Author Archive: Cleerit

Consultation of draft XBRL taxonomy of the ESRS

Posted on by

Yesterday (10/1) EFRAG approved the release for a 60-day public consultation of the draft XBRL taxonomy of the ESRS, including the Article 8 digital taxonomy.

After this consultation period, it plans to issue its final advice in the second half of 2024 in the form of a technical recommendation to the European Commission.

The European Securities and Markets Authority (ESMA) is responsible for developing the draft Regulatory Technical Standards (RTS) on ESEF, that regulates the implementation (i.e. timing, level of tagging) and relies on the taxonomy prepared by EFRAG.
ESMA will also consult on the final digitalisation rules and effective date.

The EU legal process then requires that EC shall adopt a delegated act [RTS] as an amendment of ESEF regulation (Reg. 2019/815 UE) on the basis of the [Draft] RTS proposed by ESMA.

This means that we will not have the formal XBRL rules for yet some time, but we have the working assumptions in the meantime.
If you use Cleerit ESG to prepare your ESRS report you will be well prepared, as the digital templates are based on these working assumptions.

The ESRS digital taxonomy reflects the human-readable version of the ESRS, and includes a set of individual tags to translate in digital requirements the content of ESRS.

The Draft ESRS XBRL Taxonomy can be explored with an XBRL software, or with the Excel file that provides a human-readable illustration.

However, the Excel file will not be used itself to digitally tag ESRS reports. CSRD requires digitalisation of sustainability reporting.

While tagging of quantitative monetary and non-monetary data points is straightforward, designing the optimal tagging for the narrative disclosures requires more attention.

It is worth noting that, differently from financial reporting, where narrative information in most of the cases accompanies and provides context to a quantitative data point, in sustainability reporting narrative statements are in most cases not explanatory of quantitative information, but they are qualitative data points themselves.

And the majority of the data points in ESRS are narrative, so learning to collect, “consolidate” and manage narrative disclosures will be necessary.

An important part of the ESRS taxonomy are the many “Boolean” XBRL elements, used for questions requiring a positive or negative confirmation (the “whether” in the “whether and how” questions).

The boolean gives the advantage to convert the statement into Yes or Not instead of narrative textblock disclosure. This also makes it easy to construct standardized ratings to compare company performance.

If you are not yet ready to manage digital ESRS reporting, you are welcome to contact us to book a demo.

Source: https://efrag.org/Meetings/2311031439057869/EFRAG-SRB-meeting-10-January-2024-?AspxAutoDetectCookieSupport=1

Are the big companies ready for CSRD & ESRS applicable in 2024?

Posted on by

A recent assessment of 100 large companies in France, shows that the road is bumpy and that there is still a lot of work to do:

➡ 83% of the assessed companies present a materiality analysis, but only 14% publish a “double materiality” analysis following the requirements as defined by ESRS 1.

➡ 73% have defined decarbonization objectives validated by the SBTi, but only 17% detail the different decarbonization levers allowing them to achieve their objectives, as required by ESRS E1.

➡ Not even half of the companies publish (or declare that they take into account) the analysis of at least one climate scenario and quantify their climate risks – and 4 out of 5 do not include climate transition risks.

➡ Less than 10% have defined pollution objectives, only 31% publish water consumption reduction targets and only 13% declare the number of production sites located in or near sensitive areas in terms of biodiversity.

➡ Only 30% have formalized objectives related to the circularity of products and their packaging but 51% declare waste management objectives.

➡ 53% publish indicators related to the gender pay gap of their employees at group level, but only 8% provide information to compare low wages to decent wages.

The carbon tunnel vision is not helpful

This assessment of large companies in France, shows what we all already suspected: there is a long way to go – both to grasp the holistic vision of the ESRS framework, and to get organized around these reporting requirements.

Many still think that CSRD is mostly about reporting on GHG emissions, and this carbon tunnel vision is not helpful.

Reducing emissions remains a key challenge, but the fact is that even in the ESRS E1 Climate change standard less than 20% of the disclosure points are about reporting on emissions.

