This summer’s most important ESG read? (hint: it’s not a Ropes & Gray publication)

August 18, 2023
2 minutes

There is no shortage of ESG regulations, standards, frameworks, guidance, white papers, news articles, blog posts, etc. to read. They seem to multiply like tribbles. But, this summer, one stands head and shoulders above the rest as the ESG must-read: ESRS 1.

Recently finalized, the European Sustainability Reporting Standards specify the information required to be reported under the EU Corporate Sustainability Reporting Directive. The objective of ESRS 1 is to provide an understanding of the architecture of the ESRS, the drafting conventions and fundamental concepts used and the general requirements for preparing and presenting sustainability information in accordance with the CSRD.

Understanding ESRS 1 is critical to preparing for CSRD reporting. It will drive not only disclosure, but also the underlying processes and controls. As a threshold matter, understanding ESRS 1 also is important for developing the project plan for CSRD readiness.

We have selected ESRS 1 as our most important summer ESG read for two reasons:

  • CSRD will have extremely broad impact, by far more than any other ESG reporting requirement. Approximately 50,000 undertakings are expected to have to report under CSRD.
  • Now that the ESRS have been finalized, in September – after everyone is back from break – most companies will start the sprint to be ready to report.

ESRS 1 is too jam-packed with important detail to summarize in a blog post, but a read of ESRS 1 will answer the following important questions, among others:

  • What are impact materiality and financial materiality?
  • How is materiality determined?
  • What sustainability matters need to be included in the materiality assessment?
  • How do stakeholders factor into the materiality assessment process?
  • If an undertaking cannot address all impacts at once, how should it prioritize its due diligence?
  • What are the reporting boundaries for material impacts, risks and opportunities?
  • How are short-, medium- and long-term time horizons determined?
  • When is reported information required to be disaggregated, whether by country, site, significant asset or subsidiary?
  • When can estimates and third-party data sources be used?
  • When is comparative period data required?
  • When and how can information be incorporated by reference?
  • When and how do linkages between sustainability and financial statement information need to be discussed?
  • When do events after the end of the reporting period need to be included in the management report?
  • When can confidential or sensitive information be omitted?
  • When do prior period errors need to be corrected?
  • Which disclosure requirements are phased-in? Over what time periods?
  • What other transitional accommodations are available for entity-specific disclosures, value chain reporting and presenting comparative information?
  • What is the structure of the sustainability statement?

ESRS 1 has a lot of important detail. Wading through a standard can seem daunting. However, ESRS 1 is relatively brief given how much it covers, clocking in at only 35 pages.  It’s not a beach reach for most, but a couple of hours, a caffeinated beverage of choice and a straight back chair should suffice to get through this important foundational ESRS.

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Ropes & Gray has a leading ESG, CSR and business and human rights compliance practice. We offer clients a comprehensive approach in these subject areas through a global team with members in the United States, Europe and Asia. Senior members of the practice have advised on these matters for more than 30 years, enabling us to provide a long-term perspective and depth and breadth of experience that few firms can match. For further information on the practice, click here.