What is ESG? Reporting steps and when it is mandatory

ESG stands for Environmental, Social and Governance: the three areas on which an organisation is judged beyond its financial results. ESG reporting is how a company measures and discloses that performance. In this article you can read what the three pillars mean, how to produce a report in six steps, whether your organisation falls under the obligation, and which mistakes are made most often.

Who is this for? Since the Omnibus package, mandatory ESG reporting has narrowed considerably, and most small and medium-sized companies now sit outside it. So this article addresses two groups: large undertakings that do have to report, and organisations that are not obliged but are being asked anyway, by an investor, a bank or a large customer. If you are in the second group the steps are the same, but you decide the scope yourself. Note also that the thresholds below are the EU rules; outside the EU other regimes apply.

Looking for something more specific? If it is purely the legislation you are after, read what the CSRD means for businesses. If you only want to know how to set up a report, go straight to the six steps. And if you are unsure whether it is mandatory for you, the worked example answers that.

Table of contents

• What is ESG?
• Where ESG came from
• ESG legislation: from CSRD to the Omnibus package
• Does your organisation have to report? Two examples
• What is ESG reporting?
• Why ESG reporting matters
• How do you produce an ESG report in six steps?
  • 1. Set the scope with a materiality analysis
  • 2. Map your data sources
  • 3. Choose a standard and a reporting year
  • 4. Take a baseline measurement
  • 5. Report and substantiate
  • 6. Get it assured and repeat
• Common mistakes in ESG reporting
• Alternatives to ESG
• What digital invoice processing contributes to your ESG report
• Frequently asked questions about ESG
• In closing

What is ESG?

ESG is a framework for assessing the non-financial performance of an organisation. It breaks down into three areas:

• Environmental: carbon emissions, energy and water consumption, waste management, biodiversity.
• Social: working conditions, human rights, diversity and inclusion, customer safety, impact on the community.
• Governance: business ethics, transparency, the governance structure, and compliance with regulation.

So ESG is not a marketing label but a way of looking at an organisation that investors, regulators and customers now apply as a matter of course.

Where ESG came from

ESG grew out of the need to judge companies on more than financial results. In the 1960s investors began screening for ethical investments, a trend that developed into the ESG criteria of the 2000s. The term became mainstream when the United Nations launched the Principles for Responsible Investment in 2006, which is generally treated as the moment ESG entered the financial vocabulary.

ESG legislation: from CSRD to the Omnibus package

Where this stands in 2026: ESG is increasingly regulated, but the direction was adjusted over the past year. In Europe the EU Taxonomy determines what counts as a sustainable activity, and the Corporate Sustainability Reporting Directive replaced the older NFRD with stricter reporting rules. With the Omnibus I package (Directive EU 2026/470) the EU then narrowed the scope of the CSRD considerably.

In concrete terms, mandatory ESG reporting now applies mainly to large undertakings with more than 1,000 employees and more than 450 million euro in turnover, and the deadlines have been pushed back, with large listed companies reporting since 2025 and other large undertakings newly in scope reporting for the first time in 2028, over financial year 2027. For companies that fall outside the mandatory scope but are asked for figures anyway, the voluntary VSME standard offers a lighter route. So many medium-sized companies that would previously have fallen under the CSRD now sit outside the mandatory scope, although a good number still report because investors or supply-chain partners ask them to. What the directive requires is set out in our article on the CSRD and what it means.

Does your organisation have to report? Two examples

The thresholds are cumulative: you have to meet both. That makes more difference than people expect. Two organisations by way of illustration:

	Organisation A	Organisation B
Employees	1,200	900
Turnover	€ 600 million	€ 700 million
Above the 1,000-employee threshold?	yes	no
Above the € 450 million threshold?	yes	yes
Reporting obligation	yes	no

Organisation B is larger than A on turnover at 700 million euro, yet falls outside the obligation with 900 employees. That does not mean B is off the hook: if B supplies A, then A will ask for B’s figures for its own value-chain reporting. That is how the obligation reaches companies that formally sit outside it. Check your own position with your accountant, because additional rules apply to groups and to listed companies.

What is ESG reporting?

ESG reporting is the process in which an organisation measures its environmental, social and governance performance, analyses it and discloses it. Where a financial statement shows what a company earned, an ESG report shows what it consumed, how it treats its people and how it is governed. The reporting can sit in a separate sustainability report or be integrated into the annual report.

Why ESG reporting matters

Now that the mandatory scope has narrowed, the reasons to report are for many organisations commercial rather than legal. Investors, customers and partners want to know how future-proof an organisation is, which is why the question turns up in tender requirements and financing conditions even for companies that are not obliged to publish anything. Reporting also forces you to make sustainability concrete: targets, figures and progress instead of intentions. As a result it works as a steering instrument, and a well-substantiated account supports brand positioning and recruitment at the same time.

How do you produce an ESG report in six steps?

An ESG report comes together in six steps: set the scope, map your data sources, choose a standard, take a baseline measurement, report, and get it assured. The first three are choices you make once; the last three you repeat every year. Per step you can read below what you do and what you hold in your hands at the end of it.

