ESRS data requirements: Challenges and solutions

The core of ESRS

The ESRS framework organizes ESG reporting into three pivotal dimensions (see Table 1 below) :

1. Environmental (E1–E5): Climate change, pollution, water and marine resources, biodiversity, and circular economy initiatives.
2. Social (S1–S4): Topics such as human rights, labor practices, community relations, and consumer responsibility.
3. Governance (G1): Ethical business practices, anti-corruption efforts, and decision-making transparency.

Key reporting components

To comply with ESRS, organizations must disclose (see Table 1 below):

• Policies: Commitments to sustainability.
• Actions: Initiatives that bring these policies to life.
• Targets: Quantifiable goals tied to sustainability outcomes.
• Transition Plans: Strategies to mitigate negative impacts and embrace sustainable practices.
• Key Metrics: Indicators that measure progress, aligned with the European Single Electronic Format (ESEF) and EU taxonomy.

Materiality assessments

A central principle of ESRS compliance is the double materiality principle, which means businesses must assess sustainability topics from two perspectives:

• Impact materiality (Inside-Out): Evaluates how a company’s operations affect people, the environment, and broader society.
  Example: A mining company must report on how its operations impact biodiversity, such as habitat destruction or pollution.
• Financial materiality (Outside-In): Examines how sustainability issues influence a company’s financial health.
  Example: A fashion brand reliant on water-intensive production must assess the financial risks of operating in water-scarce regions.

This dual lens ensures a balanced approach, integrating financial resilience with societal accountability.

Engaging stakeholders

Stakeholder engagement plays a crucial role in materiality assessments. Don’t forget that you have to include:

• Silent stakeholders (e.g., Nature): Represented through scientific studies and ecological data.
• Affected communities: Engaged through dialogue with employees, trade unions, and local representatives.
• Regulators and investors: Informed by published guidelines and sustainability frameworks.

Table 1: ESRS data requirements

Challenges in ESRS implementation

Despite its structured approach, ESRS compliance presents several challenges, particularly for small and medium-sized enterprises (SMEs).

1. Complexity of minimum disclosure requirements
ESRS 2, the overarching standard, defines methodologies for materiality assessments and sustainability due diligence. However, many organizations risk overlooking these minimum disclosure requirements (MDRs) when focusing solely on topical standards. For example, even if health and safety are deemed material, actions must still align with ESRS 2.

2. Extended supplier reporting
Tracing ESG impacts across multi-tier supply chains is arduous, especially for SMEs with limited resources. Supplier data inconsistencies, lack of transparency, and fragmented systems compound this challenge.

3. SME adaptation
Larger corporations often have existing reporting frameworks and resources to adapt to ESRS. In contrast, SMEs face:

• Resource constraints for system upgrades.
• Limited expertise in materiality assessments.
• Challenges in meeting proportional reporting frameworks, which may still impose significant demands.

Strategies for seamless ESRS compliance

1. Leverage digital tools

• AI and machine learning: Automate data collection and identify risks across supply chains.
• Blockchain technology: Enhance traceability and ensure data integrity.
• IoT devices: Monitor real-time environmental impacts, such as emissions or water usage.

2. Enhance stakeholder collaboration
Encouraging cross-departmental collaboration (finance, HR, operations) and working closely with external partners (suppliers, consultants) helps bridge knowledge gaps and ensures cohesive reporting.

3. Upskill teams
Training employees on ESRS standards and engaging external consultants can strengthen internal capabilities, particularly for SMEs navigating extended supplier reporting obligations.

4. Align reporting with strategy
Integrate ESG goals into core business strategies, ensuring that policies and actions drive measurable outcomes. This alignment not only facilitates compliance but also strengthens stakeholder trust.

Where to find the data?

Accurate ESG reporting starts with collecting the right data. Here are key sources to consider:

Internal data sources

1. Operational metrics:

• Energy usage, water consumption, waste generation, and emissions data.
• Collected via IoT devices, utility bills, and facility management systems.

2. HR and governance records:

• Employee demographics, training records, and diversity statistics.
• Ethics training, anti-corruption policies, and board-level governance practices.

3. Financial systems:

• Budget allocations for sustainability projects and cost-benefit analyses for green initiatives.

External data sources

1. Supplier data:

• ESG performance of suppliers collected through questionnaires and certifications (e.g., ISO 14001).
• Enhanced through blockchain or supplier portals for real-time traceability.

2. Industry benchmarks:

• Sector-specific ESG metrics and guidelines from global frameworks like GRI or SASB.

3. Scientific studies and reports:

• Data on biodiversity, climate risk models, and pollution impact studies for external validation.

Turning compliance into competitive advantage

By centralizing and automating ESG data collection, organizations can:

• Improve reporting accuracy and credibility.
• Gain real-time insights to drive impactful sustainability strategies.
• Enhance stakeholder trust and competitive positioning.

The BE-terna Sustainability Platform is designed to support this transformation, making ESG data collection simple, efficient, and value-driven. process.