Below you will find questions and answers, in short, for the following topics:
- ESRS 2 and MDR policies, actions & targets datapoints
- Monetary amounts for revenue and anticipated financial effects related to climate change
- GHG emissions and carbon credits
- GHG removal and storage
Q&As in short on ESRS 2 and MDR policies, actions & targets datapoints
❓ Question 821
When a sustainability matter triggers exposure to both risks and opportunities, should the assessment of materiality be made on each individually or on the combined financial risk and opportunity?
For example, energy consumption is a financial risk because the cost of energy can fluctuate significantly, but there is also an opportunity in terms of reduced energy costs if the company invests in renewable energy and energy-efficient appliances.
➡ Answer
When the nature of an opportunity or a risk relating to a sustainability matter is different, it shall be assessed separately.
The positive deviations are not necessarily identified as separate opportunities but assessed together with the risk.
In the example above, it is the action of investing in renewable energy that creates the opportunity to reduce energy expenses.
❓ Question 762
How shall Minimum Disclosure Requirements (MDR) on policies, actions and targets be reported if they related to more than one topical standard?
➡ Answer
The MDRs on policies, actions, metrics and targets shall be applied together with the corresponding DRs in topical and sector-specific ESRS (ESRS 1 par. 13).
Reference from one part of the sustainability statement to another is allowed, avoiding duplications (ESRS 1 par. 115).
❓ Question 733
Can the ESRS 2 datapoints be overlapping with those in topical standards?
➡ Answer
No, the ESRS 2 Disclosure Requirements do not overlap with those in topical ESRS, with the exception of the MDRs in ESRS 2 Chapter 4.2 as they are a checklist to be used for completeness.
When a datapoint in MDR is already covered by a topical standard, undertakings are not supposed to report twice the same information requirement.
Some Disclosure Requirements in the topical ESRS further specify the ESRS 2 disclosures in relation to the respective topical matter (see ESRS 2 par. 2).
❓ Question 429
Which are the DPs or DRs to consider from ESRS 2 for entity-specific disclosure?
➡ Answer
ESRS 2 GOV-1 to GOV-5, SBM-1 to SBM-3, IRO-1 and the Minimum Disclosure Requirements on policies and actions on metrics and targets, respectively (ESRS 2 par. 60 and 70).
❓ Question 781
Is the general meeting to be considered as an ‘administrative, management and supervisory body’? The general meeting is usually a company’s highest decision-making body.
➡ Answer
No, the general meeting should not be considered an ‘administrative, management and supervisory body’.
It is a separate governance body with specific powers attributed to shareholders or owners.
The general meeting is not addressed by ESRS.
Q&As in short on disclosing monetary amounts for revenue and anticipated financial effects related to climate change
❓Question 395
What does net revenue mean? How is it calculated?
➡ Answer
The terms ‘revenue’, ‘total revenue’ and ‘net revenue’ are to be understood as the amounts presented in the income statement of the undertaking’s financial statements in accordance with the applicable legislation and/or accounting standards.
❓Question 422
Is the disclosure of monetary amount and proportion of assets at risk over the short-/medium-/long-term meant to be broken down by the time horizon (short-/medium-/long-term) or by a single aggregate number for assets at risk in any of those time horizons?
➡ Answer
ESRS E1 paragraphs 66 and 67 do not require a breakdown of monetary amount figures by the three time horizons.
It rather requires the disclosure of a monetary amount that is the result of cumulative financial effects assessed for each of the time horizons (short-, medium- and long-term).
❓Question 555
Please provide more clarity around the requirement to report the anticipated financial effects from chronic and acute physical risks in relation to climate change.
➡ Answer
The monetary amount of the assets that are exposed to impact from chronic and/or acute climate change events provides a measure of exposure to climate risks.
The undertaking is required to disclose (Regulation EU 2022/2453):
(a) the gross carrying amount of exposures sensitive to impact from chronic climate-change events;
(b) the gross carrying amount of exposures sensitive to impact from acute climate change events; and
(c) the gross carrying amount subject to impact from both chronic and acute climate change events.
