EXPLANATORY MEMORANDUM

1.CONTEXT OF THE DELEGATED ACT

The Accounting Directive (2013/34/EU 1 ) as amended by the Corporate Sustainability Reporting Directive (CSRD - 2022/2464 2 ) requires large companies and listed small and medium-sized companies (SMEs), as well as parent companies of large groups, to include in a dedicated section of their management report the information necessary to understand the company’s impacts on sustainability matters, and the information necessary to understand how sustainability matters affect the company’s development, performance and position. 3

This information must be reported in accordance with European Sustainability Reporting Standards (ESRS), to be adopted by the Commission by means of delegated acts that must specify the content and, where relevant, the structure to be used to present that information. 4  This information shall include information related to short-, medium- and long-term time horizons, as applicable, 5 and it shall contain 6 : (i) a brief description of the undertaking’s business model and strategy; (ii) a description of the time-bound targets related to sustainability matters set by the undertaking; (iii) a description of the role of the administrative, management and supervisory bodies with regard to sustainability matters, and relevant expertise and skills or access to them; (iv) a description of the undertaking’s policies in relation to sustainability matters; (v) information about the existence of incentive schemes linked to sustainability matters; (vi) a description of the due diligence process implemented by the undertaking with regard to sustainability matters; (vii) the principal actual or potential adverse impacts connected with the undertaking’s own operations and with its value chain; (viii) any actions taken by the undertaking in relation to actual or potential adverse impacts, and the result of such actions; (ix) a description of the principal risks to the undertaking related to sustainability matters; (x) indicators relevant to the required disclosures. Where applicable, it shall contain information about the undertaking’s own operations and about its value chain, including its products and services, its business relationships and its supply chain.

The sustainability reporting standards must also meet the following requirements: (i) ensure the quality of reported information 7 ; (ii) avoid imposing a disproportionate administrative burden on undertakings 8 ; (iii) specify the information that undertakings are to disclose about specific environmental, social and human rights, and governance factors 9 ; (iv) specify the forward-looking, retrospective, qualitative and quantitative information, as appropriate, to be reported by undertakings 10 ; (v) take account of the difficulties that undertakings may encounter in gathering information from actors throughout their value chain 11 ; (vi) specify disclosures on value chains that are proportionate and relevant to the capacities and the characteristics of undertakings in value chains, and to the scale and complexity of their activities 12 ; (vii) not specify disclosures that would require undertakings to obtain information from SMEs in their value chain that exceeds the information to be disclosed pursuant to the sustainability reporting standards for SMEs 13 ; (viii) take account, to the greatest extent possible, of the work of certain global standard-setting initiatives and of certain existing standards and frameworks, as well as the requirements stemming from specific pieces of Union acts 14 .

The Commission must adopt these standards taking into consideration the technical advice provided by EFRAG 15 , a non-profit association established under Belgian law that serves the European public interest in both financial reporting and sustainability reporting by developing and promoting European views in the field of financial and sustainability reporting. EFRAG’s technical advice must also meet certain requirements 16 . In 2022, EFRAG modified its governance to reflect its new role in the development of ESRS. In particular, it revised its membership to reflect a balance between stakeholders, including undertakings, investors, auditors, trade unions, civil society, academics and national accounting standard-setters.   

The Accounting Directive requires the Commission to adopt a first set of sustainability reporting standards by 30 June 2023 17 . These standards must specify the information that companies are to report in accordance with Article 19a(1) and (2), and Article 29a(1) and (2) of the Accounting Directive, including at least the information that financial market participants need in order to comply with the disclosure obligations of the Sustainable Finance Disclosures Regulation (SFDR - 2019/2088) 18 .

EFRAG submitted to the Commission its technical advice on the first set of standards on 22 November 2022 19 . This technical advice was developed on the basis of a work programme on which the Commission was consulted on in December 2021. It is accompanied by a cost-benefit analysis that includes an analysis of the impacts of the technical advice on sustainability matters, by a note on the due process followed by EFRAG in the development of its technical advice, and by an explanation of how the technical advice takes account of the work of certain global standard-setting initiatives and of certain existing standards and frameworks, as well as the requirements stemming from specific pieces of Union acts.

This delegated act adopts the first set of European Sustainability Reporting Standards (ESRS) that undertakings shall use to carry out their sustainability reporting in accordance with Articles 19a and 29a of the Accounting Directive. The ESRS in this first set are sector-agnostic, meaning that they apply to all undertakings under the scope of the CSRD regardless of which sector or sectors the undertaking operates in. The Commission will monitor the implementation of the standards contained in this delegated act to ensure that they lead to the disclosure of relevant, reliable and comparable sustainability information.

