ESRS Standards Explained: A Technical Breakdown

The European Sustainability Reporting Standards (ESRS) are 12 standards that define exactly what companies disclose under the Corporate Sustainability Reporting Directive (CSRD). Two are cross-cutting (ESRS 1, ESRS 2), five cover the environment (E1–E5), four cover social and workforce matters (S1–S4), and one covers governance (G1).

ESRS is the CSRD rulebook for in-scope companies: those above the post-Omnibus thresholds report against it. Small and growing businesses (SMEs) are not in scope and do not apply ESRS; they have a voluntary route, the Voluntary Sustainability Reporting Standard for SMEs (VSME), which mirrors the same topics at a proportionate scale. Whether you report under ESRS, advise companies that do, or supply one of them, understanding the standards explains the logic behind every sustainability data request.

This guide explains all 12 ESRS standards in plain English, shows how double materiality works, and maps where VSME covers each topic. For the topic list at a glance, see CSRD Topics: The 12 ESRS Areas SMEs Need to Know.

What Are the ESRS?

The ESRS are technical standards drafted by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission under the CSRD. The original set came into force in January 2024. A revised, simplified set of ESRS was adopted by the Commission as a delegated act on 3 July 2026: it reduces the datapoints companies must report, keeps double materiality with a lighter, top-down assessment, and makes ESRS 2 the only standard that is mandatory for every reporter. The revised standards apply to financial years starting 1 January 2027, with early adoption possible for FY2026, and are in the Parliament and Council scrutiny period as of late July 2026.

They tell large companies:

• What topics to report on (climate, workforce, governance, etc.)
• How to structure disclosures (policies, targets, metrics, governance)
• Which data points are mandatory vs. voluntary

The first wave of large companies started reporting under ESRS for financial years beginning on or after 1 January 2024. The Stop-the-Clock Directive (EU) 2025/794 then postponed the later waves by two years. Separately, the Omnibus I simplification directive (in force 18 March 2026) narrowed who is in scope: mandatory CSRD reporting now applies only to companies with more than 1,000 employees and net turnover above €450 million. Mid-sized companies (250 to 1,000 employees) and listed SMEs have been removed from scope entirely. See updated CSRD deadlines by country for the full timeline.

SMEs below those thresholds are not CSRD filers and do not apply ESRS. Instead, EFRAG published the VSME Standard as a voluntary, proportionate route that covers the same topics at an achievable level of detail.

The 12 ESRS Standards at a Glance

ESRS 1 and ESRS 2 are cross-cutting: they set the framework for all reporters. Under the revised ESRS adopted on 3 July 2026, ESRS 2 is the only standard that is always mandatory. The remaining 10 (E1–E5, S1–S4, G1) are material-only, included in a report just when the company’s double materiality assessment flags the topic. The revised standards are mandatory from FY2027, with optional early adoption for FY2026.

ESRS 1 and ESRS 2: The Foundation

ESRS 1 — General Requirements

ESRS 1 sets the ground rules. It defines:

• Double materiality — the concept at the heart of CSRD (explained in detail below)
• Reporting principles — accuracy, comparability, timeliness
• Time horizons — short (1 year), medium (up to 5 years), long-term (beyond 5 years)
• Value chain scope — when to include upstream suppliers and downstream customers

ESRS 2 — General Disclosures

ESRS 2 is the one standard that is always mandatory for CSRD-reporting companies, regardless of materiality. It requires:

• Governance: Who oversees sustainability (board, committees, management roles)
• Strategy: How sustainability issues relate to the company’s business model
• Risk and opportunity management: How sustainability risks are identified and managed
• Targets and metrics: Company-level sustainability goals and performance data

Environmental Standards (E1–E5)

E1 — Climate Change

E1 is the most complex and typically the most material standard for any business with significant energy use or transport emissions.

It covers:

• Scope 1 emissions — direct emissions from owned operations (vehicles, on-site combustion)
• Scope 2 emissions — indirect emissions from purchased electricity and heat
• Scope 3 emissions — value chain emissions (business travel, purchased goods, freight)
• Energy consumption — total energy use and the share from renewables
• Climate transition plans — how the company will reduce emissions in line with EU targets

E2 — Pollution

E2 covers releases to air, water, and soil — particularly relevant for manufacturing, chemical, agricultural, and automotive businesses. It includes VOC emissions, heavy metals, and nutrient pollution. For most office-based or service businesses, E2 is typically not material.

