The European Commission has introduced a new legislation called the Corporate Sustainability Reporting Directive (CSRD), which aims to expand and amend the current Non-Financial Reporting Directive (NFRD). The CSRD requires companies to provide more detailed reports on a wider range of environmental, social, and governance factors. The objective of the CSRD is to harmonize reporting standards and offer investors, consumers, and other stakeholders a clear and consistent view of a company’s sustainability performance. This is expected to contribute to the broader sustainability objectives of the EU.

ESRS stands for the European Sustainability Reporting Standards, a framework designed to standardize sustainability reporting. These standards are a set of guidelines and practices designed to help companies identify, assess, and manage environmental and social risks and opportunities. The importance lies in aligning businesses with the EU’s sustainability goals, fostering responsible corporate behavior, and providing stakeholders, including investors and consumers, with reliable information to make informed decisions. ESRS plays a key role in advancing the EU’s sustainability goals and transitioning to a green economy.

Double Materiality recognizes that a company’s activities not only impact the external environment (external materiality) but are also influenced by external factors such as regulatory changes, societal expectations, and climate risks (internal materiality). 

External Materiality: Identifies and prioritizes external environmental and social impacts relevant to the company’s stakeholders, including customers, investors, and communities.

Internal Materiality: Assesses how external factors, such as regulatory changes and societal expectations, influence the company’s internal operations, strategic decisions, and risk management.