In this article, we’ll explain what biodegradable plastic is, the pros and cons, and better alternatives to help the environment.

What is Biodegradable Plastic?

In 2025, shifting to the use of more sustainable packing materials and attempting to go green are all ways that the average person and business take a step forward to fighting against climate change – such as by employing the use of biodegradable plastic. 

Biodegradable and compostable plastic are becoming increasingly common, as several businesses decide to revamp their packaging to offer more eco-friendly products – but how beneficial is biodegradable plastic, truly?

What is the definition of biodegradable plastic?

Biodegradable plastic refers to the ability for plastic to break down into substances, such as bacteria, fungi, and algae – in a short amount of time. 

💡 The main goal of biodegradable plastic is to speed up the process of plastic breaking down, as traditional plastics can take hundreds of years to fully decompose – biodegradable plastic can be broken down into natural elements such as water, carbon dioxide, and biomass.

If a technology is elegant, biodegradable, made from renewable materials and employs a minimum of muscular, water or wind energy, is responsive, beautiful in its way, and challenging to the user in that it develops the user's senses and strength - it may comport with nature. – (Stephanie Mills from from Counterpunch).

This week, the truth about “biodegradable plastic,” and new insights into how global warming might eventually make winters colder.

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Sources:
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http://pubs.acs.org/stoken/presspac/p...
http://www.eurekalert.org/pub_release...
http://cen.acs.org/articles/93/web/20...
http://ei.cornell.edu/biodeg/
https://books.google.com/books?id=EMY...
http://phys.org/news/2015-03-plastics...

http://www.eoearth.org/view/article/1...
http://www.eurekalert.org/emb_release...

The Truth About Biodegradable Plastic

How does biodegradable plastic decompose?

Biodegradable plastic decomposes as microorganisms will use the plastic as a food source, which will then break it down into simpler substances to be absorbed into the surrounding environment, such as a nearby body of water. 

👉 However, it is important to note that environmental factors also play a role – as humidity, sunlight, and temperature can have an impact on how fast biodegradable plastic decomposes.

There are two main types of biodegradable plastics: plant-based biodegradable plastic and petroleum based biodegradable plastic.

Plant-Based Plastics (Hydro-Biodegradable) – Also referred to as bioplastics, this type of biodegradable plastic can be made from renewable sources such as sugarcane, corn starch, and potato starch. Examples of this kind of biodegradable plastic include Polylactic Acid (PLA) and  Polyhydroxyalkanoates (PHA).

Petroleum-Based Biodegradable Plastics (Oxo-Biodegradable) – This type of biodegradable plastic is made from conventional finite resources, but manufactured to degrade faster than ordinary plastics – such as with Polybutylene Adipate Terephthalate (PBAT).

👉 Biodegradable plastic is often used for packaging materials, agricultural films, and even for dissolvable stitches – demonstrating the versatility of biodegradable plastics and the opportunity it has to help reduce plastic waste across multiple industries.

What is the difference between biodegradable and compostable plastic? 

While both biodegradable and compostable plastics can break down into their surrounding environment, the two types of plastic are not one and the same.

💡 Biodegradable plastic is defined by its ability to break down, but may not always prove successful – whereas compostable plastic is developed and tested to ensure it will work when it undergoes processing in a composting facility.

What is the difference between compostable, degradable and biodegradable bags? People, often desperate to get it right, wanting to make greener decisions, still get it wrong due to the confusion over degradable, biodegradable and compostable plastics.... Check out this video and make the greener decision for a better tomorrow.. 🌿♻️🌍

Music: Wander 
Musician: iksonofficial

#compostablebags#zerowaste#degradable#biodegradable#plasticfree#plantbasedbags

COMPOSTABLE vs BIODEGRADABLE PLASTIC | WHAT'S THE DIFFERENCE?

Overall, the main difference between biodegradable and compostable plastic is their ability to break down into the environment.

Here’s a breakdown of the differences between the these two types of plastics: 

Ability to Break Down – Biodegradable plastic will often breakdown into smaller components with the help of water, carbon dioxide, and microorganisms – whereas compostable plastic is designed to breakdown into organic matter under a specific timeframe.

How the Plastics Break Down – Both biodegradable and compostable plastic require heat, moisture, and time to be decomposed – but biodegradable plastics can take years to fully degrade in natural surroundings, whereas compostable plastic can break down faster, although it requires an industrial setting to properly decompose. 

Necessary Certifications – Biodegradable plastic is not required to be certified to the same extent as compostable plastic, which is often required to meet industry standards such as EN 13432 in Europe and ASTM D6400 in the United States. 

Challenges of Each Plastic – Biodegradable plastics may leave harmful residue and not degrade entirely in landfills or oceans, whereas compostable plastics can end up in landfills if not decomposed properly.

