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Sustainability reporting - A step-by-step guide

Part IV - ESRS on environmental aspects

The ecological sustainability dimension is at the core of the EU’s Taxonomy Regulation and a fundamental part of the mandatory reporting standards (ESRS) and thus highly important in the context of sustainability reporting. In the last article, we focused on the EU Taxonomy; now, this fourth article in our series on sustainability reporting is devoted to the environmental ESRS.

ESRS E - An overview 

The first set of ESRS includes twelve standards, of which two are cross-cutting standards and ten are topical standards (cf. following article). The topical standards - thereof five on environmental aspects, four on social aspects and one on governance aspects - cover the three sustainability dimensions and are each divided into so-called ‘topics’, ‘sub-topics’ and, in some cases, ‘sub-subtopics’. The environmental standards (ESRS E, where ‘E’ stands for environmental) include:

  • ESRS E1 – Climate change
  • ESRS E2 – Pollution
  • ESRS E3 – Water and marine resources
  • ESRS E4 – Biodiversity and ecosystems
  • ESRS E5 – Resource use and circular economy

Despite the thematic demarcation between the individual standards, nevertheless there are overlaps in terms of content. The sub-topics of ESRS E1 are, for example, climate change adaptation, climate change mitigation and energy. ESRS E4 is divided into, among others, the sub-topics of impacts on the state of species or direct impact drivers of biodiversity loss where, in turn, sub-sub topics, such as climate change or pollution are of significance here.

Scope of the reporting

ESRS 2 (general disclosures) has to be taken into account by all the entities that are subject to the reporting obligation; however, the application of the topical standards will depend on a materiality assessment (cf. following article).  Consequently, topic-related standards may wholly or partially (e.g., certain sub-topics) not be subject to the reporting obligation. If a particular ESRS is completely omitted then according to ESRS 2, in the section IRO-2, there is a recommendation to provide a specific explanation as to why the topic was considered to be immaterial in its entirety. In this respect, ESRS E1 (climate change) is a special case. If ESRS E1 is categorised as being an immaterial issue then, besides the conclusions from the assessment of the materiality, a prospective analysis has to be provided of the conditions that, in the future, could yet lead the company to view climate change as a material issue.

Structure of the standards and disclosure requirements

The environmental ESRS (= ESRS E) are similarly structured and, in each case, begin with an overview of the objective of the standard, its interactions with other ESRS and the relevant disclosure requirements that result from ESRS 2. The ESRS E differ, in particular, in respect of the number of disclosure requirements, which are assigned to specific reporting areas in each case.

Reporting areas 

  • Governance (GOV)
  • Strategy and business model (SBM)
  • Impact, risk and opportunity management (IRO
  • Metrics and targets (MT)

According to all the ESRS E there has to be reporting on, among other things, the process to identify and assess the materiality of the impacts, risks and opportunities for the respective topics as well as on their potential financial effects. The extent to which a company’s sustainability-related performance is integrated into its incentive schemes is however, for example, only relevant for ESRS E1 (ESRS 2 section GOV-3).

An insight into ESRS E2 on pollution

The ESRS E2 addresses the disclosure requirements for the topic of pollution and covers seven sub-topics that include, for example, the pollution of air, water and soil (ESRS E2-4). In Table 1, by way of an example, we have presented the individual disclosure requirements for ESRS E2.

In the course of a materiality assessment of environmental sub-topics, a company would assess from the perspective of the stakeholders whether or not the pollution in its own operations and in its upstream and downstream value chains (ESRS 2 IRO-1) is material. Here, the ESRS recommend a specific approach according to which companies are first (1) localised, (2) evaluated and then (3) assessed with regard to the opportunities and risks (ESRS E2 AR1): 

  • In the course of localisation, it will be relevant to ascertain where the company interfaces with nature (e.g., at its operating facilities where emissions of water, soil and air pollutants (could) occur). 
  • In a second step, the impacts and dependencies will be evaluated for each site or sector/business unit whereby the severity and likelihood of the impacts on the environment and human health will be of relevance. 
  • On the basis of these two steps, an assessment of the risks and opportunities will then be made. In doing so, opportunities can also be determined that are related to pollution prevention and reduction. A company could benefit, for example, if through environmentally sustainable production processes it could obtain access to green funds, bonds and loans.

Furthermore, according to ESRS E2-1, a company has to describe the strategy related to pollution prevention and reduction that it will deploy. The description has to contain, among other things, information about the pollutants that are included and may be integrated into cross-thematic comprehensive environmental and sustainability strategies (e.g., with regard to crop protection). 

Example: In this regard, here is a practical example from the BASF chemicals group: “BASF adheres to the International Code of Conduct issued by the World Health Organization (WHO) and the Food and Agriculture Organization (FAO) for the marketing of crop protection products. These are only marketed once they have been approved by the competent authorities. We no longer sell WHO Class 1A or 1B products (high acute oral and dermal toxicity), even if formal approvals exist.” (BASF SE, BASF Report 2023, p. 150)

The disclosure requirements of ESRS E2-2 address the subsequent actions taken and planned in order to achieve the objectives and targets of the strategy in the context of pollution. These include, for example, reducing or preventing the use of harmful or unsustainable substances in the production process; moreover, using recycled building materials in the construction sector or forgoing plastic packaging would also be possible.

Disclosure requirements in the metrics and targets category are contained in ESRS E2-4, which stipulates that the substances a company emits through its own activities have to be disclosed. Information about which ones contain, for example, ozone-depleting substances or nitrogen oxides generally has to be provided at the level of the reporting company, however, this data may also be broken down.

Please note: In addition to the standards, EFRAG (European Financial Reporting Advisory Group) has published a detailed overview of all the datapoints of the ESRS. This overview together with implementation guidance for the materiality assessment and the analysis of the value chain are available on the EFRAG website.


  • The ESRS E address five subject areas and show their interdependencies in terms of content.
  • ESRS E1 (climate change) stands out with respect to the depth of detail and the scope of the disclosure requirements.
  • The ESRS disclosure requirements have to be met while taking into account the differences in the various reporting areas.
  • EFRAG has made available comprehensive implementation guidance on the ESRS.
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