Strategy, governance, processes, climate change resilience, and climate-related impacts, risks & opportunities are very much in focus. It is as much about preparing for a different future, and future-proof our businesses, as it is about mitigating climate change.

A game-changer for corporate accountability

CSRD and ESRS are a game-changer for corporate accountability, in the EU and globally. It is not just about a report to fill in, it’s a new way of governing that will take several months – even years – to prepare.

The best time to get started was yesterday. The next best time is today.

With ESRS the devil is in the detail

Step one is understanding – in detail – what will be expected.

This can be done by navigating and learning the standards – every single disclosure point (approx. 990 in ESRS, whereof approx. 250 metrics, subject to materiality assessment).

The CSRD-compliant and ESRS-ready Sustainability Strategy, Governance & Reporting SaaS solution Cleerit ESG – with every single disclosure point digitized – helps you navigate the standards, learn and prepare – to get CSRD-ready.

Download the full article here >>

Draft EFRAG ESRS Implementation Guidance documents

Posted on by

New Release Alert! EFRAG publishes today the first three Draft EFRAG ESRS Implementation Guidance documents:

🌿 Draft EFRAG IG 1: Materiality assessment implementation guidance
🌿 Draft EFRAG IG 2: Value chain implementation guidance
🌿 Draft EFRAG IG 3: Detailed ESRS datapoints implementation guidance + explanatory note

These guides aim to support the application of the sector-agnostic ESRS, which was adopted as a delegated act by the European Commission on 31 July 2023.

Explore the documents and have your say by completing the relevant surveys.

Your input is invaluable in shaping sustainability reporting!

Feedback Deadline to EFRAG: 2 February 2024

More info here >>

The CSRD – an opportunity for Europe and for its businesses

Posted on by

Harvard Business Review France recently published an article describing CSRD as an ambition marker for Europe and an opportunity for its companies to strengthen their competitiveness.

A “Copernican” revolution

We will get a real balance sheet and an audited non-financial income statement for all companies subject to CSRD. It will have an impact not only financially, but also on the company’s reputation, and thus its business, which will become central to business.

HBR France describes this as no less than a “Copernican” revolution.

Some major banking networks have already indicated that half of the companies’ credit ratings will be based on the evaluation of extra-financial criteria.

Companies slow to adapt to this new reality are seen as systemic risks by banks and insurance companies.

The starting point of a profound transformation process

Sustainability is a big issue for the financial world because it is considered a necessity for their economic model to survive, and companies are at the heart of that model.

Consequently, considering this new sustainability report as a new normative requirement dealing with regulatory compliance would be a mistake.

Since CSRD is the starting point of a profound transformation process – a real opportunity to reinvent the company business model – the topic is extremely strategic and must absolutely be treated as such by the company’s management and board.

77% have not yet started preparing

However, according to a recent survey by the VinciWorks Institute, 77% of affected companies have not yet started preparing for this new sustainability reporting, further underscoring the urgency to act.

The fear this text generates is legitimate and grounded in many factors, including the level of unpreparedness of most companies, consultancies and independent third-party organizations ultimately responsible for reviewing and certifying them.

Not just another data reporting requirement

But the originality and strength of CSRD is that it is not just another data reporting requirement.

Of course, traditional sustainability indicators will need to be monitored, managed and published.

But above all, the company must focus on demonstrating how it integrates sustainability issues into its governance, its strategy, its value proposition and its operations, thus defining a roadmap towards a sustainable economic model that serves all of the company’s stakeholders.

Businesses will need to make commitments to achieve social and environmental goals, thereby helping to provide an answer to the enormous challenges facing our societies and the planet.

This was an excerpt from this HBR France article that we recommend (click if you read French).

Now it’s up to us to act! The best time to start was yesterday. The second best is today.

If you do not yet have systems in place to handle CSRD strategy, governance and reporting, you are welcome to contact us here >.

