EFRAG has prepared an early-stage paper on the link between the sustainability matters listed in ESRS 1 AR 16 and the Disclosure Requirements (DRs), including Application Requirements (ARs), in the topical standards.

It can be helpful to identify the DRs and datapoints (DPs) that are linked to the matters (topics, sub-topics and sub-sub-topics) assessed as being material.

The list of matters in ESRS 1 AR16 shall be considered during materiality assessment for completeness.

Judgment is required to determine the information to be included in the reporting. The general criteria applied for this judgment are relevance and decision usefulness.

⭕ AR 16 topics are often interrelated. Based on the facts and circumstances of an undertaking, the materiality of a specific AR 16 topic of a topical ESRS can trigger reporting requirements in other topical ESRS.

➡ Since the sub-topics of energy and climate change mitigation are closely linked, it is expected that if one of both is material, the other is as well.

➡ DR E1-9 Anticipated financial effects is not expected to be disclosed if the matter is assessed as material only due to its impacts (and not also due to its risks or opportunities).

➡ For S1, Own Workforce, a holistic view is important as some of the AR 16 topics interrelate. This is the case for instance for working conditions and equal treatment which are issues that often interrelate. A fragmented approach to selecting some disclosure requirements and not others should be avoided.

For metrics, there is no systematic “one-to-one” relationship between a sub-topic or sub-sub-topic, as captured by AR16 (AR16 topic), and a topical disclosure requirement.

⭕ This means that, in general, all DRs in a topical standard are applicable to all AR16 topics covered by the topical standards, with a few exceptions to this rule.

⭕ Some metrics are likely to be relevant when any of the related AR16 topics in a topical standard are assessed to be material.

This is the case when there is evidence of such a direct link when the AR topic is directly mentioned in a datapoint (and not in the title of the DR).

This is the case for instance for microplastics in ESRS E2, for water withdrawals and water discharges in ESRS E3 or for waste in ESRS E5.

⭕When this direct link does not exist, the general rule applies.

➡ An appendix in this paper links each AR16 topic to the relevant DRs:

https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FMeeting%20Documents%2F2406100838252877%2F05-02%20ID%20177%20draft%20explanation%20revised.pdf

Finalization of 3 EFRAG ESRS Implementation Guidance Documents, related to the sector-agnostic ESRS as adopted by the European Commission on 31 July 2023:

✅ EFRAG IG Materiality Assessment >>> Download here

✅ EFRAG IG 2 Value Chain >>> Download here

✅ EFRAG IG 3 ESRS Datapoints >>> Download here  with Explanatory Note >>> Download here

With these documents, EFRAG aims to support undertakings and other stakeholders in the implementation of the ESRS.

⭕Regarding EFRAG IG 3 ESRS Datapoints

This list cannot be used as a basis for the preparation of the machine-readable sustainability reporting – it does not represent the digital ESRS XBRL taxonomy.

EFRAG IG 3 contains the line items only for tables as a whole, which will be used to further disaggregate datapoints in the machine-readable format.

EFRAG IG 3 may be considered an intermediate step on the way to delivering the ESRS XBRL Taxonomy with a human-readable reports that will be easier to digitalise.

A datapoint encompasses a clearly separable and specific piece of information required by the ESRS Disclosure Requirements (DRs), generally at the level of each paragraph, subparagraph and sub-subparagraph.

In this Excel list (IG 3)

• 161 datapoints are mandatory irrespective of the materiality assessment
• 622 datapoints are subject to the materiality assessment
• 269 are voluntary datapoints marked as ‘may disclose’

In the Draft ESRS XBRL Taxonomy issued in Q1, the number of datapoints are more than the double.

Cleerit ESG – Friend of EFRAG – provides a digitized ESRS Taxonomy centric report template that helps you prepare your report in a both human-readable and machine-readable format.

In EFRAG’s last release of technical Explanations from the ESRS Q&A Platform there is a lot of useful information for various datapoint disclosures.

