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The ESRS 1 Requirements
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Sustainability reporting has become a critical part of corporate transparency, with businesses facing increasing pressure from regulators, investors, and stakeholders to disclose their environmental and social impacts. In the EU, the Corporate Sustainability Reporting Directive (CSRD) has introduced a new framework to standardise sustainability disclosures, requiring companies to report under the European Sustainability Reporting Standards (ESRS).
At the heart of this framework is ESRS 1, which lays down the fundamental principles that govern all sustainability disclosures under the CSRD. Unlike sector-specific or topical standards, ESRS 1 establishes overarching guidelines for companies, ensuring consistency, reliability, and comparability in sustainability reporting. From double materiality to value chain disclosures, ESRS 1 defines how businesses should assess, structure, and communicate their sustainability-related information.
👉 In this article, we’ll break down what ESRS 1 covers, why it matters, and the key steps businesses need to take to align with its requirements.
What is ESRS 1?
The European Sustainability Reporting Standards (ESRS) are the EU’s framework for corporate sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). These standards aim to bring clarity, consistency, and comparability to how companies disclose their sustainability performance.
ESRS 1 covers general requirements, it serves as the foundation for all ESRS standards, establishing the core principles that companies must follow when preparing their sustainability reports. Unlike the sector-specific or topic-specific ESRS standards (such as those focused on climate change, biodiversity, or social issues), ESRS 1 does not introduce new disclosure requirements. Instead, it provides structural guidance on how companies should approach their reporting obligations, ensuring that all disclosures are comparable, relevant, and meaningful for stakeholders.
What does ESRS 1 cover?
ESRS 1 lays out general principles that companies must apply across all aspects of their sustainability reporting. These include:
- Double materiality: Companies must assess and disclose sustainability issues that are financially material (impacting their financial performance) and impact material (affecting society or the environment).
- Value chain reporting: Businesses must report not only on their own operations but also on their upstream and downstream value chain impacts.
- Connectivity with financial reporting: Sustainability disclosures should align with financial reporting, ensuring a clear link between environmental, social, and governance (ESG) factors and a company’s financial health.
- Data quality and reliability: Reports must be accurate, verifiable, and balanced, following qualitative characteristics similar to financial statements.
- Time horizon for disclosures: Companies must provide both historical data and forward-looking sustainability targets, ensuring transparency about future risks and opportunities.
How ESRS 1 fits into the broader CSRD framework
The CSRD expands the scope and depth of sustainability reporting for EU companies, replacing the Non-Financial Reporting Directive (NFRD). Under the CSRD, thousands more companies - including large, listed, and non-EU firms operating in the EU - are now subject to mandatory sustainability disclosures.
Within this framework, ESRS 1 acts as the universal foundation that applies to all companies, regardless of their industry or specific sustainability focus. Other topical standards (such as ESRS E1 for climate change) and sector-specific standards build upon ESRS 1’s general principles, providing additional guidance for different industries and ESG topics.
By establishing clear and standardised reporting principles, ESRS 1 ensures that sustainability disclosures across companies are consistent, comparable, and useful for investors, regulators, and other stakeholders.
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Why ESRS 1 matters
As sustainability reporting becomes a core requirement for businesses operating in the EU, ESRS 1 plays a critical role in ensuring transparency, consistency, and reliability in corporate sustainability disclosures. But why does this standard matter, and what impact does it have on companies and stakeholders?
1. Enhancing transparency and accountability
ESRS 1 establishes clear and structured guidelines for sustainability disclosures, preventing companies from selectively reporting on ESG issues. By setting universal reporting principles, it ensures that businesses cannot engage in greenwashing - misrepresenting their sustainability efforts or omitting material impacts.
For investors and stakeholders, this transparency is essential. It allows them to compare companies on a like-for-like basis, assess sustainability risks, and make informed decisions about which businesses align with their financial and ethical priorities.
2. Ensuring compliance with the CSRD
Under the Corporate Sustainability Reporting Directive (CSRD), thousands of companies - including non-EU firms with significant operations in the EU - are required to disclose sustainability data in accordance with ESRS.
