The European Sustainability Reporting Standards (ESRS) set out specific data points that companies must disclose to comply with the Corporate Sustainability Reporting Directive (CSRD). These comprehensive data points aim to ensure consistent, transparent, and comparable sustainability information across the EU.
Within the ESRS, there are common terms to help reporting entities better understand the requirements:
- “Shall disclose” indicates that the provision is prescribed by a Disclosure Requirement or a data point.
- “May disclose” indicates a voluntary disclosure to encourage good practice.
- “Shall consider” is used when referring to issues, resources, or methodologies that the company is expected to take into account or use in the preparation of a given disclosure.
Despite the use of such prescriptive language, one of the most commonly asked questions we hear at Novata is: “Does my business need to disclose all data points across the topical standards and disclosure requirements?”
Many companies struggle to make sense of the language or feel pressure to disclose every possible data point to stay compliant. But here’s the good news: you don’t need to disclose everything. Your company only needs to respond to the data points that meet the criteria outlined in ESRS 1.31, which sets out that companies must make a judgement about what is material and therefore what should be disclosed.
Two Key Questions to Guide Your ESRS Disclosures
When it comes to ESRS disclosures, asking the following questions can help you determine which data points apply to your company.
- Does this data point make sense for my company’s activities? Focus on what’s meaningful and specific to your business. For example, an office-based professional services company disclosing information about waste would not need to disclose how much of its waste is radioactive because this is not a relevant data point.
- Does this information matter to stakeholders’ decision-making? Consider your stakeholders, including investors, customers, employees, or affected communities. Would knowing this data point influence their decisions or perceptions of your company?
This principle aligns with international standards such as the ISSB’s (International Sustainability Standards Board) IFRS S1 and S2. Both frameworks emphasize the importance of disclosing information that impacts stakeholder decision-making, whether it highlights risks or opportunities.
For example:
- Risks: If you fail to disclose a business risk, investors might miss critical details, leaving them unprotected and exposed to potential losses.
- Opportunities: On the flip side, if you don’t highlight key opportunities, investors could miss out on potential growth, which is just as valuable.
The CSRD is all about presenting consistent and relevant information. If you decide to omit data, make sure to only omit information that has a clear rationale documented to avoid queries from auditors.
Want to learn more about ESRS? Download our ESRS Essentials guide, which provides an overview of the topical and cross-cutting standards. Plus, learn more about how Novata can support you in understanding your data readiness for CSRD compliance.
