Key Points
- Set 1 contains 12 sector-agnostic standards: two cross-cutting (ESRS 1 and ESRS 2), five environmental (E1 to E5), four social (S1 to S4), and one governance (G1).
- Only ESRS 2 is unconditionally mandatory; the ten topical standards apply only when the undertaking's double materiality assessment identifies the topic as material.
- The EU's stop-the-clock directive (April 2025) postponed Wave 2 and Wave 3 reporting by two years, pushing Wave 2 to FY 2027 and Wave 3 to FY 2028.
- EFRAG's November 2025 simplified ESRS drafts cut mandatory datapoints by 61%, with adoption of revised standards expected mid-2026 for application from FY 2027.
What is ESRS?
When Wave 1 entities filed their first sustainability statements for FY 2024, the biggest operational surprise was not the volume of data but the materiality gate. Teams that expected a tick box exercise (run through the ESRS topical list, disclose everything) discovered that the standards require a judgment-heavy double materiality assessment before a single datapoint becomes reportable. That assessment is where most of the early implementation effort landed.
ESRS 1 establishes the architecture. Every in-scope undertaking begins with a double materiality assessment (ESRS 1 paragraphs 37 to 58), evaluating each sustainability matter from two angles: impact materiality (the undertaking's actual or potential effects on people and the environment) and financial materiality (sustainability-related risks and opportunities that could affect cash flows, performance, cost of capital, or access to finance). A matter is material if it meets either threshold. ESRS 1.38 makes clear that the assessment determines which topical standards the undertaking must report against.
ESRS 2 then applies unconditionally. It requires every reporting entity to disclose governance arrangements (GOV), strategy and business model interactions (SBM), the process for identifying impacts, risks, and opportunities (the IRO assessment), and metrics and targets. The ten topical standards (five environmental and four social standards plus ESRS G1 for business conduct) add subject-specific disclosure requirements and datapoints that activate only when the corresponding topic passes the materiality gate.
For auditors, the assurance dimension is immediate. The CSRD requires at least limited assurance on the sustainability statement from the first reporting year. ISSA 5000, finalised in November 2024, becomes effective for periods beginning on or after 15 December 2026 and provides the global framework for these engagements.
Worked example: Schäfer Elektrotechnik AG
Client: German electronics manufacturer, FY 2024, revenue €310M, IFRS reporter. Schäfer is a Wave 1 entity (listed, over 500 employees) and must prepare its first ESRS-compliant sustainability statement for FY 2024, published in 2025.
Step 1 — Conduct the double materiality assessment
Schäfer's sustainability team identifies 42 sub-topics from the ESRS topical list (ESRS 1, Application Requirement 16). For each sub-topic, the team scores impact severity (scale, scope, irremediable character, and likelihood for potential impacts) and financial likelihood and magnitude. Climate change (E1), own workforce (S1), pollution (E2), and business conduct (G1) pass both thresholds. Biodiversity (E4) passes the impact threshold only. Water (E3), affected communities (S3), consumers (S4), and resource use (E5) do not meet either threshold and are excluded.
Step 2 — Map disclosure requirements to material topics
For each material topical standard, Schäfer identifies the applicable disclosure requirements and individual datapoints. ESRS E1 alone contains disclosure requirements covering greenhouse gas emissions (Scope 1, 2, and 3), energy consumption, the climate transition plan, and internal carbon pricing where applicable. The team counts 247 applicable datapoints across the five material topical standards plus ESRS 2.
Step 3 — Prepare the sustainability statement
Schäfer drafts disclosures within the management report. Scope 1 emissions total 14,200 tonnes CO2e. Scope 2 emissions (location-based) are 28,600 tonnes CO2e. The transition plan targets a 42% reduction by 2030, backed by €18M in committed capital expenditure for energy-efficiency retrofits. Workforce disclosures under ESRS S1 cover 2,840 employees across four EU sites, including gender pay gap data (7.3%) and health and safety incident rates.