E3 — Water and Marine Resources

E3 addresses water withdrawals, consumption, and discharges, particularly in water-stressed areas. Relevant for food production, textile, chemical, and hospitality sectors.

E4 — Biodiversity and Ecosystems

E4 is one of the newer areas and often least familiar to reporters. It covers impacts on land, species, and ecosystems — particularly relevant where operations sit near protected areas or materials are sourced from high-biodiversity regions.

E5 — Resource Use and Circular Economy

E5 covers inflows (materials, water, energy) and outflows (products, waste), with a focus on circularity — reducing waste, increasing recycling, and designing products for end-of-life.

Social Standards (S1–S4)

S1 — Own Workforce

S1 is typically the most material social standard for any company with employees. It covers:

• Employment conditions — contracts, working hours, remuneration
• Health and safety — injury rates, sick leave, H&S management systems
• Diversity and inclusion — gender pay gap, diversity in management
• Training and development — hours per employee, career pathways
• Collective bargaining — union coverage and social dialogue

S2 — Workers in the Value Chain

S2 addresses labour rights for workers upstream (in the supply chain) and downstream (contractors, logistics). It asks companies to identify human rights risks across their value chains.

S3 — Affected Communities

S3 covers local communities impacted by a company’s operations — land rights, community consultation, access to resources. More relevant for extractive industries, large infrastructure projects, and businesses operating in rural or developing regions.

S4 — Consumers and End-Users

S4 addresses product safety, accessibility, customer data privacy, and responsible marketing. Relevant for retail, healthcare, financial services, and technology businesses.

Governance Standard (G1)

G1 — Business Conduct

G1 covers how the company manages ethical risks:

• Anti-corruption and anti-bribery — policies, training, incidents
• Political lobbying and contributions — transparency on public affairs activities
• Supplier relationships — payment terms, fair dealing, no abusive practices
• Whistleblowing mechanisms — secure channels for reporting concerns

Double Materiality: The ESRS Core Concept

Double materiality is the principle that companies must assess sustainability from two directions:

For an in-scope company, a topic is material (and therefore requires full ESRS disclosure) if it is significant from either direction.

Practical example for a manufacturer:

• Financial materiality: Rising energy costs and carbon taxes make E1 (climate) financially material, because they affect the bottom line.
• Impact materiality: A production process generates waste that pollutes a local river, so E2 (pollution) is impactful, even if it has no direct financial effect yet.

Both directions matter, and both trigger reporting obligations.

The double materiality assessment is what an in-scope company runs to decide which topical standards (E1–E5, S1–S4, G1) appear in its report. SMEs are not required to run one: the VSME assumes the most common topics (energy, waste, workforce, governance) apply to all businesses and builds them into the Basic Module by default. Use the Double Materiality Assessment Wizard to see which ESRS topics are most likely to be material.

How the VSME Maps to ESRS

SMEs do not apply ESRS, but they often receive ESRS-shaped questions from in-scope customers and banks. The VSME was designed to mirror ESRS at a proportionate scale, so most ESRS topics have a clear VSME analogue. Here is how the two frameworks correspond:

This means a VSME Basic report already demonstrates alignment with the most commonly material ESRS topics. The Comprehensive Module fills in the gaps when clients or investors need deeper evidence. Note that C3 (GHG targets) and C4 (climate risks) are the disclosures banks and large customers request most often.

One naming change is coming. On 3 July 2026 the Commission adopted the VSME-based Voluntary Standard (VS) as a delegated act: it keeps the Basic and Comprehensive two-module structure and becomes the legal reference from FY2027, with early adoption from FY2026. See what changes when VSME becomes the VS.

If you are an SME fielding these requests, an ESG answer bank keeps your VSME answers in one place so you can respond to customer and bank questionnaires without rebuilding them each time. Not sure which VSME level fits? See VSME Basic vs Comprehensive Module.

Which ESRS Topics Are Most Often Material?

A topic appears in an ESRS report only when an in-scope company’s double materiality assessment flags it (SMEs do not run this assessment). Across most sectors, these five topics tend to come out material most often, and they are also the topics that surface most in supplier questionnaires:

1. E1 — Climate/GHG — almost all businesses have energy bills and business travel
2. S1 — Own workforce — any business with employees
3. G1 — Business conduct — anti-bribery policies are now standard procurement requirements
4. E5 — Waste — any business generating material volumes of waste
5. E2 — Pollution — manufacturing, chemical, agricultural, and automotive businesses

Topics like E3 (water), E4 (biodiversity), and S2–S4 (external stakeholders) tend to become material in more resource-intensive operations or more complex value chains.