ESRS 1 ensures that all reporting entities follow a standardised framework, making sustainability disclosures comparable across industries and markets. Companies that fail to align with ESRS 1 risk non-compliance, reputational damage, and potential penalties.
3. Aligning with global sustainability reporting standards
The EU’s ESRS framework does not exist in isolation - it is designed to align with other major sustainability reporting standards, such as:
- The IFRS ISSB Standards (International Sustainability Standards Board): Used by global financial markets to assess sustainability-related financial risks.
- The Global Reporting Initiative (GRI) Standards: Widely used for impact-focused sustainability reporting.
- The Task Force on Climate-related Financial Disclosures (TCFD): Focused on climate-related risks and financial implications.
By aligning with these international frameworks, ESRS 1 helps businesses streamline their sustainability reporting and reduce the reporting burden, particularly for multinational corporations that must comply with multiple regulatory regimes.
4. Strengthening investor and market confidence
Investors are increasingly integrating ESG factors into their decision-making processes, with many requiring companies to demonstrate measurable progress on sustainability goals. ESRS 1 provides investors with a clear, structured framework to assess how sustainability issues impact financial performance, helping them allocate capital more effectively.
Beyond investors, banks, insurers, and other financial institutions also use sustainability disclosures to assess climate-related financial risks when determining lending and investment policies. Companies that align with ESRS 1 can benefit from better financing opportunities and lower capital costs.
5. Driving long-term business resilience
Sustainability is no longer just about compliance - it is a strategic necessity for businesses looking to future-proof their operations. Companies that integrate ESRS 1 principles into their sustainability strategies can:
- Identify and mitigate ESG risks (eg. climate change, supply chain disruptions).
- Enhance operational efficiency (eg. energy and resource efficiency improvements).
- Strengthen brand reputation and consumer trust.
By adopting a proactive approach to sustainability reporting, businesses can stay ahead of regulatory changes while also improving their long-term financial and environmental performance.
Key ESRS 1 requirements
ESRS 1 outlines the general principles and guidelines that companies must follow when preparing their sustainability reports under the Corporate Sustainability Reporting Directive. While it does not introduce specific disclosure obligations, it establishes the fundamental reporting concepts that apply across all ESRS standards. Below are the core ESRS 1 requirements that businesses need to understand and implement.
Double materiality: financial and impact materiality
One of the most significant principles in ESRS 1 is double materiality, which requires companies to assess and disclose sustainability information from two perspectives:
- Financial materiality: Information that could affect the company’s financial position, performance, or cash flows.
- Impact materiality: Information related to the company’s environmental and social impact, regardless of whether it directly affects financial performance.
This means companies must report on ESG factors even if they do not pose a direct financial risk - as long as they have a significant impact on people or the environment.
“ESRS 1 requires businesses to conduct a materiality assessment, identifying which sustainability issues are relevant based on both financial and impact perspectives. This approach ensures comprehensive and meaningful reporting, helping stakeholders understand a company’s true sustainability footprint.”
Value chain reporting
ESRS 1 requires companies to assess and disclose sustainability impacts across their entire value chain, not just their own operations. This means businesses must report on both upstream and downstream activities, including:
- Suppliers and raw material sourcing
- Logistics and transportation emissions
- Product use and end-of-life disposal
This requirement poses significant challenges, as companies often lack full visibility into their supply chains. However, ESRS 1 emphasises that businesses must make reasonable efforts to gather data and disclose any limitations transparently.
Reporting boundaries and scope
To ensure consistency, ESRS 1 aligns sustainability reporting with financial reporting boundaries. This means companies must:
- Include subsidiaries and joint ventures within their reporting scope.
- Clearly define reporting boundaries, ensuring that ESG data is comparable with financial statements.
- Disclose sustainability data at a consolidated group level, mirroring financial reporting consolidation rules.
By following these principles, ESRS 1 ensures that sustainability disclosures are integrated into corporate reporting, making it easier for investors and regulators to assess ESG risks.
Forward-looking statements
Unlike traditional financial reporting, sustainability reporting requires companies to consider long-term risks and opportunities. ESRS 1 mandates that businesses:
- Disclose both historical ESG performance and future sustainability targets.
- Provide scenario analysis for climate-related risks (aligned with TCFD recommendations).