In future years the Commission is expected to adopt additional delegated acts for additional sets of standards. The CSRD requires the Commission to adopt by June 2024: sector-specific standards, proportionate standards for listed SMEs, and standards for non-EU companies.

2.CONSULTATIONS PRIOR TO THE ADOPTION OF THE ACT

Prior to the submission of its technical advice to the Commission, EFRAG organised multiple outreach events with various stakeholder groups from May to July 2022, and ran a public consultation on the 13 draft ESRS Exposure Drafts developed by the EFRAG Project Task Force from April to August 2022. In the light of the comments received during these consultations, EFRAG revised the Exposure Drafts addressing stakeholders’ concerns. The main areas of modification were:

(a)A significant reduction in the number of disclosure requirements and datapoints. EFRAG reduced the number of disclosure requirements by 40% and the number of individual data points by about 50%.

(b)Taking further account of global reporting standards, in particular to ensure as much interoperability as possible with the future standards being developed by the International Sustainability Standards Board and with the standards of the Global Reporting Initiative. 

(c)A more central role for the materiality assessment process, and in particular removing the principle that all information prescribed in the standards should be considered material for the undertaking unless demonstrated otherwise (the so-called “rebuttable presumption”). According to EFRAG’s technical advice submitted to the Commission, all disclosures would be subject to materiality assessment by the reporting undertaking, with the exception of:

–All the disclosure requirements and datapoints in the “General disclosures” standard, which specifies essential information to be disclosed irrespective of which sustainability matter is being considered.

–All the disclosure requirements and datapoints in the climate standard, which would be mandatory for all undertakings under scope.

–All the disclosure requirements and data points that are included in the standards because they directly correspond to the information needs of other parties to meet their own disclosure requirements under separate pieces of legislation. This refers specifically to information that financial markets participants need to meet their disclosure requirements on principal adverse impacts under the Sustainable Finance Disclosure Regulation; the sustainability information that benchmark administrators need to meet their disclosure requirements under the Benchmarks Regulation; and the information that financial institutions need to meet their so-called “pillar 3” disclosure requirements under the Capital Requirements Regulation. These disclosure requirements and datapoints would also be mandatory for all undertakings under scope.

–A number of disclosure requirements and data points relating to the undertaking’s own workforce, which would be mandatory for undertakings that have more than 250 employees.

(d)The phasing-in of a number of disclosure requirements considered more challenging for undertakings. Undertakings would be allowed to omit metrics (data) on their value chains for a period of 3 years. In addition, there would be certain phase-ins of between 1 and 3 years for certain information on the following issues: the financial effects on the undertaking arising from climate; breakdown of employees by gender; collective bargaining coverage; adequate wages; social protection; and training and skills development.

EFRAG’s cost-benefit analysis on the first set of draft ESRS 20  presents an assessment of the impact of the first set of standards across different stakeholder groups (i.e. mainly EU undertakings, investors, NGOs, trade unions and society at large). The cost and benefit assessment distinguishes between direct costs and benefits, and indirect costs and benefits 21 . Overall, the costs are much more visible, tangible and measurable in the short term, while the benefits are mostly intangible and non-measurable, dependent on other legislative and non-legislative developments, and will only become evident in the medium to long term. These estimated costs and benefits are based on the proposed standards submitted by EFRAG and not the final proposed delegated act presented by the Commission.

Following EFRAG’s submission of its technical advice to the Commission and prior to the adoption of this delegated act, the Commission has carried out the following consultations, as required by the Accounting Directive 22 :

–Joint consultation of the Member State Expert Group on Sustainable Finance and the Accounting Regulatory Committee 23 ;

–consultation of the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), the European Environment Agency (EEA), the European Union Agency for Fundamental Rights (FRA), the European Central Bank (ECB), the Committee of European Auditing Oversight Bodies (CEAOB) and the Platform on Sustainable Finance. 

In addition, the Commission published the proposed final version of the delegated act for a 4-week period of public feedback on the ‘Have Your Say’ portal from 9 June to 7 July 2023, in accordance with the better regulation guidelines.

These consultations confirmed that the draft standards submitted by EFRAG broadly meet the mandate of the CSRD and would achieve the intended policy goals in the context of the European Green Deal. At the same time, some respondents drew attention to the challenging nature for many undertakings of many of the disclosure requirements proposed by EFRAG, in particular for undertakings that have not previously been subject to legal requirements to report sustainability information. Some of the most challenging disclosure requirements in the draft standards submitted by EFRAG were deemed to relate to biodiversity, to the undertaking’s own workforce, and to disclosures regarding value-chain workers, affected communities, and consumers and end-users.

