Happy Earth Day 2024
Happy Earth Day, Everyone – I am Celebrating by Launching My ESRS Series and Website
As we mark Earth Day, it's a great time to reflect on how our businesses can contribute to sustainability. And if you're a European company, a company listed in the EU or with securities listed in the EU, or if your company has significant turnover (revenue) in the EU, you are probably busy understanding and preparing for the new European Sustainability Reporting Standards (ESRS).
🌱 Over the past few months, I’ve collaborated with Susann Dutt at Dutt Consulting. Together, we've been assisting companies in preparing for ESRS reporting requirements and conducting double materiality assessments.
📝 Starting Today: I'm excited to launch a comprehensive series of posts that will delve into each ESRS in detail and discuss specific important aspects of the ESRS. Beginning with ESRS 1 today, I aim to provide a thorough overview of what is required for successful alignment with ESRS and discuss the expectations of sustainability reporting under the CSRD.
🔍 Key Highlights of ESRS 1:
The ESRS 1 sets the requirements for preparing sustainability statements, although it does not include specific disclosure requirements.
Structure and objective: ESRS 1 defines the objective of the ESRS and explains that the main goal behind these standards is to standardize the disclosure of sustainability information and ensure that enterprises report relevant, reliable, and comparable data regarding ESG matters. It also introduces the structure of the ESRS standards. This is a structure that is similar to what sustainability professionals and organizations might be familiar with from the TCFD and IFRS, with each of the Standards being structured in this way:
a) Governance,
b) Strategy,
c)Impact, Risk, Opportunity (IRO) Management, and
d) Metrics & Targets.
Double Materiality: ESRS 1 introduces and defines the materiality requirement that establishes how to determine what to include in your company’s sustainability report.
Under the CSRD requirements, the ESRS 2 General Disclosures and the topical standards' disclosures related to identifying and assessing material impacts, risks, and opportunities are the only mandatory disclosures, and all other disclosures are subject to double materiality.
From a double materiality perspective, a sustainability topic is deemed material if it is material from a financial perspective, an impact perspective, or both perspectives. ESRS 1 gives requirements for what needs to be considered when evaluating impact materiality and financial materiality and introduces a list of topics (In ESRS 1 Appendix A - see illustration) that must be assessed from the double materiality perspective. The ESRS 1 also states that companies must evaluate whether there is a need to report on additional entity-specific topics that are not included in the topical ESRS standards or have not been covered sufficiently.
Value chain information: ESRS 1 also establishes that the information reported would not be limited to the company’s own operations. The ESRS-aligned sustainability report should include information on direct and indirect business relationships (upstream and downstream in the value chain - see the illustrations and slides for more details on how ESRS defines the value chain and read EFRAG’s value chain guidance for more information).
Transitional provisions and Phased-in disclosures: Section 10 of ESRS 1 introduces specific transitional provisions intended to ease the adoption of the standards and allow companies time to gather essential data and create systems to comply with the reporting requirements over time. For example, for the first three years of reporting, if not all necessary information is available, companies can omit reporting on value chain information if they explain why and include their plans for obtaining it. Companies can limit value chain information on policies, actions, and targets to publicly available information. The value chain information on metrics can be excluded in most cases (except, for example, for scope 3- emissions). Specific disclosure requirements will be phased in over time – like scope 3 GHG emissions for companies with less than 750 employees.
The complete list of Phased-in disclosures is in ESRS 1 Appendix C (and in the illustration below).
Those were the key parts of the ESRS 1 that I wanted to highlight today. What do you think? Are there other parts of ESRS 1 that you would have highlighted or would like more information about?
And if you are currently working on your organization or company’s ESRS preparation, I would love to hear more:
How does your organization embrace these new reporting standards?
Do you believe these new standards will help your organization take more significant action and have a more positive impact?
Have the preparations for the ESRS reporting already helped you enhance your sustainability efforts?
What do you find most difficult about the preparation/reporting process?
I hope you enjoyed this post, and I am excited to hear your feedback or discuss any of the above (or other ESG) questions with you! In my next post, I will discuss double materiality in more detail …