An example of explanations include additional guidance on stakeholder engagement in double materiality assessment:

⭕When assessing the materiality of a sustainability matter, is the focus on stakeholder opinions or on objective evidence?

There is no conflict between consideration of views of affected stakeholders and objective evidence.

The purpose of both is to get an understanding of the severity (and likelihood) of impacts to present them faithfully in the sustainability statement.

Depending on the circumstances, this may or may not require engagement with affected stakeholders.

The materiality analysis should be driven as much as possible by objective data and evidence.

Scientific evidence is the focus in some cases depending on the type of topic and availability of such evidence.

Quantitative/scientific data on the impact may or may not also be available.

Widespread/systemic impacts often tend to be well documented, and there is often a consensus on their severity.

In other cases, depending on the topic the views of affected (❗) stakeholders are a source of supporting evidence for impact materiality.

However, not all stakeholder opinions are equally relevant for the materiality analysis.

Relevance depends on how much the stakeholders are affected (severity – and likelihood – of impacts).

Understanding entity-specific impacts and/or the manifestation of widespread/systemic impacts in particular contexts and situations requires more careful consideration of specific circumstances, including whether and how people or the environment are affected.

Elements useful to address this question can be found in IG 1 Materiality assessment chapters 3.5 Role and approach to stakeholders in the materiality assessment process and 5.4 FAQ on stakeholder engagement – impact materiality.

⭕It is also reminded that:

The ESRS require disclosure on the materiality assessment and its outcomes but do not mandate specific behaviour on stakeholder engagement or the due diligence process.

The assessment of IROs should rely on quantitative information where possible, as quantitative measures of IROs are objective evidence of their materiality.

The emphasis on objective and quantitative information does not mean to imply that the information from affected stakeholders should be disregarded.

(IG 1 Materiality assessment – FAQ 10, 180-183)

You will find more useful explanations on the ESRS Q&Q Platform >>

CSRD requires companies to share how they are assessing their climate-related risks and how these risks could affect financial performance.

It will be a key area of scrutiny for the financial market and insurers, as there has been a sevenfold increase in reported losses from climate disasters since the 1970s.

Resent research has found that the economic damage brought by climate change is “six times worse than previously thought, with global heating set to shrink wealth at a rate consistent with the level of financial losses of a continuing permanent war”.

Rising temperatures, heavier rainfall and more frequent and intense extreme weather are projected to cause $38tn of destruction each year by mid-century.

In improving disclosures, critical information will be available for boards, management, investors and stakeholders, informing strategy development, financial planning and allocation of capital.

It can also provide an opportunity to attract investors by demonstrating climate-related opportunities and the resilience of the company.

Under CSRD the company will have to reply Yes or No to these two questions (ESRS E1 AR 11):

⭕The company has screened whether assets and business activities may be exposed to climate-related hazards.

⭕ The company has assessed the extent to which assets and business activities may be exposed and are sensitive to identified climate-related hazards.

In addition, the company will need to learn to disclose (ESRS E1-9):

• the monetary value of assets at material physical risk before considering climate change adaptation actions, divided into acute and chronic risk
• net revenue from business activities at material physical risk
• estimated amount of potentially stranded assets.

Extreme weather is causing loss of property, destruction of assets and business interruptions, with financial effects hitting our businesses.

To get your climate-related physical risks under control:

1. Create a register with all your physical assets (offices, factories, warehouses, etc.) and the GPS coordinates for each location.
2. Purchase reliable science-based climate hazard scores for each location.
3. Assess, prioritize and manage your risk exposure.

There are easy-to-use tools and science-based data available to help you assess, manage and disclose on your climate-related physical risk exposure.

You are welcome to contact us: Book a demo

Sources:

Economic damage from climate change six times worse than thought – report | Climate crisis | The Guardian

Climate-related Financial Impact Guide (wbcsd.org)

We are proud to announce that Cleerit ESG has officially been approved as Friend of EFRAG – Sustainability Reporting, demonstrating our commitment to sustainability reporting and supporting EFRAG’s mission.