    Did you think CSRD was mostly about reporting on GHG emissions?

    Posted on by

    Did you think that CSRD and the ESRS E1 “Climate Change” standard was mostly about reporting on your GHG emissions?

    The answer is no. Less than 20% of the disclosure points in E1 are about reporting on emissions.

    Strategy, governance, processes, climate change resilience, and climate-related impacts, risks & opportunities are very much in focus.

    Here are some examples of disclosure points you will have to report on:

    ⭕ Integration of climate-related performance in remuneration

    ➡ Whether (yes or no) and how (describe) climate-related considerations are factored into the remuneration of top-management and supervisory bodies

    ➡ If their performance has been assessed against the GHG emission reduction targets reported under Disclosure Requirement E1-4 “Targets related to climate change mitigation and adaptation”

    ➡ An explanation of what the climate considerations factored into the remuneration are

    ➡ Percentage of the remuneration recognised in the current period that is linked to climate-related considerations

    ⭕ Description of your processes to identify and assess climate-related impacts, risks and opportunities, in relation to:

    ➡ Impacts on climate change, in particular, your GHG emissions

    ➡ Climate-related physical risks in your own operations and along the upstream and downstream value chain, in particular:

    ✔ identification of climate-related hazards, considering at least high emission climate scenarios

    ✔ assessment of how your assets and business activities may be exposed and are sensitive to these climate-related hazards

    ➡ Climate-related transition risks and opportunities, in particular:

    ✔ identification of climate-related transition events, considering at least a climate scenario in line with limiting global warming to 1.5°C with no or limited overshoot

    ✔ assessment of how your assets and business activities may be exposed to these climate-related transition events, creating gross transition risks or opportunities for your company

    ⭕ Material impacts, risks and opportunities and their interaction with your strategy and business model

    ➡ For each material climate-related risk you identify, whether you consider the risk to be a physical or transition risk

    ➡ Description of the resilience of your strategy and business model in relation to climate change, including a description of the scope of the resilience analysis

    ➡ How and when the resilience analysis has been conducted, including the use of climate scenario analysis, as well as the results of this analysis

    Reporting is necessary, but it is only a means to an end, not the end

    Posted on by

    Under CSRD & ESRS, conducting stakeholder surveys to define what sustainability matters are material to your organization is no longer fit for purpose. Nor is a narrow focus on data collection.

    Stakeholder concerns and evidence of actual and potential impacts are now in focus, not ranking the relative importance of different sustainability matters.

    ESRS is process oriented. Numerical data only account for 30% of the disclosure requirements.

    70% of ESRS is about contextual narrative disclosure, and more than 40% of the disclosures require accounting for policies, targets and actions for material topics, according to detailed Minimum Disclosure Requirements (MDR).

    The material topics are to be found in the list of 92 topics provided in ESRS 1 (AR 16) that the company shall consider, together with entity-specific material topics.

    When asked, “from a data collection point of view, how should business adapt to meet the requirements of mandatory regulations?”, Chiara Del Prete (Sustainability Reporting TEG Chair EFRAG), answered:

    “I wonder whether collection of data is entirely capturing the transformational element of what we are trying to achieve in terms of direction of travel.”

    “To the extent that they have policies, targets and actions in place to identify, mitigate, prevent and account for their impacts on people and environment – those data will be the same as those we would like to see coming into reports.”

    “This is to say that there is much more than collection of data.”

    CSRD & ESRS support the European Green Deal – a new growth strategy that aims to transform the Union into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use.

    In 2022, McKinsey estimated that to reach net zero emissions, an additional $3.5 trillion a year must be invested in physical assets for energy and land-use systems until 2050.

    That is the greatest reallocation of capital in history.

    So, surveys and data collection will not be enough. Building awareness, skills and transparency – and closing the gap between sustainability, strategy and execution – will be key to success.

    Exit stakeholder questionnaires. Enter robust due diligence processes.

    Exit narrow focus on data collection. Enter efficient risk management and strategic plans supported by evidence, actions & resources and KPIs.