- Explain strategies for achieving sustainability goals, including net-zero commitments and transition plans.
This ensures that sustainability commitments are credible and measurable, rather than vague long-term aspirations.
Connectivity between financial and sustainability reporting
One of the key objectives of ESRS 1 is to bridge the gap between financial and sustainability reporting. This means that companies must:
- Ensure ESG risks and opportunities are linked to financial performance.
- Integrate sustainability data into financial disclosures, rather than treating it as a separate report.
- Use consistent data and assumptions across both financial and non-financial reporting.
If a company discloses climate-related risks under ESRS E1 (Climate Change), those risks should also be reflected in financial statements (eg. asset impairments due to extreme weather events). By enforcing this connectivity, ESRS 1 ensures that sustainability reporting is not just a PR exercise, but a core part of corporate risk management and financial decision-making.
Data quality and reliability
To maintain trust and credibility, ESRS 1 requires companies to ensure data quality and reliability in their sustainability reports. This includes:
- Using verifiable and accurate ESG data.
- Ensuring reports are neutral, complete, and free from bias.
- Providing clear explanations of methodologies and assumptions used.
Companies are also encouraged to use external assurance for their sustainability disclosures, similar to financial audits, to enhance stakeholder confidence. By setting high standards for data accuracy and transparency, ESRS 1 strengthens the credibility and usefulness of sustainability reporting.
Key principles of ESRS 1:
| Requirement | Description | Why it matters |
|---|---|---|
| Double materiality | Assess and disclose both financial materiality (impact on financial performance) and impact materiality (effects on society/environment). | Ensures comprehensive reporting, capturing all significant ESG issues. |
| Value chain reporting | Report on upstream and downstream impacts, including suppliers, logistics, product use, and end-of-life disposal. | Encourages transparency beyond direct operations, highlighting full ESG impact. |
| Connectivity with financial reporting | Integrate ESG data with financial statements to show clear links between sustainability risks/opportunities and financial health. | Bridges sustainability and financial strategies for holistic reporting. |
| Forward-looking disclosures | Provide historical data, future targets, and scenario analysis for sustainability risks and opportunities. | Helps stakeholders assess long-term plans and credibility of commitments. |
| Data quality and reliability | Ensure ESG data is verifiable, neutral, and aligned with high-quality reporting standards, similar to financial statements. | Builds trust and credibility among investors and stakeholders. |
| Reporting boundaries | Align ESG reporting with financial boundaries, including subsidiaries and joint ventures. | Ensures consistency and comparability across all corporate disclosures. |
Challenges of implementing ESRS 1
While ESRS 1 provides a clear framework for sustainability reporting, many companies face significant challenges when it comes to practical implementation. From navigating complex data collection to aligning with regulatory requirements, compliance with ESRS 1 can be resource-intensive, especially for businesses with global supply chains and diverse operational footprints.
Here are some of the key challenges companies encounter when implementing ESRS 1.
Conducting a double materiality assessment
One of the most complex requirements under ESRS 1 is the double materiality assessment, which requires companies to evaluate both:
- Financial materiality: ESG factors that affect the company’s financial performance.
- Impact materiality: The company’s impact on the environment and society.
Why it’s challenging:
- Determining which ESG issues are material can be highly subjective and varies by sector.
- Companies need to engage with stakeholders (investors, regulators, communities) to validate materiality decisions.
- The process requires significant internal collaboration across sustainability, finance, risk, and strategy teams.
Failing to properly conduct a double materiality assessment could result in incomplete or non-compliant reports, or even regulatory scrutiny.
Expanding reporting to the entire value chain
ESRS 1 requires companies to report on their entire value chain, meaning businesses must track sustainability impacts beyond their direct operations. This includes:
- Upstream suppliers (raw materials, energy use, labor conditions).
- Downstream impacts (product use, recycling, end-of-life disposal).
Why it’s challenging:
- Many companies lack full transparency over their suppliers and struggle to obtain reliable ESG data from them.
- Data collection across global supply chains is often inconsistent, making standardisation difficult.
- Companies must balance data accuracy with practical feasibility, as some value chain data may not be readily available.