Cleerit recognizes the importance of contributing to the development of the European Sustainability Reporting Standards (ESRS) and supporting EFRAG’s activities.

By joining as Friends of EFRAG – Sustainability Reporting, we are committed to providing our support to further EFRAG’s initiatives in this field.

We are convinced that the ESRS will help companies advance both corporate sustainability and performance, and future-proof their business.

⭕ABOUT EFRAG

EFRAG’s mission is to serve the European public interest in both financial and sustainability reporting by developing and promoting European views in the field of corporate reporting. EFRAG builds on and contributes to the progress in corporate reporting.

In its sustainability reporting activities, EFRAG provides technical advice to the European Commission in the form of draft European Sustainability Reporting Standards (ESRS) elaborated under a robust due process and supports the effective implementation of ESRS.

⭕ABOUT CLEERIT ESG

Cleerit’s mission is connecting people, planet and profit at the heart of business strategy and decisions – to reach higher goals.

We are committed to sustainability and passionate about closing the strategy to execution gap – with extensive experience and comprehensive research recognized by French Ministry for Higher Education, Research and Innovation.

The Cleerit ESG solution is at the core of our corporate strategy. The unique capabilities embedded in our holistic and inclusive governance model are a perfect fit to the IRO management model built in the ESRS framework, and make a real difference in advancing both corporate sustainability and performance.

It’s the beginning of a new era, and we are determined to being a key contributor in advancing sustainable corporate strategies, for our and future generations.

⭕ You are welcome to contact us if you need a solution and support to implement ESRS reporting in your organization >>>

Let us pave together the way for a successful implementation of the sustainability reporting standards and a green transition🌱🌍!

#getCSRDready, #CSRD, #ESRS, #CSDDD, #ESG, #Strategy, #Governance, #SustainabilityReporting, #Digitalisation, #Cleerit, #EFRAG

Your ESRS-reporting will help monitor the flow of private capital to fill the investment gap needed to achieve the objectives of the European Green Deal.

This requires investments in new technologies and business models.

Overall, the EU will need to scale up its investments by two-thirds (about EUR 620 billion more each year until 2030), relative to average levels over the 2011-2020 period, to pave the way for climate neutrality and a resilient economy by 2050.

The bulk of funding is to be mobilised by private entities.

When assessing the overall investment needs, albeit significant, they should be compared with the cost of inaction which is of much greater magnitude.

The EU Platform on Sustainable Finance (PSF), an advisory body to the European Commission, has been tasked with developing a methodological framework to monitor the flow of private capital into sustainable investments.

The Platform has recently released an intermediate report with a proposed methodology mainly resting on two types of capital flows:

✔ capital expenditures in real economy entities, which shed light on progress towards filling the investment gap;

✔ flows in and from financial markets, as this represents an important source of capital in support of real economy investments.

⭕Investments dedicated to companies in transition – and under CSRD scope – are at the heart of the monitoring framework.

ESRS indicators will be used to identify such companies.

Taxonomy eligible and aligned CapEx data will be complemented with other reported data on CapEx relevant for transition and reported under the ESRS.

CapEx allocated to a transition plan and available from ESRS disclosures is proposed to become the principal source of data.

Such data will be audited, thus increasing the reliability of the results.

The proposed architecture will provide a first bottom-up estimate of CapEx contributing to filling the Green Deal investment gap.

⭕Examples of ESRS CapEx datapoints:

➡ E1.16.c CapEx Financial resources allocated to action plan, E1-1 – Transition plan for climate change mitigation

➡ ESRS2.69.b CapEx Financial resources allocated to actions in relation to material sustainability matters (MDR-A)

Under ESRS S1 and S2, companies need to include Adequate Wages in their Double Materiality Assessment.

DP 69 in DR S1-10 requires companies to disclose whether all own workforce employees are paid an adequate wage, in line with applicable benchmarks.

If so, stating this is sufficient and no further information is needed. (Information regarding non-employees in own workforce is optional.)