    And, exit manual spreadsheets and glossy ESG-brochures.

    Enter holistic, inclusive, fit-for-purpose system support supporting both sustainability strategy and reporting.

    Reporting is necessary, but if we are looking to transform, reporting is only a means to an end, not the end.

    Governance & Strategy capture your overall commitment to sustainable development

    Posted on by

    Governance & Strategy disclosures and measurements capture companies’ overall commitment to sustainable development.

    The standard-setters know this, which is why you will have to disclose in detail on these processes, both with CSRD/ESRS and ISSB/IFRS-S.

    They will also be key areas of scrutiny for your auditor following the instructions in the proposed International Standard on Sustainability Assurance (ISSA) 5000 and the technical advice issues by the French authority H2A (previously H3C).

    Mandatory disclosures will lead to radically ❗increased transparency, and the public benchmarks and rankings that will follow will be important drivers of change.

    This is happening today

    There is no time to lose, you need to prepare now. ⌛

    Step one is understanding – in detail – what will be expected.

    This can be done by navigating and learning the standards – every single disclosure point (more than 1000 in ESRS – subject to materiality assessment, whereof approx. 30% are metrics and 70% are narrative disclosures).

    If you are aiming for the world to trust that you are truly committed to sustainability, you need to start by focusing on strategy and governance, it will set the pace for all the rest.

    And there is no excuse for bad performance.

    Cleerit ESG helps you navigate the standards, to learn, prepare and excel

    With Cleerit ESG you get a secure off-the-shelf CSRD-compliant and ESRS-ready Sustainability Strategy & Reporting Software – with every single disclosure point digitized – to help you navigate the standards, learn and prepare.

    It’s neither expensive, nor complicated, and the ROI is very high – your chances of strategic success triple.

    You just need to really want to learn, prepare and excel.

    In the enclosed document we explain how we can help, and introduce the science-based solution Cleerit ESG, offering features and capabilities to:

    ✔ factor in impact and risk exposure,
    ✔ identify, assess and manage material topics,
    ✔ unlock the potential of your double materiality assessments,
    ✔ cascade ambitious targets,
    ✔ create actionable roadmaps for strategic success,
    ✔ monitor and manage performance –
    ✔ while preparing CSRD and
    ✔ automating your sustainability reporting with ESRS-ready templates.

    You are welcome to contact us if you want to know more. We are looking forward to hearing from you.

    Download the Cleerit ESG presentation here >>

    Download an overview of the ESRS standards >>

    Download the ESRS standards >>

    CSRD is about future-proofing your business

    Posted on by

    ESRS, the European Sustainability Reporting Standards, mandatory for companies subject to CSRD, is where sustainability meets strategy and sets the stage for real transformation and profitable future-proof business.

    ESRS strategy disclosure requirements, SBM, focus on how the company’s strategy and business model interact with, and addresses, its material sustainability impacts, risks and opportunities.

    But – and this is important – it’s not only about mitigating adverse actual impact and risks, it’s also about pursuing new opportunities, as laid out in EU’s new growth strategy, the Green Deal.

    So, what does ESRS say about opportunities?

    ESRS lists 5 opportunity levers for you to consider: Resource efficiency, Markets, Financing, Reputation and Resilience – together with examples that we list in the below article.

    ESRS is as much about strategy as it is about reporting, so it’s time to get CSRD-ready.

    You can be certain that your competitors will seize this high Return-On-Investment opportunity. And technology makes it all easy and affordable.

    Why wait?

    ESRS is where sustainability meets strategy and sets the stage for real transformation and future-proof business

    The European Sustainability Reporting Standards, ESRS, mandatory for companies subject to CSRD, specify the information that the company shall disclose to allow for readers to understand its material impacts on people and environment, and the material effects of sustainability matters on the company’s development, performance and position.

    Future-proofing is the process of anticipating the future and developing methods of minimizing the effects of shocks and stresses of future events – on the company’s development, performance and position.