To overcome this challenge, companies need to establish supplier ESG reporting requirements and invest in technology that enhances value chain visibility.
Ensuring high-quality ESG data and avoiding greenwashing
Unlike financial reporting, which follows well-established accounting rules, sustainability reporting under ESRS 1 requires companies to collect and verify ESG data, which is often unstructured, scattered, or estimated.
Why it’s challenging:
- Companies may struggle to find reliable data sources for ESG metrics like emissions, water usage, and biodiversity impact.
- There is a risk of greenwashing if sustainability claims are not backed by verifiable, auditable data.
- Ensuring data consistency and comparability across different regions and business units is difficult.
To address this, businesses can implement robust ESG data management systems and consider third-party audits to enhance credibility.
Aligning sustainability and financial reporting
ESRS 1 emphasises connectivity between sustainability and financial reporting, requiring companies to ensure that ESG factors are linked to financial risks, costs, and strategic decisions.
Why it’s challenging:
- Many companies lack the internal expertise to properly integrate sustainability metrics into financial reporting frameworks.
- ESG risks (eg. climate change, resource scarcity) may have long-term financial implications that are difficult to quantify.
- Companies must ensure consistency between their sustainability disclosures and financial statements to avoid contradictions.
Businesses should bridge the gap between finance and sustainability teams by implementing cross-functional ESG reporting processes.
Managing costs and resource constraints
For many companies, particularly small and mid-sized enterprises (SMEs), implementing ESRS 1 comes with significant costs. These may include:
- Hiring sustainability experts to oversee ESG reporting.
- Investing in software for tracking and verifying ESG data.
- Conducting third-party assurance to enhance report credibility.
- Implementing new processes for compliance across multiple business units.
Why it’s challenging:
- Compliance with ESRS 1 requires a long-term commitment - it’s not a one-time exercise.
- Businesses must balance cost efficiency with the need for accurate and comprehensive sustainability disclosures.
- The regulatory environment is constantly evolving, requiring companies to stay updated on new reporting obligations.
To manage these challenges, businesses should leverage ESG reporting platforms and explore partnerships with sustainability experts to streamline compliance. Companies like Greenly can help streamline the process.
Navigating uncertainty around future regulatory changes
Although ESRS 1 provides a structured framework, the broader regulatory landscape is still evolving. The EU is working on additional sector-specific ESRS standards, and companies will need to adjust their reporting practices accordingly.
Why it’s challenging:
- Businesses may need to update their ESG reporting frameworks frequently to comply with new EU guidelines.
- There is uncertainty about how ESRS will interact with other global reporting frameworks (eg. IFRS ISSB).
- Companies must prepare for future assurance requirements, as the EU plans to introduce mandatory third-party sustainability audits (expected from 2028).
To stay ahead, businesses should build flexible ESG reporting systems that can adapt to future regulatory changes.
Overcoming these challenges
Despite these hurdles, companies that proactively implement ESRS 1 can gain a competitive advantage by:
- Strengthening investor and stakeholder confidence.
- Enhancing brand reputation and consumer trust.
- Reducing regulatory and financial risks associated with ESG non-compliance.
- Driving long-term business resilience by integrating sustainability into decision-making.
By taking a strategic and proactive approach, businesses can streamline compliance with ESRS 1 while also leveraging sustainability reporting as a tool for growth and value creation.
How companies can prepare for ESRS 1 compliance
Complying with ESRS 1 requires businesses to adopt a structured, proactive approach to sustainability reporting. Given the complexities involved, such as double materiality assessments, value chain transparency, and data verification, companies should begin preparing well in advance to ensure smooth implementation.
Here are some steps businesses can take to align with ESRS 1 requirements.
Conduct a thorough double materiality assessment
Since ESRS 1 mandates a double materiality approach, companies must identify and prioritise both financial and impact materiality factors relevant to their operations.
How to prepare:
- Establish a cross-functional ESG task force to oversee the assessment.
- Engage internal and external stakeholders (investors, customers, regulators) to determine which ESG factors are most relevant.
- Use data-driven tools to assess both short-term and long-term ESG risks and opportunities.
- Document the methodology used to determine materiality to ensure transparency.
