Key Points
- The sustainability statement sits inside the management report as a separately identifiable section, not as a stand-alone document.
- ESRS 1.113 prescribes four mandatory parts: general information, environmental information (including EU Taxonomy disclosures), social information, and governance information.
- The Omnibus Directive (EU) 2026/470, adopted in February 2026, narrows in-scope entities to those with more than 1,000 employees and net turnover above EUR 450M.
- Omitting a material ESRS datapoint without a documented double materiality assessment triggers both regulatory exposure and a qualified limited assurance conclusion.
What is Sustainability Statement?
ESRS 1.8 defines the sustainability statement as the vehicle through which an in-scope undertaking meets its CSRD reporting obligations. The entity builds the statement around four reporting areas per ESRS 1.21: governance of sustainability matters, strategy (including financial effects), management of impacts, risks, and opportunities through policies and actions, and metrics with targets. Each reporting area maps to specific disclosure requirements across the twelve ESRS topical standards.
Before drafting a single datapoint, the entity performs an IRO assessment to identify which sustainability matters are material. ESRS 1.33 allows the entity to omit an entire topical standard when the underlying matter is not material, provided the double materiality assessment supports that conclusion. The materiality assessment itself must be disclosed in the general information section under ESRS 2.
The statement must be both human-readable and machine-readable (ESRS 1.116), tagged in XBRL using the ESRS taxonomy published by EFRAG. The CSRD requires that an independent assurance provider issues a limited assurance conclusion on the statement. The European Commission committed to adopting EU-specific limited assurance standards by 1 October 2026, drawing on ISSA 5000 as the international baseline.
The Omnibus Directive (EU) 2026/470, formally adopted on 24 February 2026, raised the in-scope thresholds to 1,000 employees and EUR 450M net turnover. The earlier Stop-the-Clock Directive (EU) 2025/794 had already postponed Wave 2 and Wave 3 application dates by two years.
Worked example: Schaefer Elektrotechnik AG
Client: German electronics manufacturer, FY2025, revenue EUR 310M, IFRS reporter. Schaefer falls within Wave 1 (already subject to the NFRD). The sustainability team must prepare the first ESRS-compliant sustainability statement for the annual report filed in 2026.
Step 1 — Perform the double materiality assessment
Schaefer's sustainability committee identifies eight material topics through stakeholder consultation, sector analysis, and an IRO assessment per ESRS 1.33. Climate change (ESRS E1), pollution (ESRS E2), own workforce (ESRS S1), and workers in the value chain (ESRS S2) are material from both impact and financial perspectives. Resource use (ESRS E5) is material from an impact perspective only. Three topical standards (biodiversity, affected communities, consumers) are assessed as not material, with documented rationale.
Documentation note: record each topic assessed, the materiality conclusion (impact, financial, or both), the evidence base (including stakeholder input, sector benchmarks, and financial risk quantification), and the rationale for any topic deemed not material per ESRS 1.33 and ESRS 2 IRO-1.
Step 2 — Structure the statement
The team organises disclosures into the four mandatory parts. General information covers ESRS 2 (basis of preparation, materiality process, value chain description, governance structure). Environmental information covers ESRS E1, E2, and E5 plus Taxonomy Article 8 disclosures. Social information covers ESRS S1 and S2. Governance information covers ESRS G1.
Documentation note: map each disclosure requirement and datapoint to the relevant section of the management report. Record where incorporation by reference is used per ESRS 1.117, identifying the exact location of each referenced disclosure.
Step 3 — Tag and file
Schaefer's reporting team tags every mandatory datapoint in XBRL using the EFRAG taxonomy, producing a machine-readable file alongside the human-readable management report. The external auditor engaged for limited assurance reviews the XBRL tagging for consistency with the narrative disclosures.
Documentation note: retain the XBRL instance document, the mapping between tagged datapoints and narrative text, and the assurance provider's tagging review memorandum.
Step 4 — Obtain limited assurance
The auditor performs limited assurance procedures on the sustainability statement under the applicable national standard (pending adoption of EU-specific standards by October 2026). Procedures include inquiry, analytical review, and limited testing of supporting data for high-risk datapoints (Scope 1 and Scope 2 emissions, workforce headcount). The assurance conclusion is published alongside the sustainability statement in the management report.
Documentation note: file the engagement letter specifying limited assurance scope, the assurance plan identifying high-risk areas, the procedures performed at each reporting area, and the final assurance conclusion per CSRD Article 34.
Conclusion: Schaefer's sustainability statement covers five material topical standards across four structured parts, supported by a documented double materiality assessment and tagged in XBRL, producing a filing that meets CSRD Article 19a and is defensible under limited assurance review.
Why it matters in practice
Entities frequently omit the materiality assessment documentation when excluding a topical standard. ESRS 1.33 permits omission only when the matter is not material, and ESRS 2 IRO-1 requires disclosure of the process used to reach that conclusion. An auditor who accepts the omission without reviewing the underlying assessment leaves a gap that regulators will target in early CSRD inspections.
The four-part structure prescribed by ESRS 1.113 is not optional. Some first-time reporters reorganise their sustainability disclosures by reporting area (governance, strategy, metrics) rather than by the mandated sequence (general, environmental, social, governance). This structural deviation complicates XBRL tagging and creates a non-compliance risk even when the underlying content is adequate.
Sustainability statement vs. non-financial statement (old NFRD)
| Dimension | Sustainability statement (CSRD / ESRS) | Non-financial statement (NFRD / Directive 2014/95/EU) |
|---|---|---|
| Governing framework | CSRD with twelve ESRS topical standards, cross-cutting ESRS 1 and ESRS 2 | NFRD with no binding reporting standards; entities chose GRI, UN Global Compact, or proprietary frameworks |
| Structure | Four mandatory parts prescribed by ESRS 1.113 | No mandatory structure; entity discretion |
| Materiality approach | Double materiality (impact and financial) per ESRS 1.21 | Single or undefined materiality; no prescribed assessment process |
| Assurance | Limited assurance mandatory from first reporting year; reasonable assurance planned from 2028 | No assurance requirement in most Member States |
| Machine readability | XBRL tagging required using EFRAG taxonomy | No digital tagging requirement |
The sustainability statement replaced the non-financial statement for all entities brought into CSRD scope. Auditors working on Wave 1 engagements should verify that management has retired the old NFRD template and rebuilt disclosures from the ESRS disclosure requirements, rather than relabelling existing content.
Related terms
Frequently asked questions
Where does the sustainability statement go in the annual report?
CSRD Article 19a requires it to appear as an identifiable section within the management report (also called the directors' report in some jurisdictions). ESRS 1.115 permits incorporation by reference for information already disclosed elsewhere in corporate reporting, but the sustainability statement itself must remain a dedicated, clearly demarcated section of the management report.
Do small and medium-sized companies have to prepare a sustainability statement?
Under the original CSRD timeline, listed SMEs (Wave 3) were expected to report from FY2026. The Stop-the-Clock Directive (EU) 2025/794 postponed that to FY2028. The Omnibus Directive (EU) 2026/470 further narrows the scope, applying CSRD only to entities exceeding 1,000 employees and EUR 450M turnover. Listed SMEs may still adopt simplified ESRS voluntarily.
What level of assurance is required on the sustainability statement?
The CSRD mandates limited assurance initially, with a planned transition to reasonable assurance from October 2028 if feasible. The European Commission will adopt EU-specific limited assurance standards by 1 October 2026, building on ISSA 5000 as the global baseline. Until those standards are adopted, entities follow applicable national requirements.