ESG & CSRD Compliance: How Companies Can Navigate New Corporate Transparency Standards

21 Feb 2025

The European Sustainability Reporting Standards (ESRS) are setting new benchmarks for corporate transparency and ESG. Released by the European Financial Reporting Advisory Group (EFRAG) on June 9, 2023, ESRS Set 1 establishes sustainability reporting requirements under the Corporate Sustainability Reporting Directive (CSRD). These standards ensure that companies disclose environmental, social, and governance (ESG) data in a consistent and meaningful way, helping investors, policymakers, and stakeholders make informed decisions.

The three pillars of ESG: Environmental, Social, and Governance

ESG (Environmental, Social, and Governance) is a framework used to assess a company's ethical impact and sustainability efforts. It helps investors, consumers, and regulators evaluate how businesses manage non-financial risks and opportunities, shaping responsible decision-making. This framework encompasses three categories:

Environmental focuses on how a company interacts with nature. This includes efforts to reduce CO₂ emissions (such as investing in electric vehicles), improve waste management, and conserve natural resources.

Social covers a company's relationships with people and communities. Key initiatives include fair working conditions, diversity programs, and community engagement—for example, Microsoft’s digital skills training for disadvantaged groups.

Governance ensures integrity, transparency, and shareholder rights. Strong governance practices, such as separating CEO and Chairman roles, help prevent conflicts of interest and maintain corporate accountability.

By embracing ESG principles, companies can drive positive change while enhancing long-term value for stakeholders.

ESRS Set 1 explained: what companies need to know about ESG compliance

ESRS Set 1 provides a framework for ESG reporting to:

Improve transparency – Ensure companies provide standardized, comparable ESG data.

Support EU policies – Align corporate reporting with the EU Green Deal.

Enhance decision-making – Provide reliable ESG insights for investors and stakeholders.

ESRS Set 1 establishes a universal ESG reporting framework applicable across all industries, with future sector-specific standards addressing unique sustainability concerns. While most disclosures are mandatory, voluntary elements encourage companies to enhance transparency beyond compliance. Additionally, ESRS aligns with global ESG frameworks, such as the Task Force on Climate-Related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI), ensuring international consistency.

The Double Materiality approach

A key principle of ESRS Set 1 is double materiality, requiring companies to assess ESG factors from two perspectives:

Impact materiality – how corporate operations affect the environment and society.

Financial materiality – how ESG risks and opportunities influence a company’s financial performance.

By integrating both dimensions, businesses can provide a holistic view of their sustainability performance.

Who must comply with CSRD & ESG reporting requirements?

The CSRD significantly expands ESG reporting obligations, impacting more than 50,000 companies across the EU. Compliance deadlines vary based on company size and category:

Large companies (500+ employees) under NFRD – Reporting starts in 2024 for FY 2023.

Other large companies – Reporting begins in 2025 for FY 2024.

Listed SMEs & non-EU companies with significant EU operations – Reporting begins in 2026.

Risks of non-compliance with ESG & CSRD regulations

Failure to comply with ESG and CSRD regulations can result in legal penalties, reputational damage, and financial setbacks. Non-compliant companies may face regulatory fines, reduced investor trust, and exclusion from responsible investment funds. Additionally, failing to align with ESG requirements can limit market opportunities, disrupt supply chains, and lead to inefficiencies in risk management and operations. By prioritizing compliance, businesses can mitigate these risks and enhance long-term resilience.

Challenges in adopting ESRS standards

Shape While ESRS Set 1 provides a structured approach to ESG reporting, many businesses face challenges in implementation.

One major obstacle is data collection. Companies must gather accurate and verifiable ESG data across internal departments and supply chains, often requiring significant investment in data management systems.

Another challenge is capacity building. Employees need training on ESG reporting standards and how to integrate sustainability metrics into existing financial reporting processes.

Finally, technology adoption is essential. Organizations must implement digital tools to streamline ESG reporting, enhance compliance tracking, and improve efficiency.

Why ESRS compliance matters: business benefits and competitive edge

Despite these challenges, ESRS compliance presents several strategic advantages.

Companies that adopt ESG reporting standards proactively can enhance their competitive advantage by demonstrating leadership in sustainability. Transparent reporting builds investor confidence, making businesses more attractive to responsible investment funds.

From a risk management perspective, ESG compliance helps companies identify operational risks and regulatory requirements early, allowing them to develop more resilient business strategies. Additionally, aligning with international ESG frameworks ensures that organizations remain competitive in the global marketplace.

The CSRD and ESRS Set 1 are reshaping corporate sustainability reporting, making compliance a priority for companies across industries. Organizations that act now will not only meet regulatory requirements but also strengthen investor confidence and enhance market positioning.

Ready to strengthen your ESG compliance strategy?

Ensuring CSRD and ESRS compliance can be challenging, but the right approach makes all the difference. Orange Business offers expert-driven solutions, from materiality assessments to automated ESG reporting tools, helping you simplify sustainability reporting and stay ahead of regulatory changes.

Get in touch today for tailored ESG compliance support!

Dr. Bin You - Head of Enterprise Performance Management

Dr. Bin You is an experienced expert in budgeting, forecasting, and Enterprise Performance Management (EPM) with over 10 years of experience across various industries, like banking, insurance, healthcare, and logistics. As Head of EPM at Orange Business Switzerland, he leads a team that supports companies in optimizing planning and reporting processes. Dr. You has in-depth knowledge of FP&A, consolidation, and ESG, and holds a doctorate in Biometrics and Informatics.