Enhance value chain transparency
To meet ESRS 1’s value chain reporting requirements, companies must map their supply chains and gather reliable ESG data from suppliers.
How to prepare:
- Identify key suppliers and request sustainability disclosures from them.
- Integrate ESG reporting requirements into supplier contracts.
- Use traceability tools and blockchain technology to improve supply chain transparency.
- Develop partnerships with third-party data providers to fill in reporting gaps.
Align sustainability reporting with financial reporting
ESRS 1 requires sustainability data to be integrated into financial statements. This means companies must harmonise financial and non-financial disclosures.
How to prepare:
- Ensure CFOs and sustainability teams collaborate on ESG reporting.
- Use the same assumptions and scenarios across both financial and sustainability reports.
- Align with global reporting standards (eg. IFRS ISSB) to enhance comparability.
Secure executive buy-in and departmental collaboration
Sustainability reporting under ESRS 1 is not just a compliance exercise, it requires company-wide engagement.
How to prepare:
- Educate executives and board members on the strategic value of ESRS compliance.
- Ensure HR, procurement, and legal teams understand how ESRS 1 affects their functions.
- Develop internal ESG policies and training programs to support compliance efforts.
Prepare for third-party assurance and future regulatory changes
As the EU introduces mandatory sustainability audits, companies should prepare for external verification of ESG data.
How to prepare:
- Establish internal ESG audit procedures to ensure compliance before mandatory audits begin.
- Stay updated on future ESRS developments, especially new sector-specific reporting requirements.
- Engage with sustainability consultants to navigate regulatory changes.
Invest in ESG data collection and reporting tools
Ensuring data accuracy and reliability is a major challenge under ESRS 1. Companies must establish robust data collection processes to generate verifiable, high-quality ESG disclosures. Without a structured approach, businesses risk inconsistent data, compliance issues, and stakeholder distrust.
How to prepare:
- Implement ESG data management software to centralise and automate reporting.
- Conduct internal ESG audits to verify data accuracy before submitting reports.
- Train finance and sustainability teams on ESRS-compliant reporting practices.
- Use third-party verification for key sustainability metrics (eg. emissions data).
💡 How Greenly can help: Greenly provides a comprehensive ESG reporting platform that enables companies to track, analyse, and verify their emissions data in alignment with ESRS 1 requirements. By leveraging automated data collection and expert insights, businesses can streamline compliance and ensure audit-ready sustainability disclosures.
The bottom line
Complying with ESRS 1 is a complex but necessary step for companies operating in the EU. By taking a proactive approach - investing in data management, value chain transparency, and stakeholder engagement - businesses can not only meet regulatory requirements but also gain a competitive advantage through enhanced sustainability performance.
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What about Greenly?
For businesses navigating ESRS 1 compliance under the Corporate Sustainability Reporting Directive (CSRD), Greenly provides a dedicated CSRD platform designed to simplify reporting, automate data collection, and ensure audit readiness. With a combination of cutting-edge technology and expert guidance, Greenly streamlines the CSRD reporting process, from double materiality assessments to regulatory-compliant report generation.
Discover a Dedicated CSRD Reporting Platform:
- Risk Assessment Tool: Map your value chain and assess climate risks using seven key risk indicators.
- Consolidated Data Collection: Effortlessly gather environmental, social, and governance (ESG) data.
- Task Management & Progress Monitoring: Track reporting progress in real-time across all stakeholders.
- Simulation Capabilities: Assess the impact of action plans, risks, and sustainability opportunities.
- Audit-Ready Platform: Be fully prepared for regulatory audits with a secure and reliable reporting system.
- Automatic Export: Generate reports in XHTML format with XBRL tagging, ensuring seamless regulatory submission.
With Greenly’s specialised CSRD tools, businesses can streamline their ESRS compliance and enhance the credibility of their sustainability disclosures. Get in touch with us today to find out more.
Sources
- European Commission, Questions and Answers on the Adoption of European Sustainability Reporting Standards, https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043
- EFRAG, ANNEX I to Commission Delegated Regulation (EU) 2023/2772 supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards, https://xbrl.efrag.org/e-esrs/esrs-set1-2023.html
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