ESRS Under CSRD: What Sustainability Leaders Must Understand
Introduction
Sustainability leaders are encountering ESRS at a moment when expectations have fundamentally changed.
Under the Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards (ESRS) move sustainability from a predominantly narrative discipline into one that resembles financial reporting in its rigor, governance, and accountability. This is not simply about producing more disclosures. It is about demonstrating that sustainability-related risks, impacts, and opportunities are understood, governed, and embedded into how the organization operates.
For many leaders, the challenge is knowing what matters most, what can wait, and where early decisions carry long-term consequences.
Why ESRS Is Not “Another ESG Framework”
It is tempting to position ESRS alongside existing standards such as GRI or SASB. But, that comparison understates what ESRS is designed to do. ESRS introduces:
Mandatory application under EU law
Audit-grade expectations
Explicit links to strategy, risk management, and financial performance
Forward-looking disclosures subject to management accountability
In effect, ESRS treats sustainability information as decision-useful business information, not contextual reporting. For sustainability leaders, this marks a shift from stewardship of narratives to stewardship of systems, controls, and judgments.
This is why ESRS, and it’s big sister CSRD, are drawing in CFOs, audit committees, and internal audit teams much earlier than previous ESG initiatives.
Who ESRS Applies To and Why Scope Decisions Matter More Than Speed
One of the earliest pressure points in ESRS implementation is scope.
CSRD significantly broadens the number of organizations required to report, including large EU undertakings, listed SMEs (with transitional provisions), and non-EU companies with material EU activity. Determining applicability has not always been straightforward and has often requires legal and accounting input. However, the most common mistake is not underestimating scope, it is over-scoping prematurely.
Attempting to address every ESRS topic in the first reporting cycle can:
Dilute focus on genuinely material issues
Overwhelm data owners
Increase delivery risk
Reduce the quality and defensibility of disclosures
Ultimately, an ‘everything approach’, usually leads to burn-out and low morale, as employees feel the weight of an avalanche of requirements. And whats worse is that it signals poor strategic capability in the leadership team. Instead, disciplined scoping decisions, clearly documented and governed, are one of the strongest signals of ESRS maturity.
ESRS Double Materiality: Conceptually Simple, Practically Difficult
Double materiality sits at the center of ESRS and is widely misunderstood. Under ESRS, organizations must assess:
Impact materiality: the organization’s impacts on people and the environment
Financial materiality: sustainability matters that could reasonably affect enterprise value
As with newer disclosure requirements, there is an expectation of rigor around ESRS. Auditors and regulators are not necessarily assessing whether sustainability leaders selected the “correct” topics. They are assessing whether the process:
Followed a clear methodology
Used reasonable assumptions
Involved appropriate governance
Produced explainable outcomes
Double materiality has become a judgment exercise, and ESRS requires those judgments to be explicit and defensible.
For a deeper dive into materiality see How Materiality Guides Executive Decision Making
What ESRS Changes for Sustainability Leaders Personally
Here is where it gets personal. ESRS also changes the personal risk profile of sustainability leaders. Responsibilities increasingly include:
Explaining judgments to auditors
Aligning sustainability positions with financial narratives
Coordinating across legal, finance, risk, and operations
Defending human-reviewed forward-looking statements
This shift elevates the sustainability function, but it also exposes it. Leaders who approach ESRS as a reporting exercise often find themselves pulled into governance discussions they were not prepared for. But those who treat ESRS as an operating model decision gain credibility and influence.
For a wider lens on the impact that ESRS will have on sustainability leaders check out: CSRD Explained: What Sustainability Leaders Are Now Legally Accountable For.
What to Do Before You Think About Tools or Technology
I talk a lot here about the use of AI, automations, and agents. And, it’s fair to say that technology will play a role in ESRS compliance. But introducing tools before clarity exists often creates more risk than it removes. Before selecting software or AI-enabled solutions, sustainability leaders should be able to answer:
Which ESRS topics are in scope, and why?
Who owns each datapoint?
What level of control and assurance is required?
Where is management judgment applied?
Without these answers, technology will only serve to amplify confusion rather than resolving it.
It is also worth pointing out here, that in 2025 policymakers introduced the “Omnibus Simplification Package”, designed to reduce the reporting burden of CSRD / ESRS. This simplification is intended to lower the number of mandatory datapoints by around 60% under ESRS Set 2 (the simplified version of Europe’s sustainability reporting standards). At the time of writing (Feb-26) the new approach had not yet been reached / agreed.
Conclusion
ESRS similar to other modern disclosures is testing whether sustainability is governed with the same discipline as financial performance and risk.
For sustainability leaders, success lies less in technical mastery of the standards and more in the quality of early decisions: how scope is set, how materiality judgments are made, how ownership is defined, and how governance holds. ESRS does not require perfection in the first reporting cycle, but it does require clarity, defensibility, and intent.
Leaders who treat ESRS as an operating model decision, rather than a reporting exercise, build credibility with auditors, finance, and the board. Those who rush to tools or overextend scope before establishing governance will find themselves reacting under pressure.