The table below will compare and contrast the differences between biodegradable and compostable plastic:

<table border="1" cellspacing="0" cellpadding="8">
  <tr>
    <th>Feature</th>
    <th>Biodegradable Plastic</th>
    <th>Compostable Plastic</th>
  </tr>
  <tr>
    <td>Breakdown Time</td>
    <td>Varies (weeks to years)</td>
    <td>Typically faster (weeks to months)</td>
  </tr>
  <tr>
    <td>Breakdown Residue</td>
    <td>Possible microplastics</td>
    <td>No toxic residues, turns into compost</td>
  </tr>
  <tr>
    <td>Conditions Needed</td>
    <td>May break down in natural settings</td>
    <td>Requires specific composting conditions</td>
  </tr>
  <tr>
    <td>Certification</td>
    <td>Not always certified</td>
    <td>Must meet strict standards</td>
  </tr>
  <tr>
    <td>Environmental Impact</td>
    <td>Can be unclear (if not fully degraded)</td>
    <td>More environmentally friendly</td>
  </tr>
</table>


👉 Ultimately, compostable plastics are a better choice for the circular economy as they can completely break down without leaving behind any residue – whereas biodegradable plastics may still contribute to plastic pollution as they do not undergo the same approval process as compostable plastics. 

What are the pros and cons of biodegradable plastic?

There are several benefits and drawbacks to the use of biodegradable plastic, such as how it can help to mitigate excessive plastic pollution – but it also requires specific conditions and could exacerbate the danger of misleading eco-labels.  

💡Although biodegradable plastic can help to avoid the negative effects of plastic lingering in our oceans and surrounding environment, it is important to note that at the end of the day – biodegradable plastic is still a type of plastic, meaning that it isn’t the most sustainable material or resource to be using in the midst of climate change.

This was demonstrated in a study conducted by Imogen Napper, where it was found that biodegradable plastic shopping bags were still present in soil a whopping 27 months after being buried – illustrating how biodegradable plastic still remains present in our environment despite being able to break down faster than traditional plastic.

After three years, I was really amazed that any of the bags could still hold a load of shopping. For biodegradable bags to be able to do that was the most surprising. When you see something labelled in that way, I think you automatically assume it will degrade more quickly than conventional bags. But, after three years at least, our research shows that might not be the case. – (Imogen Napper). 

All of this being said, there are still reasons to opt for the use of biodegradable plastic while keeping the disadvantages in mind.

Here’s a breakdown of the pros and cons of biodegradable plastic:

Reduce Plastic Pollution – As traditional plastic is currently responsible for a total of 3.3% of GHG emissions worldwide, biodegradable plastic, while slow at decomposing, can still help to reduce the amount of greenhouse gases created from traditional plastics burning in our landfills.

Decrease Dependency on Fossil Fuels – Since biodegradable plastics can be made from renewable resources, it can ultimately help to reduce the carbon footprint created by fossil fuels.

Mitigate the Use of Traditional Plastic – While biodegradable plastic still comes with its caveats, it can still help to reduce the impact created by conventional plastics – meaning that businesses and households alike could reduce their environmental impact if they were to switch to the use of biodegradable plastic. 

Necessary Specific Conditions Needed – While biodegradable plastic can decompose faster than traditional plastic, it still requires specific conditions – such as increased heat and select types of bacteria, in order to properly break down in natural environments.

Expensive – As biodegradable plastic is more expensive to produce than traditional plastic, as the average cost can be anywhere from $2 to $7 USD per kilogram – it can prove more difficult for companies to procure biodegradable plastic and ultimately provide customers with this more eco-friendly option when shopping. 

Misleading Labels – Since “biodegradable" may not always mean that the plastic will break down in all environments, people may be under the impression that if they opt for this material – they are helping to reduce their own environmental impact, when there could be more successful ways of accomplishing this goal.

Risk of Microplastics – A we’ve discussed previously on our blog, microplastics can severely impact our oceans and even be accidentally ingested by the food we eat or water we drink – and since some biodegradable plastics may break into tiny fragments, it could further contribute to microplastic pollution.

👉 Overall, biodegradable plastic is certainly a more viable alternative to the use of traditional plastics – but it still possesses several potential setbacks, such as by potentially contributing to microplastic pollution or proving to be too expensive for some companies. 

Why might biodegradable plastic not be the best choice for the environment?

Biodegradable plastic, while a better alternative than traditional plastic, can still end up in landfills and contribute to the release of methane – ultimately still contributing to GHG emissions.

💡This means that when bioplastics end up in the landfill, of which many do, they can contribute to potent greenhouse gases in the same capacity of PET plastic.

Marketing is highly abusive in this area. – (Taylor Weiss, researcher and assistant professor at the Arizona State University discussing the impact that misleading eco-friendly labels can have on our environment.”

Unfortunately, this hasn’t stopped big-name companies from insinuating that plastic pollution can be solved with biodegradable plastic – such as with Coca-Cola, from using vague terms to convince customers that their products are not contributing to further environmental harm. 

Luckily, to combat the effects of plastic pollution – Coca-Cola has committed themselves to recycle one plastic bottle for every bottle it sells by 2030. While recycling can help, such as in regions of the world like Europe where 41% of plastic was recycled in 2022 – efforts to encourage consumers to recycle plastic, even biodegradable plastic, could prove pointless in countries which value consumerism like the U.S. – where only 8.4% of plastic is recycled.

