The European Sustainability Reporting Standards (ESRS) introduce a significant evolution in how companies report on sustainability. Mandated by the Corporate Sustainability Reporting Directive (CSRD), these standards require a structured and detailed approach to non-financial disclosure. The framework is built upon four fundamental pillars that guide organizations in presenting a complete and transparent view of their impacts, risks, and opportunities related to environmental, social, and governance (ESG) issues.
Understanding these pillars is crucial for any company aiming to comply with the new regulations and use sustainability reporting as a strategic tool. The four pillars are:
- General Information
- Environmental Information (E)
- Social Information (S)
- Governance Information (G)
This guide will break down each pillar to provide a clear and operational framework for preparing your sustainability report.
Pillar 1: General Information
The first pillar establishes the foundation of the sustainability report. It requires companies to provide contextual information necessary to understand all subsequent disclosures. This section is not just a formality; it is essential for stakeholders to correctly interpret the environmental, social, and governance data presented.
Key required information includes:
- Basis of Preparation: A clear description of the reporting perimeter, the methodologies used for data collection, and any assumptions made. This ensures the report's reliability and comparability.
- Value Chain Information: An overview of the company's value chain, including suppliers, customers, and other key business relationships. This context is vital for understanding the full extent of the company's impacts.
- Stakeholder Engagement: A detailed account of how the company identifies and engages with its key stakeholders, along with the main topics of concern that emerged from these dialogues.
- Materiality Assessment Process: A description of the process used to identify material impacts, risks, and opportunities (IROs), in compliance with the double materiality principle.
Pillar 2: Environmental Information (E)
The second pillar is dedicated to the company's environmental impact. This is often the most data-intensive section of the report, requiring specific and measurable indicators. The goal is to provide a comprehensive picture of how the company's operations affect the environment and how climate-related risks are managed.
This pillar is structured around several key thematic standards:
- Climate Change (ESRS E1): This is the most detailed standard. It requires disclosure of greenhouse gas (GHG) emissions (Scope 1, 2, and 3), energy consumption, and transition plans and strategies for climate change adaptation and mitigation.
- Pollution (ESRS E2): Companies must report on air, water, and soil pollution, including emissions of key pollutants and waste management policies.
- Water and Marine Resources (ESRS E3): This includes reporting on water consumption, water discharges, and the impact on marine ecosystems.
- Biodiversity and Ecosystems (ESRS E4): Requires disclosure of impacts on biodiversity, protection and restoration actions, and dependencies on ecosystem services.
- Resource Use and Circular Economy (ESRS E5): Focuses on the efficiency of resource use, waste management strategies, and the adoption of circular business models.
Pillar 3: Social Information (S)
The third pillar addresses the social dimension of sustainability, focusing on the company's impact on its workforce and the broader community. This section highlights how the organization manages its human capital and relationships with external stakeholders.
The social standards cover four distinct areas:
- Own Workforce (ESRS S1): This standard requires detailed information on working conditions, equal opportunity, training and development, and health and safety. Key indicators include employee turnover rates, workplace accident statistics, and wage gap data.
- Workers in the Value Chain (ESRS S2): Extends social responsibility beyond the company's direct employees to include workers in its supply chain. Disclosures may cover supplier codes of conduct and audit results.
- Affected Communities (ESRS S3): Focuses on the company's impact on local and indigenous communities. This includes reporting on land use, respect for human rights, and community investment initiatives.
- Consumers and End-Users (ESRS S4): Addresses topics related to product safety, responsible marketing, and the protection of consumer data.
Pillar 4: Governance Information (G)
The final pillar, Governance, examines the internal processes, controls, and procedures that guide the company's decision-making. Strong governance is the bedrock of effective sustainability management, ensuring that ESG considerations are integrated into corporate strategy and risk management.
Key disclosures within this pillar include:
- Business Conduct (ESRS G1): This is the core standard for governance. It requires information on the company's culture, policies against corruption and bribery, and practices for responsible political engagement.
- Risk Management and Internal Controls: A description of how sustainability-related risks are identified, assessed, and managed within the company's overall risk management framework.
- Board Composition and Oversight: Information on the role of the board of directors and its committees in overseeing sustainability strategy and performance. This includes details on the expertise of board members in ESG matters.
- Remuneration Policies: Disclosure of how executive remuneration is linked to the achievement of sustainability targets.
A Strategic Tool for Sustainable Growth
The four pillars of the ESRS provide a comprehensive and rigorous framework for sustainability reporting. While compliance may seem complex, adopting this structure offers companies a powerful tool for managing risks, identifying opportunities, and communicating their commitment to sustainable development in a clear and credible manner. Approaching the ESRS not as a mere compliance exercise but as a strategic guide can help organizations build resilience and create long-term value for all stakeholders.
Navigating the complexities of ESRS reporting can be challenging. An ESG software solution can simplify data collection, automate reporting processes, and ensure compliance with the new standards.
Discover how our ESG software can streamline your reporting. Book a demo to see how we can support your company's sustainability journey.