1. Set the scope with a materiality analysis

Not every ESG theme is relevant to your organisation. A materiality analysis establishes which ones are, and it works in two directions: what impact your business has on people and the environment, and what financial risks and opportunities sustainability themes create for you. That is what double materiality means. Involve the parties it concerns, such as employees, customers, suppliers and financiers. Result: a short list of themes you will report on, plus a rationale for what falls away.

2. Map your data sources

For each theme, work out where the data comes from. Energy and fuel consumption sit on your purchase invoices and meter readings, personnel data in your HR and payroll system, and supplier information in your accounts payable ledger. Establish per source who owns it, how current it is and whether the figures trace back to a document. Missing sources are something you want to discover here, not at the end. Result: an overview per theme of source, owner and reliability.

3. Choose a standard and a reporting year

A standard gives you structure and makes your report comparable with others. Common choices are the GRI Standards, SASB and, within the EU, the European Sustainability Reporting Standards that the CSRD prescribes. If you fall outside the obligation you may pick a lighter variant, as long as you stay consistent. Align the reporting year with your financial year, so the financial and non-financial figures cover the same period. Result: a chosen standard, a defined period and a fixed set of indicators.

4. Take a baseline measurement

Measure where you stand before attaching targets to anything. On the environmental side you normally distinguish direct emissions, emissions from purchased energy, and emissions in the value chain; that last category is the hardest and usually leans on purchasing figures. For the social and governance side it is more about numbers and policy than consumption. Use fixed conversion factors and record which ones, so next year is comparable. Result: a base year with figures per indicator, including the assumptions used.

5. Report and substantiate

Write per theme what you measure, what comes out, which target you set and how you intend to reach it. Put the source and the method behind every figure, because a number without provenance is one a reader cannot weigh. Be explicit about what you do not yet know as well: an honest gap is more credible than an estimate presented as a measurement. Result: a sustainability report or an ESG chapter in your annual report, with the figures accounted for.

6. Get it assured and repeat

Have the figures reviewed internally or externally. Where reporting is mandatory, assurance is prescribed; outside that scope a review still raises your credibility with investors and supply-chain partners. Then set the process down as an annual cycle with a named owner, because ESG reporting is not a project with an end date. Result: an assured report and a working method that costs less time next year than it did this year.

Common mistakes in ESG reporting

These six are the ones that most often leave a report unconvincing or unable to pass a review:

• Reporting on everything instead of what is material. A report that touches every theme says nothing about any of them. That is what the materiality analysis is for.
• Presenting estimates as measurements. An approximation is allowed, but only with the method stated. Without it, the whole figure collapses under review.
• Changing conversion factors between years. Then there appears to be progress where only the calculation changed, and your base year is worthless.
• Doing only the E. Emissions are the easiest thing to measure, so social policy and governance often get half a paragraph. That shows.
• Not naming an owner. Without someone carrying the annual cycle, the data gathering starts from scratch every year.
• Figures that do not trace back to a source document. This is the mistake that only surfaces at the review, when it is too late to put the records in order.

Alternatives to ESG

ESG is the dominant framework, but not the only one. The Triple Bottom Line works with People, Planet and Profit and stresses the balance between social, environmental and economic performance, which is close to ESG with a slightly different emphasis. Impact investing takes another angle again: investments chosen for their social or environmental effect alongside their financial return. Which framework fits depends on the goals and the values of the organisation.

What digital invoice processing contributes to your ESG report

Steps 2 and 4 above lean on your administration more heavily than most organisations expect. Your energy and fuel consumption, your paper purchasing, your travel costs and your supplier base do not sit in a sustainability system; they sit in your accounts payable ledger. The more complete and better coded that ledger is, the less you have to estimate. The table below sets out per pillar what a digital invoice flow actually delivers.

Environmental	Digital submission and archiving cut print, post and storage volume. On top of that, the data you use to approximate value-chain emissions (purchasing per category and per supplier) is already sitting in your purchase invoices.
Social	Employee expenses and receipts run through a fixed, auditable process instead of scattered e-mails, which takes the arbitrariness out of it.
Governance	An audit trail per document, separation of duties through approval routes for invoices, and a setup for storing and retrieving documents in which the original stays alongside the entry. That is the core of the G.

How that works in practice: TriFact365 recognises your purchase invoices, receipts and expense claims automatically and prepares a booking proposal per line, with a general ledger account, VAT code and cost centre. After your check and approval the entry goes to your accounting package, with the original document kept alongside it. As a result every figure in your administration traces back to a source document, which is exactly what a reviewer wants to see at step 6, and exactly where the last mistake in the list above comes undone. And if you take invoices in as e-invoices through receiving e-invoices over the network, no paper is involved at all.

With the necessary qualification: TriFact365 is not an ESG tool, does not calculate emissions and does not produce ESG reports. What it does is get the underlying records in order, which is what such a report rests on. Read how processing incoming invoices works.

Frequently asked questions about ESG

In closing

ESG has grown from a niche idea into a fixed part of how companies account for themselves. The regulation keeps moving, and the Omnibus package showed it can move towards fewer obligations as well as more. So check first whether it applies to you, start with a materiality analysis and a baseline measurement, and make sure the figures behind your report trace back to the administration they came from.