If not, the company needs to disclose the countries where employees earn below the applicable adequate wage benchmark and the percentage of employees for each of these countries.

ESRS defines an Adequate wage as follows:

“A wage that provides for the satisfaction of the needs of the worker and his / her family in the light of national economic and social conditions” (based on a full-time employment relationship).

The lowest wage shall be considered separately for each country in which the company operates, except outside the EEA when the adequate wage is defined at a sub national level.

The adequate wage benchmark used for comparison with the lowest wage shall not be lower than:

⭕ In the EEA

The minimum wage set in accordance with Directive (EU) 2022/2041 of the European Parliament and of the Council on adequate minimum wages in the EU.

It references both indicative reference values commonly used at international level such as 60 % of the gross median wage and 50 % of the gross average wage, and/or indicative reference values used at national level.

Data can be obtained from the European Labour Force Survey.

⭕ Outside of the EEA (b.i)

The wage level established in any existing international, national or sub-national legislation, official norms or collective agreements, based on an assessment of a wage level needed for a decent standard of living.

Computing living wage estimates is data-intensive, requiring information on needs and prices that is timely and context-specific.

There are a number of international initiatives, such as the Fair Wage Network, the Global Living Wage Coalition and the WageIndicator Foundation, specialized in this.

Paying legal minimum wages, such as the SMIC in France, is not always a guarantee.

As an example, French tire-maker Michelin has recently established its own global living wage.

“The minimum wage in France is not sufficient in Michelin’s eyes to meet what we consider to be a decent wage,” Florent Ménégaux, president of the Michelin group, told Le Figaro.

Read more about Michelin here >>

⭕ You are welcome to contact us if you need a solution and support to implement ESRS reporting in your organization.

Your CSRD reporting will impact your credibility, financial rating, and preferred partner-supplier-employer status. It can also help to protect you against greenwashing accusations.

But for that, you need to follow the instructions. The ESRS standards contain detailed questions. There are over 2000 datapoints whereof more than 400 require a Yes or No answer.

As we are currently supporting our customers navigate towards CSRD excellence, we have picked out 5 things to get right from the start:

⭕ Assess all topics listed ESRS 1 AR 16 when conducting your double materiality assessment.

For example, S1 is divided into 17 granular topics, connected to different impacts, risks and opportunities (IROs).

These topics are also found in the European Social Charter, which is complementary to the European Convention on Human Rights, protecting civil and political rights.

⭕ Assess your specific impacts, risks and opportunities – not only the sustainability topic.

The method described in the ESRS (confirmed by the French CNCC) requires an assessment at the IRO level and not only at the topic level.

⭕ Don’t consider a topic not material just because you think you are managing the connected impacts and risks well.

Materiality is a user-driven concept. A sustainability topic (including omissions of information on such topics), is considered material if, individually or in the aggregate, it could reasonably be expected to influence decisions of intended users taken on the basis of your information.

By declaring a sustainability topic not material, you are telling your stakeholders, trust me, there is nothing important for you to see here, please move on. That’s an important responsibility and you need to be prepared to back it up if someone challenges you.

⭕ Don’t provide biased or manipulated information and leave out unfavorable aspects.

ESRS 1 specifically states that the information shall be complete, accurate and neutral.

Information is neutral if it is not slanted, weighted, emphasized, de-emphasized or otherwise manipulated to make it more likely that the users will receive that information favorably or unfavorably.

It shall be balanced and granular enough not to obscure material information.

⭕ Don’t confuse positive and negative impact, and risk mitigation with opportunities.

A positive impact is not just avoiding a negative impact – you do not have a positive impact simply because you avoid doing harm. Positive impact is about increasing positive outcomes for people and the environment based on evidence❗of actual outcomes.

An opportunity is not simply mitigating a risk. It requires a proactive❗stance leading to new business opportunities and positive stakeholder relations that you intend to pursue and that can be calculated in monetary value (ESRS2.48).

⭕ You are welcome to contact us to get CSRD-ready with Cleerit ESG.