Frequently Asked Questions

Do SMEs have to report against the full ESRS?

No. ESRS applies only to companies in scope of CSRD: those with more than 1,000 employees and net turnover above €450 million. Small and growing businesses (SMEs) are not CSRD filers and can use the VSME Standard instead, which applies the same principles at a proportionate scale. The VSME has no mandatory assurance and significantly fewer data points than the full ESRS set.

What is the difference between ESRS and CSRD?

The CSRD is the law — it determines who must report and by when. The ESRS are the rules — they specify what to report and how. CSRD without ESRS would be like a law with no definitions. For the SME equivalent, the VSME takes the place of the full ESRS. See the complete guide to CSRD for SMEs for context on who is in scope.

Which ESRS standard is most commonly relevant to SMEs?

E1 (Climate Change) and S1 (Own Workforce) are the two most frequently requested topics in client supply chain questionnaires. Almost every business uses energy and has employees, making these the practical starting point for any sustainability disclosure.

What is double materiality and do SMEs need to assess it?

Double materiality requires assessing both how sustainability issues affect your business (financial) and how your business affects the world (impact). Under the VSME, SMEs do not need a formal double materiality assessment — the standard already assumes the most common topics are material. Larger SMEs or those entering complex supply chains may benefit from a basic assessment using the Double Materiality Assessment Wizard.

How many ESRS standards are there?

There are 12 ESRS standards: ESRS 1 and ESRS 2 (cross-cutting), E1–E5 (environmental), S1–S4 (social), and G1 (governance). ESRS 1 sets the ground rules and ESRS 2 is mandatory for every reporter; the remaining 10 are topic-specific and only require disclosure if the topic is material to the company. The revised ESRS adopted on 3 July 2026 keep this 12-standard structure while reducing the datapoints within it.

How do I know which ESRS topics I need to report on?

Large companies determine this through a formal double materiality assessment. For SMEs, the practical starting point is to focus on the topics that most obviously relate to your operations: energy use, waste, workforce, and governance. The VSME Basic vs Comprehensive Module guide can guide you to the right level of disclosure for your business size and sector.

Key Terms

• CSRD — Corporate Sustainability Reporting Directive (EU 2022/2464): the EU law requiring large companies to publish sustainability reports
• ESRS — European Sustainability Reporting Standards: the 12 technical standards that define what to report under CSRD
• VSME — Voluntary Sustainability Reporting Standard for SMEs (EFRAG, 2024): the proportionate equivalent of ESRS designed for small and growing businesses
• Double materiality — assessing both how sustainability issues affect your business financially and how your business impacts society and the environment
• EFRAG — European Financial Reporting Advisory Group: the body that drafts the ESRS and VSME standards
• Scope 1–3 emissions — Scope 1 is direct (your vehicles, combustion), Scope 2 is purchased energy, Scope 3 is the full value chain
• Materiality — a topic is material if it is significant enough to require disclosure, either financially or by impact
• Stop-the-Clock Directive (EU) 2025/794 — the regulation that postponed the later CSRD reporting waves by two years
• Omnibus I — Directive (EU) 2026/470, the EU simplification directive (in force 18 March 2026) that narrowed CSRD scope to companies with more than 1,000 employees and turnover above €450 million, and removed mid-sized companies and listed SMEs
• Revised ESRS — the simplified, datapoint-reduced version of the standards adopted by the Commission on 3 July 2026; mandatory from FY2027, with early adoption from FY2026
• Voluntary Standard (VS) — the VSME-based delegated act adopted on 3 July 2026; from FY2027 it is the legal name for the voluntary SME standard and sets the ceiling on supplier data requests

Conclusion

The 12 ESRS standards form a comprehensive framework for sustainability disclosure, designed for large companies in scope of CSRD with dedicated sustainability teams. For small and growing businesses, which are not CSRD filers, the VSME provides the same logic at a fraction of the complexity.

Understanding the ESRS helps you see why your clients ask for the data they do, and how to answer their questions in a structured, credible way. Start with the VSME Basic Module — it covers the topics most commonly requested and builds the foundation for everything else.

See the glossary of CSRD, VSME, and ESRS terms for plain-English definitions of every key concept.