ESRS and ESG: How Corporate Sustainability Is Changing

European Sustainability Reporting Standards (ESRS): Meaning, Impact, and Implications for Companies

The introduction of the European Sustainability Reporting Standards (ESRS) has redefined what sustainability in business means today. These standards do not simply require more comprehensive reports. They impose a cultural shift: data-driven decision-making, sustainable leadership, widespread ESG skills, and processes aligned with environmental, social, and governance risks and opportunities.

What Are the ESRS?

The ESRS are European standards that uniformly define how companies must report on sustainability. They represent the regulatory framework introduced by the Corporate Sustainability Reporting Directive (CSRD) to ensure that European companies communicate data that are comparable, verifiable, and useful for stakeholder decision-making.

The ESRS specify what must be reported, how it must be measured, and which criteria should be used to assess environmental, social, and governance impacts. For this reason, they go beyond final disclosure. They require a structured internal system capable of linking strategy, governance, risks, objectives, and performance.

The ESRS cover all ESG dimensions and introduce a key concept: double materiality. Companies must assess not only their impact on the environment and people, but also how environmental and social changes affect the business. This approach integrates sustainability directly into decision-making. It is no longer external to the core business. It becomes a factor that influences competitiveness, risk management, and the ability to attract investment.

The structure of the ESRS is broad and modular. It includes general standards applicable to all companies and thematic standards covering climate, pollution, water resources, biodiversity, circular resource use, workforce, value chain workers, communities, consumers, and governance. Each disclosure requires precise metrics, documented measurement criteria, transition plans, and medium- to long-term targets. This level of detail changes the corporate perspective: reporting cannot be built at the end of the process. It must be designed upstream, with clear processes and responsibilities.

The introduction of the ESRS is also a cultural accelerator. High-quality reporting is rooted in consistent behaviors, mature processes, and conscious leadership. Sustainability training pathways, such as those included in the AR19 training catalog, reflect the same principle: knowing the standards is essential, but not sufficient. What is needed is an organizational culture capable of integrating people, processes, and objectives into a coherent and measurable system. The ESRS make this coherence not just desirable, but necessary, requiring companies to develop skills, tools, and risk analysis capabilities that until recently were considered secondary.

For this reason, the ESRS represent a turning point. Companies can no longer simply declare their commitment to sustainability. They must demonstrate it through data, governance, metrics, and results: transparently, comparably, and verifiably. In this new scenario, sustainability moves from narrative to management system and becomes a stable component of corporate strategy, management responsibility, and organizational culture.

How Are the ESRS Different from ESG?

The ESRS differ from ESG because they transform interpretative criteria into regulatory standards. While ESG indicates which environmental, social, and governance aspects should be observed to assess a company’s sustainability, the ESRS define how those aspects must be measured, reported, and demonstrated through metrics. ESG acts as a compass for analysis and investment. ESRS function as an operational manual, with precise instructions that companies must follow to comply with European regulation.

The main difference lies in the mandatory nature of the ESRS. For years, ESG criteria were interpreted inconsistently by investors, rating agencies, and companies, leading to confusion and wide variation in disclosed information. With the ESRS, reporting is no longer free or subjective. It becomes structured, standardized, and verifiable. Companies must demonstrate with accurate data how they manage ESG risks, what objectives they pursue, and what results they achieve over time.

The ESRS also introduce a greater level of depth than traditional ESG criteria. Each disclosure must be linked to strategy, governance, decision-making processes, and risk management. Declaring commitments is no longer sufficient. Companies must show how sustainability is integrated into daily operations, what resources are used, what impacts are generated, and how material issues are governed.

Another fundamental difference is double materiality. ESG traditionally focuses on the financial perspective, how ESG factors affect economic performance. ESRS add a second dimension: how the company affects the environment and society. This broadens corporate responsibility, forcing organizations to assess direct and indirect impacts across the entire value chain. Sustainability is no longer just a risk to manage, but an information duty toward all stakeholders.

The ESRS also require companies to define clear, measurable, time-bound objectives. Businesses must explain how they intend to reduce impacts, improve performance, and achieve concrete results, as well as how progress is monitored, what resources are invested, and what skills are activated. In this sense, the ESRS elevate sustainability to a higher managerial level, transforming it into a strategic lever involving multiple functions, from top management to operational teams.