    The ESRS strategy disclosure requirements, SBM, focus on how the company’s strategy and business model interact with, and addresses, its material sustainability impacts, risks and opportunities.

    • The term “impacts” refers to positive and negative, actual or potential, sustainability-related impacts that are connected with the company’s business, as identified through an impact materiality assessment.
    • The term “risks and opportunities” refers to the company’s sustainability-related financial risks and opportunities, including those deriving from dependencies on natural, human and social resources, as identified through a financial materiality assessment.

    But, it’s not only about mitigating adverse impact and risks, it’s also about pursuing new opportunities, as laid out in EU’s new growth strategy the Green Deal.

    What does ESRS say about opportunities?

    To start with, when reporting on material opportunities, the reader should be able to understand if the opportunity is currently being pursued and is already incorporated in the company’s own general strategy, or if it is just general opportunity for the company or the sector it operates in. (ESRS-1.109)

    ESRS also lists 5 opportunity levers the company can consider: Resource efficiency, Markets, Financing, Reputation and Resilience.

    Resource efficiency, e.g.,

    • Transition to more efficient services and less resource-intense processes.
    • Decrease quantities of substances used or improve efficiency of production process to minimise impacts.
    • Eco-design for longevity, repair, reuse, recycle, by- products, take-back systems, decoupling activity from extraction of materials, intensifying circular material use, creation of a system that allows for dematerialization (e.g., digitisation, improving utilisation rates, weight reduction).
    • Practices to ensure products and materials are collected, sorted, and reused, repaired, refurbished, remanufactured.

    Markets, e.g.,

    • Development of less resource-intense products and services.
    • Diversification of business activities.
    • Demand for less resource-intense products and services, and new consumption models such as product-as- a-service, pay-per-use, sharing, leasing.

    Financing, e.g.,

    • Access to green funds, bonds or loans

    Reputation, e.g.,

    • Positive stakeholder relations and engagement as a result of a proactive stance on managing risks.
    • Preferred partner status.

    Resilience, e.g.,

    • Diversification of resources and business activities (e.g., start a new business unit to recycle new materials)
    • Investing in green infrastructures
    • Adopting recycling and circularity mechanisms that reduce dependencies.
    • Increase the capability to safeguard future stocks and flows of resources.

    ESRS is as much about strategy as it is about reporting, so you will need CSRD-ready sustainability strategy & reporting digital support to succeed.

    What better way to start than to see ESRS on your screen, fully digitized? Ready to navigate, learn, share and get ready.

    The science-based SaaS solution Cleerit ESG helps you

    • factor in risk exposure,
    • identify and manage material topics,
    • unlock the potential of your materiality assessments,
    • cascade ambitious targets and
    • create actionable roadmaps for strategic success –
    • while preparing CSRD and
    • automating your sustainability reporting with ESRS-ready templates.

    And secure, modern SaaS technology makes it all easy and affordable.

    You have rarely had such a high Return On Investment.

    Why wait?

    ESRS is a new code for sustainability reporting

    Posted on by

    In this section and on our LinkedIn page, we publish information aimed at helping you prepare for CSRD and learn to navigate the sustainability reporting framework ESRS.

    As with other important legislative acts, ESRS is a new code for sustainability reporting with the EU taking the lead and likely becoming the template for many countries outside the bloc – at least for companies keen to show the world that they have state-of-the-art sustainability commitments.

    We have analyzed and digitized the entire ESRS framework and count approx. 1000 disclosure points whereof 30% are metrics and 70% are narrative disclosures.

    What you will have to report is subject to materiality assessment – and you will also be invited to disclose your own indicators, in addition to those already listed in the ESRS – so the number of disclosure points will be different for different companies.

    But one thing is clear, it will take you at least a year to prepare, so don’t wait, get started now.

    There are different types of Disclosure Points

    ➡ Processes, mechanisms and policies expected to be in place

    ESRS lists a certain number of processes, mechanisms and policies, and asks you whether you have them in place or not.

