilitate the adoption of the standards. However, not all countries are aligned: Germany, for instance, is still in transition regarding the adoption of CSRD and the integration of ESRS, causing uncertainties on how companies will adapt to the new regulations.

Currently, Germany has not yet transposed the CSRD Directive into national law, maintaining the previous regulation on sustainability reporting. Consequently, companies must continue to follow existing regulations (articles 289b and following of the German Commercial Code, HGB). However, many German companies, especially publicly traded ones or those belonging to large groups, are preparing for the transition to CSRD. One of the main challenges is adapting to the new regulation, which also concerns the handling of exemptions for subsidiaries, particularly those located in Member States that have already adopted the CSRD.

A complex issue concerns the branches of companies, which in the first year of the application of the CSRD (2024) only had to comply if listed. However, starting from 2025, the obligation extends to a larger number of companies. Since the CSRD has already been adopted in several member states, national regulations may not fully align, creating discrepancies between parent companies (located in countries without CSRD obligation, such as Germany) and branches (in countries with CSRD obligation, such as France). In these cases, to obtain the exemption, the group non-financial statement must strictly comply with the ESRS standards. With the recent introduction of the Omnibus package, it remains to be seen whether this aspect will undergo changes, particularly regarding the harmonization between national regulations and the application

In 2024, German companies were not required to use the ESRS for non-financial reporting, but had the option to adopt them voluntarily. Article 289 of the German Commercial Code (HGB) allows companies to follow regulatory standards for the preparation of non-financial reporting. However, partial adoption of the ESRS may not be accepted unless justified with a clear and detailed materiality analysis. In particular, for subsidiaries subject to the CSRD Directive in other Member States, the group non-financial statement must be fully compliant with the ESRS and verified as part of the consolidated management report.

This article was created as part of the project "Biodiversity services EU expansion" (CUP: E43D22000480009) funded by the Lombardy Region call "PR FESR 2021-2027 – INTERNATIONALIZATION LINE 21-27", aimed at supporting the internationalization of Italian companies. 3Bee is the naturetech company that develops innovative technologies for monitoring, protecting, and regenerating biodiversity, supporting companies in defining personalized climate strategies based on the analysis of their impacts and dependencies on nature. With a consolidated portfolio in Italy, Germany, and France and notable partnerships, 3Bee continues its expansion into international markets to create a tangible impact through technology.