Q&As in short on disclosure of GHG emissions and carbon credits
❓Question 268
Do Gross GHG scopes 1-3 need to be disclosed each year?
➡ Answer
Yes, an undertaking shall disclose and update their Gross Scopes 1, 2, 3 and Total GHG emissions on an annual basis.
The update of Scope 3 GHG emissions in each significant category shall occur every year on the basis of current activity data.
The update of the full Scope 3 GHG inventory is required at least every three years or on the occurrence of a significant event or a significant change in circumstances (ESRS E1 par. AR 46 (f)).
❓Question 863
When calculating metrics, including value chain metrics, do we have to consider downstream positions for all four quarters (as of 31.03, 30.06, 30.09, 31.12)?
➡ Answer
ESRS do not require to calculate annual averages based on quarterly figures.
❓Question 910
Can the transitional provision in ESRS 1 paragraphs 132 to 135 (difficulty in gathering value chain information for the first 3 years) be applied to the reporting of Scope 3 emissions in ESRS E1 par. 44 (c)?
➡ Answer
No. The disclosure of Scope 3 emissions is a datapoint derived from EU legislation. Despite these transitional provisions, datapoints derived from EU legislation, such as Scope 3 emissions, shall be reported.
However, if the average number of employees during the financial year does not exceed 750, the undertaking may omit the datapoints on Scope 3 emissions and total GHG emissions for the first year.
❓Question 536
Which are the recognised quality standards for carbon credit?
➡ Answer
There is currently no list of quality standards for carbon credit recognised by the EU or recommended by EFRAG.
This list of criteria needs to be met:
(a) must be verifiable by independent third parties; and
(b) make requirements and project reports publicly available and at a minimum ensure:
- additionality,
- permanence,
- avoidance of double counting and provide rules for calculation,
- monitoring, and
- verification of the project’s GHG emissions and removals.
As long as those criteria are met, an undertaking can consider the carbon credit as a recognised quality standard for carbon credit.
Q&As in short on GHG removal and storage
❓Question 577
What is the definition of ‘projects’ in ESRS E1 paragraph 56 (a) (GHG removals and storage resulting from projects).
➡ Answer
Projects are all activities/interventions conducted by the undertaking which may lead to GHG removals and storage.
Examples of GHG removal projects include:
reforestation/afforestation, soil carbon enhancement, ecological restoration, blue carbon removals, integration of bioenergy with carbon capture and storage (BECCS) technologies and Direct Air Capture of CO2 with storage (DACCS).
Projects will usually test new concepts, technologies or products within the operating context of the company and have both a novelty component as well as a transitory nature – the related activity is operated as a project for a certain limited period.
❓Question 636
What are the definitions of ‘biogenic removal and storage’, ‘removal and storage from land use’, ‘technological removal and storage’ and ‘hybrid removal and storage’?
➡ Answer
Biogenic removal and storage refers to GHG removal and storage as defined in ESRS, which is classified as biogenic.
This is produced by living organisms or biological processes but not by fossilized or from fossil sources. One example is forest restoration.
Removal and storage from land use refers to GHG removal and storage as defined in ESRS resulting from land-use, which is defined, too, in ESRS.
Additionally, ESRS E1 AR 57 (b) provides examples of such activities (afforestation, reforestation, forest restoration, urban tree planting, agroforestry, building soil carbon).
Technological removal and storage refers to GHG removal and storage as defined in ESRS, which results from use of technology.
Such activities may resemble examples provided in ESRS E1 AR 57 (b) (direct air capture).
Hybrid removal and storage refers to GHG removal and storage as defined in ESRS, which results from combining the use of technology with biogenic removals.
ESRS E1 AR 57 (b) provides an example of this activity (bioenergy with CO2 capture and storage).
Undertakings interested in carbon removals and carbon farming are also advised to check the provisional agreement reached on 20 February 2024 by the European Parliament and the Council of the EU for a Carbon Removals and Carbon Farming (CRCF) Regulation.
The full Q&A compilation for January-July 2024 can be downloaded here: >>
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