From the Trenches
CSRD Hub Newsletter #12
January 2025
 

First things first: What is the sustainability statement?

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The sustainability statement is your main sustainability report in the new world of ESRS reporting. 

As with all things ESRS, it has some prescribed components with a host of elements built on judgment. And it must be assured. More on what it includes and where it lives next.

But before we get to the mechanics it’s important to remember that this statement isn’t just a summary or a compliance-driven structure. It’s where your company demonstrates how you’re addressing material sustainability issues across environmental, social, and governance (ESG) dimensions, linking these efforts to your strategy and performance. 

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What is in it?

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The sustainability statement is structured into General Information, Environmental, Social, and Governance sections as outlined in ESRS 1 Appendix D and F. Here’s a breakdown:

• General Information: This section includes disclosures mandated by ESRS 2. It addresses the ESRS 2 disclosures covering, among other things, governance structures, sustainability-related strategies, and processes for managing impacts, risks, and opportunities (IROs).

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• Environmental Information: Covering the topics and related information deemed material under ESRS E1 to E5, this section tackles topics such as climate change, biodiversity, pollution, and circular economy. Importantly, it also includes EU Taxonomy disclosures for companies required to include them.

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• Social Information: This part includes material topics and information for ESRS S1 to S4, such as workforce matters, supply chain practices, community impacts, and consumer-related risks. 

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• Governance Information: The governance section focuses on ESRS G1 requirements, detailing business conduct, anti-corruption measures, and board-level oversight of sustainability matters.

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ESRS 1 Appendix F provides illustrative examples of how these sections should flow, ensuring clarity and usability.

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Keeping things lively: There are some “quirks” to be aware of though, in terms of where specific information is included. More on that in just a bit.

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Where is it published?

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The sustainability statement is published within the management report, as explicitly required under ESRS 1. 

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Companies have the option to incorporate information by reference, as outlined in ESRS 1 Section 9.1. For example, references can link to related content in the Remuneration Report or governance statements, provided these meet the same assurance and language criteria. Everything must be tied back to structured and reliable reporting formats.

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What are some “quirks” to be aware of?

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Here we have to have a little fun. 

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In many cases, getting the material information into the right parts of the sustainability statement is a little like solving a riddle or puzzle—get the pieces in the right places, and the whole picture should make sense. 

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Riddle me this: When does “all topic standards are subject to double materiality” not really mean ALL topic standards are subject to double materiality?

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Answer: When we are talking about topic-specific IRO-1 disclosures. 

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Blink and you might miss it: ESRS 1 paragraph 29 specifies the Disclosure Requirements always to be included irrespective of the outcome of materiality. These include the ESRS 2 IRO-1 requirements (listed in Appendix C of ESRS 2) that are located in the topic standards, which are to be included even if the respective topic is ultimately deemed not material.  

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In other words, all IRO-1 disclosures – from those in ESRS 2 (which describe the overall DMA process) to those included under topical standards (namely, all environmental topics and G1) – are REQUIRED regardless of the materiality of the underlying topical standards. 

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That means, the IRO-1 disclosure made under General Information must also include the IRO-1 disclosures under E1, E2, E3, E4, E5 and G1.

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​Main takeaway: Read those before beginning the DMA, as they have surprisingly specific requirements that will need to be addressed. For example, E1 Paragraphs 20 and 21 require information on how IROs related to a very long list (as outlined in application requirements) of climate-related physical and transition risks are identified and how scenario analysis is used to define them. 

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Riddle me this: When are topical standards disclosures not actually reported with the topical standards disclosures?

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Answer: When they are “topic-specific ESRS 2” disclosures (that is, unless we are talking about SBM-3). 

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Let’s take this one in phases.

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Here’s the catch: as outlined in Appendix C of ESRS 2, certain ESRS 2 disclosures that are included in the topical disclosures, such as GOV-3 under E1 (Climate Change), aren’t reported within the topical standards section. 

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Instead, when they are material, these disclosures are included in the General Information section of the sustainability statement, alongside the broader ESRS 2 disclosures to which they pertain. The logic behind this placement is in theory to provide a clear, cohesive view of how sustainability issues are addressed across the organization. 

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Key takeaway: While topical IRO-1 disclosures are always required, the other topic-specific ESRS 2 disclosures listed in Appendix C are only reported when material. But they are to be provided in the General Information section.

The exceptions to ESRS 2 disclosures that appear in General Information are the Minimum Disclosure Requirements and potentially SBM-3 disclosures, which we get to next.

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Riddle me this: When are ESRS 2 disclosures NOT included with the ESRS 2 disclosures in General Information?

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Answer: When they are the Minimum Disclosure Requirements, and potentially, SBM-3 details.

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Consider this the flip side of the previous riddle: there are times when disclosure requirements in ESRS 2 are actually reported alongside the topical disclosures.

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• Minimum Disclosure Requirements (MDRs): These should be reported alongside the topical disclosures they relate to. For example, an MDR disclosure tied to biodiversity initiatives under E4 will belong in the Environmental Information section.

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• SBM-3 Details: Some elements of SBM-3 can be included within the topical disclosures, particularly if this enhances understanding and avoids unnecessary duplication. Think about current financial effects and plans to address IROs – these likely make more sense in the topic-based chapters.

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What is the link to the double materiality assessment?

 

The double materiality assessment is the foundational process that drives the entire sustainability statement. 

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It determines not only the material matters and IROs but also the material information to be disclosed. ESRS 1 Appendix E provides a flowchart illustrating how to assess materiality and decide what information to include.

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We’ll return to specifics on material information in a future newsletter, but be sure to join our upcoming webinar, where we’ll apply lessons learned from a year of materiality assessments and priorities from assurance providers and regulators to provide step-by-step guidance.

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Helpful tips and resources

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Use taxonomy and tagging guidance to help drafting now

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There are of course many resources on the EFRAG site, but one that you might have missed: Illustrative Taxonomy reports. 

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Companies have time to implement digital tagging, but these resources actually provide Word-based documents for each section that companies can build on now. Here is the main site for digital taxonomy resources but take a look at this one for starter chapters – highly recommended!

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And remember, the structure of the sustainability statement is a core focus of assurance and enforcement and is called out specifically in ESMA’s priorities for 2024.

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See our December “From the Trenches” newsletter for more information on what is likely to be addressed by assurance providers and regulators when looking at sustainability statements.

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Dig deeper into double materiality and our ESRS resources

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Don’t forget to join us for our 2025 webinar, Double Materiality 201, where we will dive into

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• Lessons learned from early adopters

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• Emerging priorities of assurance providers & regulators

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• Practical approaches to ensure materiality assessments are pragmatic and fit for purpose

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Check out our resources on our CSRD Hub and LinkedIn group.​​​​​