Step 4 — Obtain limited assurance
Schäfer's statutory auditor performs a limited assurance engagement on the sustainability statement. The engagement covers the double materiality assessment, the completeness of the datapoint population, the accuracy of reported metrics, and the consistency of qualitative disclosures with supporting evidence. The auditor identifies that Scope 3 emissions (category 1, purchased goods) rely on spend-based estimates with a ±25% uncertainty band and includes an emphasis paragraph in the assurance report.
Schäfer's sustainability statement covers five material topical standards and 247 datapoints. The double materiality assessment follows ESRS 1's prescribed methodology and each datapoint traces to a documented source. The auditor has obtained limited assurance over the full statement.
Why it matters in practice
Firms treat the double materiality assessment as a one-off exercise performed at implementation. ESRS 1.49 requires the undertaking to update its materiality assessment at each reporting date. A topic that was immaterial in the prior year (water use, for instance) may become material after an acquisition or a regulatory change. Auditors who roll forward the prior-year materiality conclusion without re-evaluating current conditions leave a gap that inspection teams can trace directly to ESRS 1. There is a real risk that ESRS compliance becomes a ticking and bashing exercise where teams copy the prior-year file and update the numbers without questioning whether the underlying conditions have changed.
The first cycle of Wave 1 reports (FY 2024) revealed widespread confusion between disclosure requirements and datapoints. Undertakings omitted mandatory ESRS 2 disclosures (particularly IRO-1, the description of the process for identifying impacts, risks, and opportunities) on the assumption that topical materiality results exempted them. ESRS 2 applies unconditionally regardless of which topical standards are material (ESRS 1.14). Assurance providers who scope their procedures around topical standards alone miss these cross-cutting omissions. Honestly, the number of first-year files that skipped IRO-1 entirely was striking.
ESRS vs. ISSB sustainability disclosure standards
| Dimension | ESRS | ISSB (IFRS S1 / S2) |
|---|---|---|
| Materiality approach | Double materiality: impact materiality and financial materiality assessed together (ESRS 1.37–58) | Single (financial) materiality: sustainability information is material if omitting it could influence investor decisions (IFRS S1.17) |
| Scope | 12 sector-agnostic standards: five environmental (E1 to E5), four social (S1 to S4), one governance (G1), and two cross-cutting (ESRS 1 and ESRS 2); sector-specific standards in development | Two standards issued: S1 (general requirements) and S2 (climate); additional topic standards planned |
| Mandatory application | Legally binding within the EU via the CSRD for in-scope undertakings | Voluntary unless adopted by national jurisdictions; mandatory in some non-EU markets |
| Assurance | Limited assurance required from year one; move to reasonable assurance anticipated | No assurance mandate in the standard itself; depends on jurisdictional adoption |
The distinction matters because multinational groups reporting under both frameworks must reconcile different materiality conclusions. A climate risk that is financially material under IFRS S2 may also trigger impact materiality disclosures under ESRS E1 that go beyond what the ISSB requires. Auditors of dual reporters need to verify that management has not assumed equivalence where the two frameworks diverge on scope.
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Frequently asked questions
Do all ESRS topical standards apply to every company?
No. Only ESRS 2 (general disclosures) is unconditionally mandatory. The ten topical standards apply only when the undertaking's double materiality assessment identifies the corresponding sustainability matter as material under ESRS 1 paragraphs 37–58. An undertaking that concludes biodiversity is not material can omit ESRS E4, but must document and disclose the conclusion.
What changed with the EU's stop-the-clock directive?
Directive (EU) 2025/794, published 16 April 2025, postponed CSRD application for Wave 2 (large companies) and Wave 3 (listed SMEs) by two years. Wave 2 now reports for FY 2027 (published 2028). Wave 3 reports for FY 2028 (published 2029). Wave 1 entities (large public-interest entities with over 500 employees) were not affected and continue reporting under the original timeline, starting with FY 2024.
How does ISSA 5000 relate to ESRS assurance?
ISSA 5000, issued by the IAASB in November 2024, provides the global standard for sustainability assurance engagements. It is framework-neutral and covers both limited and reasonable assurance. The standard becomes effective for periods beginning on or after 15 December 2026. Until the EU adopts its own assurance standards (expected to draw on ISSA 5000), member states apply national requirements for the limited assurance engagement mandated by the CSRD.