Additional reasons why biodegradable plastic may not be the best solution include:

The industrialisation process and carbon footprint created from the production of biodegradable plastic;

Biodegradable plastic  could contaminate existing recycling streams and make it more challenging to effectively process other recyclable materials;

Plant-based biodegradable plastic may use a large amount of finite resources such as water, land, and energy.

👉 As a whole, biodegradable plastic is surely better than traditional plastic as it has a better chance of being decomposed and mitigating excess GHG emissions – but there are still better alternatives than biodegradable plastic.

What are some alternatives to biodegradable plastic?

There are several alternatives to the use of biodegradable plastic, such as:

Reusable Items – Opting for a reusable water bottle, shopping bag, glass containers, stainless steel, or silicone for food packaging are all more eco-friendly alternatives to biodegradable plastic. 

Compostable Packaging – Materials such as bamboo, paper, or palm leaves will all decompose faster than biodegradable plastic. 

Paper-Based Products – Cardboard, paper bags, and molded fiber packaging are all easier to breakdown than biodegradable plastic. 

Adopting Minimalism – Perhaps the best alternative to biodegradable plastic is to opt for minimalism as a whole – such as by avoiding ordering something unless it’s essential, using reusable items, bulk shopping, purchasing package-free products, and cutting out plastic altogether. 

Overall, biodegradable plastic is a type of plastic that can be broken down into the environment faster than traditional plastic – but it still isn’t the most efficient way to support the planet or mitigate climate change.

If reading this article on biodegradable plastic has inspired you to consider your company’s own carbon footprint, Greenly can help.

At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. We offer a free demo for you to better understand our platform and all that it has to offer – including assistance on how to reduce emissions, optimise energy efficiency, and decarbonize your supply chain to help reduce plastic waste. 

Learn more about Greenly’s carbon management platform here.

https://www.worldwildlife.org/blogs/sustainability-works/posts/is-biodegradable-and-compostable-plastic-good-for-the-environment-not-necessarily

https://ecostandard.org/wp-content/uploads/Joint-position-paper_Bioplastics-in-a-Circular-Economy_Jan-2017.pdf 

https://europlas.com.vn/en-US/blog-1/how-biodegradable-plastics-break-down- 

https://natureplast.eu/en/biodegradable-plastics-definitions-and-standards/ 

https://pmc.ncbi.nlm.nih.gov/articles/PMC9033233/ 

https://assets.publishing.service.gov.uk/media/606eb6518fa8f573570f6a81/standards-biobased-biodegradable-compostable-plastics.pdf 

https://www.european-bioplastics.org/faq-items/what-are-the-required-circumstances-for-a-compostable-product-to-compost/ 

https://www.theguardian.com/environment/2019/apr/29/biodegradable-plastic-bags-survive-three-years-in-soil-and-sea 

https://e360.yale.edu/features/why-bioplastics-will-not-solve-the-worlds-plastics-problem 

https://ourworldindata.org/ghg-emissions-plastics 

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.

The ESRS 1 Requirements

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.

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.

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.

Learn about the EU's new corporate sustainability guidelines: the CSRD and the ESRS. Be ahead of the curve by acquiring what you need to succeed in the new economic transition. 

Check out the ESRS Data Cards: https://www.sdgmonitor.co/products-sd...

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Transcript
Follow along using the transcript.

What is the ESRS?

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.

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.

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.

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.”

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:

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.

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.

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.

To maintain trust and credibility, ESRS 1 requires companies to ensure data quality and reliability in their sustainability reports. This includes:

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.

<table>
  <thead>
    <tr>
      <th>Requirement</th>
      <th>Description</th>
      <th>Why it matters</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td>Double materiality</td>
      <td>Assess and disclose both financial materiality (impact on financial performance) and impact materiality (effects on society/environment).</td>
      <td>Ensures comprehensive reporting, capturing all significant ESG issues.</td>
    </tr>
    <tr>
      <td>Value chain reporting</td>
      <td>Report on upstream and downstream impacts, including suppliers, logistics, product use, and end-of-life disposal.</td>
      <td>Encourages transparency beyond direct operations, highlighting full ESG impact.</td>
    </tr>
    <tr>
      <td>Connectivity with financial reporting</td>
      <td>Integrate ESG data with financial statements to show clear links between sustainability risks/opportunities and financial health.</td>
      <td>Bridges sustainability and financial strategies for holistic reporting.</td>
    </tr>
    <tr>
      <td>Forward-looking disclosures</td>
      <td>Provide historical data, future targets, and scenario analysis for sustainability risks and opportunities.</td>
      <td>Helps stakeholders assess long-term plans and credibility of commitments.</td>
    </tr>
    <tr>
      <td>Data quality and reliability</td>
      <td>Ensure ESG data is verifiable, neutral, and aligned with high-quality reporting standards, similar to financial statements.</td>
      <td>Builds trust and credibility among investors and stakeholders.</td>
    </tr>
    <tr>
      <td>Reporting boundaries</td>
      <td>Align ESG reporting with financial boundaries, including subsidiaries and joint ventures.</td>
      <td>Ensures consistency and comparability across all corporate disclosures.</td>
    </tr>
  </tbody>
</table>


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.

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).

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.

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.

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.

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.

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.

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.

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

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