    Here you can only answer Yes or No. If you answer yes, you will be invited to describe How.

    If you answer Yes without this being true, it will be as unlawful as stating that you do not have any outstanding debts in your balance sheet if you do.

    And this will not go unnoticed since your report will be integrated into the annual report and needs to be audited.

    ➡ Impact, risk and opportunity management

    ESRS also asks you to list and describe your material sustainability impacts, risks and opportunities, based on a list of topics, as well as the related policies, targets, actions plans, resources and metrics you have in place to manage these.

    You will need to describe this as required by the Minimum Disclosure Requirements set out in ESRS 2 sections 4.2 and 5.

    Basically, it means that you need to describe what you do, why you do it, who is responsible, when it’s happening, what resources you allocate for goal reaching, and how you are progressing.

    Transparency is a key driver for change and the legislator knows that. So here there is no room for cheating if you do not want to risk being accused of greenwashing.

    ➡ Metrics

    Finally, there are the metrics to show the world how you are progressing. But that’s actually the easy part. And they account for only 30% of all disclosure points.

    With ESRS, the devil is in the detail. That’s why we regularly analyze detailed disclosure points

    First out in our new series “CSRD & ESRS – How to comply and get high extra-financial ratings” was a close-up on the ESRS metric S1.97.b “Total remuneration ratio”, or “CEO employee pay ratio” or “Excessive CEO pay ratio” as it’s sometimes called.

    We had a look at why it’s important, how it’s interpreted and how to set a sustainable target. You can read about it here >>

    So, stay tuned and follow our LinkedIn page >>

    Free and publicly available emissions data

    Posted on by

    Free and publicly available emissions data of an unprecedented granularity❗#ClimateTRACE is a significant breakthrough in emissions monitoring and represents a new era of transparency and accountability.

    Climate TRACE has published an inventory that pinpoints nearly every major source of greenhouse gas (GHG) emissions around the world and provides independently produced estimates of how much each emits.

    The inventory is free to use and publicly accessible on the Climate TRACE online platform.

    Users can download full country- or sector-level datasets covering 2015-2022.

    It enables accountability and private sector action – particularly for companies looking to decarbonize their supply chains.

    The Climate TRACE (Tracking Real-Time Atmospheric Carbon Emissions) coalition

    The Climate TRACE (Tracking Real-Time Atmospheric Carbon Emissions) coalition was formed by a group of AI specialists, data scientists, researchers, and nongovernmental organizations.

    The initiative uses a combination of satellite image processing, machine learning, and sensors stationed worldwide to independently detect emissions around the globe as they’re emitted.

    This highly granular level of information enables companies to gain a better understanding of their own supply chains and the emissions intensity of the production of key materials across a wide range of suppliers.

    Derived from satellites, other forms of remote sensing, and additional public and commercial data, Climate TRACE provides emissions data that are unreported in traditional inventories.

    Climate TRACE tracks what the atmosphere sees

    When emissions disappear from official reporting, Climate TRACE continues to track what the atmosphere sees.

    In fact, the majority of corporate emissions worldwide that are included in the Climate TRACE inventory are still not included in self-reported ESG databases.

    Encompassing human-caused emissions from facilities and other emitting activities — including fertilizer application, deforestation, and wildfires — Climate TRACE’s database tracks GHG emissions from more than 352 million assets.

    “Leaders from the public and private sectors can now do what’s never been possible before. They can look clearly at the causes of the climate crisis all the way down to the individual source. They can pinpoint where to take action almost immediately,” said former US Vice President and Climate TRACE co-founder Al Gore.

    “With this inventory at our fingertips, there’s no longer a valid excuse for anyone — businesses, governments, or otherwise — to turn a blind eye to the work that must be done to slash emissions significantly and quickly.”

    Access Climate TRACE emissions data here

    Download and check if your facilities and suppliers are listed: Data Downloads – Climate TRACE

    Source: Climate TRACE Unveils Open Emissions Database of More Than 352 Million Assets – Climate TRACE