Finally, the ESRS strengthen the role of governance. Companies must demonstrate that boards of directors and top management actively guide sustainability strategy, understand material risks, and make coherent decisions. Sustainability thus becomes an integral part of corporate responsibility, measured and reported with the same rigor as financial performance.

Who Do the ESRS Apply To?

The ESRS apply to companies required to produce sustainability reporting under the CSRDnamely large companies, public-interest entities, and, progressively, listed SMEs. This expansion means that more organizations must adopt structured systems for data collection, impact assessment, and sustainability governance.

Specifically, the ESRS apply to large companies exceeding two of the following three thresholds: more than 250 employees, €40 million in turnover, or €20 million in total assets. For these companies, CSRD-compliant sustainability reporting is mandatory, verified, and integrated into the management report.

Listed SMEs will also be subject to the ESRS, albeit in a simplified form. From 2026, they will be required to apply the ESRS for SMEs, reporting material environmental, social, and governance aspects. For many, this represents a significant shift: sustainability becomes an operational requirement, not just a reputational one.

Even companies not legally obliged are indirectly affected through the value chain. CSRD-covered companies must demonstrate how they manage impacts, risks, and opportunities involving suppliers, contractors, and partners. As a result, many non-obligated companies will still need to provide sustainability data, respond to structured questionnaires, adopt ESG policies, and demonstrate compliance.

The ESRS also apply to non-EU multinational companies with significant operations in Europe, extending the European sustainability framework beyond EU borders and positioning it as a global reference standard.

What Changes in Practice for Companies?

The ESRS change how companies understand and integrate sustainability into decision-making. The shift is from a voluntary, descriptive approach to a mandatory, metric-based model with clear responsibilities and measurable outcomes. Sustainability becomes part of strategy, operating models, and governance.

Data quality becomes central. Companies must rely on continuous, structured processes rather than year-end data collection. Risk management also evolves: ESG risks must be integrated into strategic planning, assessing how climate change, social dynamics, and governance issues affect business continuity.

Governance responsibility intensifies. Sustainability decisions must be understood and guided by boards and top management. The value chain becomes a critical area, as sustainability information is increasingly required by customers and investors. Internal skills must evolve, combining technical ESG knowledge with leadership, data literacy, and change management capabilities.

Ultimately, performance itself is redefined. Companies must demonstrate not only financial results, but also how effectively they manage impacts and risks over time.

Conclusion

The transition to the ESRS offers companies an opportunity to rethink how they create value. Sustainability becomes a lens through which strategy, culture, and decision-making are aligned. Companies that embrace the ESRS as a cultural journey, not merely a technical obligation, gain credibility, resilience, and competitive advantage. Sustainability moves from declaration to daily practice, and from obligation to future readiness.

ESRS and Organizational Culture

The ESRS link sustainability to organizational behavior. Compliance depends not only on technical accuracy, but on the company’s ability to act consistently with sustainability principles. Transparency, responsibility, and risk awareness must be embedded in daily operations.

A misaligned culture undermines ESG credibility. Conversely, a strong culture enables reliable data, robust processes, and coherent decision-making. The ESRS act as a lens revealing cultural maturity and leadership quality.

Essential Skills Under the ESRS

Key competencies include systemic ESG thinking, advanced risk assessment, strong governance capabilities, effective internal communication, technical reporting expertise, digital and data skills, and change management. Above all, behavioral coherence becomes essential: credibility arises from daily actions, not from reports alone.

How Risk Management Changes

Risk management becomes forward-looking and integrated. ESG risks are no longer technical add-ons but strategic considerations rooted in human behavior, data quality, leadership, and value-chain collaboration. Risk becomes a cultural capability, not just a procedural one.

Which Business Processes Must Change?

Strategic planning, operations, data management, governance, value-chain management, and internal communication must all evolve. The ESRS do not add new processes—they transform existing ones to reflect sustainability as a quality and responsibility criterion.

Building an ESRS-Compliant Reporting System

An ESRS-compliant system is built by following the official standards, starting with ESRS 1 and ESRS 2, then integrating thematic standards. Continuous data collection, strong governance oversight, rigorous materiality assessment, and a balance between technical rigor and strategic narrative are essential.

When done well, reporting becomes a year-round management system rather than a compliance exercise.

Alberto Rosso

CEO/Director AR19