Understanding the difference between ESG and ESRS reporting

In the brave new world of sustainability, navigating reporting standards can be challenging. Two key frameworks, Environmental, Social, and Governance (ESG) and European Sustainability Reporting Standards (ESRS), often take center stage mainly for EU organizations aiming to enhance their sustainability efforts.

By Klappir

ESG and ESRS reporting

While they share common letters and goals, their structures and applications differ significantly. Here’s what you need to know:

What is ESG? ESG reporting focuses on providing insights into an organization’s impact on the environment, society, and its governance practices. It is a flexible framework widely used by companies globally to showcase sustainability metrics to stakeholders, including investors.

ESG (Environmental, Social, and Governance) emerged as a terminology for investors and businesses to simplify and streamline their approach to sustainability, with guidelines promoted by organizations such as Nasdaq. ESG focuses on specific criteria that investors use to evaluate a company's ESG performance.

Purpose: To demonstrate a company's sustainability and ethical impact to build stakeholder trust.

Key Features:

Covers Environmental (carbon footprint, resource use), Social (employee welfare, diversity), and Governance (corporate ethics, board diversity).
Adaptable to various industries and regions.
Often voluntary, though increasingly tied to investor and stakeholder expectations.

What is ESRS? The European Sustainability Reporting Standards (ESRS) are a part of the EU’s Corporate Sustainability Reporting Directive (CSRD). These standards aim to create a unified, mandatory framework for sustainability reporting within the European Union.

The Corporate Sustainability Reporting Directive (CSRD), was adopted by the European Parliament on 10 November 2022, and came into effect on 5th of January 2023. The CSRD is more than a mere legislative act, it sets out a visionary goal for EU members to achieve. This directive is a legal obligation for companies that meet a certain criteria, to report on their Environmental, Social, and Governance (ESG) matters, signaling a pivotal shift towards corporate responsibility and sustainability.

Central to the CSRD's mission is the implementation of the European Sustainability Reporting Standards (ESRS). These cutting-edge standards not only complement the CSRD but also elevate sustainability reporting to the same level of significance as financial reporting. Crafted with meticulous care and detail, the ESRS addresses environmental, social, and governance matters, guiding companies on how to collect data and issue reports.

Purpose: To standardize sustainability reporting across the EU, ensuring consistency, comparability, and compliance.

Key Features:

Focused on regulatory compliance, with detailed requirements for environmental, social, and governance reporting.
Includes sector-specific guidelines and a strong emphasis on qualitative data points.
Currently evolving, with best practices still emerging.

Key Differences

Aspect	ESG	ESRS
Scope	Broad and flexible; globally recognized.	EU-specific, tied to CSRD regulations.
Mandate	Voluntary in most cases.	Mandatory for qualifying EU companies.
Content	General metrics covering E, S, and G.	Comprehensive, sector-specific data points.
Audience	Investors, stakeholders, and the general public.	Regulatory bodies, investors, and stakeholders.

Which one should you focus on? For global companies, ESG remains an essential tool for demonstrating sustainability practices to a wide audience. However, organizations operating within the EU or engaging with European markets should prioritize ESRS compliance to meet regulatory expectations.

By Klappir3 December 2024