Other respondents supported the draft standards submitted by EFRAG, including the proposed approach to materiality, the phasing-in of certain disclosure requirements and the specification of which disclosures should be mandatory. Many respondents stressed the need for coherence between the information that undertakings disclose under ESRS and the information needed by financial market participants, benchmarks administrators and financial institutions in order to comply with their own disclosure obligations respectively under the Sustainable Finance Disclosure Regulation, the Benchmarks Regulation and the Capital Requirements Regulation

Many respondents stressed the need for additional guidance to enable undertakings to apply the standards in an efficient and consistent manner, in particular but not only with regard to the materiality assessment process and the disclosure of value chain information. Some respondents also made proposals to improve the coherence of certain provisions of the standards with the CSRD or with other pieces of EU legislation.

Furthermore, in its strategy for long-term competitiveness, the Commission has stressed the importance of a regulatory system that ensures that objectives are reached at minimum costs. It has committed to rationalise reporting obligations, while maintaining the ambitious objectives of its legislation. While certain reporting obligations are essential, they need to be as efficient as possible, avoiding overlaps, removing unnecessary burdens and using as much as possible digital and interoperable solutions. In the spirit of this commitment, the present initiative has further streamlined reporting obligations, while not affecting the pursuit of the objective of the Directive. More specifically, the Commission has made the following modifications to the draft standards submitted by EFRAG, with the specific aim of ensuring proportionality and facilitating the correct application of the standards by undertakings:

·Materiality: all standards and all disclosure requirements and data points within each standard will be subject to materiality assessment by the undertaking, with the exception of the disclosure requirements specified in the “General disclosures” standard. This differs from the EFRAG proposal only insofar as EFRAG proposed three other exceptions to the general principle of materiality (climate standard; datapoints derived from Sustainable Finance Disclosure Regulation, the Benchmarks Regulation and the “pillar 3” disclosure requirements of the Capital Requirements Regulation; and, in the case of undertakings with more than 250 employees, certain datapoints regarding the undertaking’s own workforce). By applying the principle of materiality more widely and requiring undertakings to focus on those impacts, risks and opportunities that have been assessed as material, this measure is expected to lead to a significant burden reduction for undertakings and help to ensure that the standards are proportionate. Disclosure requirements subject to materiality are not, however, voluntary. The information in question must be disclosed if it is material, and the undertaking’s materiality assessment process is subject to external assurance in accordance with the provisions of the CSRD. The standards require undertakings to perform a robust materiality assessment to ensure that all information necessary to meet the objectives and requirements of the Corporate Sustainability Reporting Directive will be disclosed. The Commission has asked EFRAG to prepare additional guidance for undertakings on, amongst other things, materiality assessment. The standards also specify that:

–If an undertaking concludes that climate change is not a material topic and that therefore it does not report in accordance with that standard, it shall disclose a detailed explanation of the conclusions of its materiality assessment with regard to climate change. This provision is included in recognition of the widespread and systemic effects of climate change on the economy as a whole.

–If an undertaking concludes that a datapoint deriving from the Sustainable Finance Disclosure Regulation, the Benchmarks Regulation or the “pillar 3” disclosure requirements under the Capital Requirements Regulation is not material, it shall explicitly state that the datapoint in question is “not material”. In addition, undertakings shall disclose a table with all such datapoints, indicating where they are to be found in its sustainability statement or stating “not material” as appropriate. These provisions aim to facilitate the compliance of financial market participants, benchmarks administrators and financial institutions with their own disclosure obligations respectively under the Sustainable Finance Disclosure Regulation, the Benchmarks Regulation and the Capital Requirements Regulation.

·Phasing-in certain requirements: in addition to the phase-ins proposed by EFRAG, the Commission has provided for further phase-ins that will help all companies, and in particular smaller companies that are subject to sustainability reporting requirements for the first time, to apply the standards effectively. The additional phase-ins introduced by the Commission are:

–Undertakings with less than 750 employees may omit: scope 3 GHG emissions data and the disclosure requirements specified in the standard on “own workforce” in the first year that they apply the standards; and the disclosure requirements specified in the standards on biodiversity and on value-chain workers, affected communities, and consumers and end-users in the first two years that they apply the standards.

–All undertakings may omit the following information in the first year that they apply the standards: anticipated financial effects related to non-climate environmental issues (pollution, water, biodiversity, and resource use); and certain datapoints related to their own workforce (social protection, persons with disabilities, work-related ill-health, and work-life balance).

·Making certain disclosures voluntary: the draft standards submitted by EFRAG already included many voluntary datapoints. The Commission has further converted a number of the mandatory datapoints proposed by EFRAG into voluntary datapoints. This includes, for example: biodiversity transition plans; certain indicators about “non-employees” in the undertaking’s own workforce 24 ; and an explanation of why the undertaking may consider a particular sustainability topic not to be material.

·Further flexibilities in certain disclosures: in addition to making certain datapoints voluntary, the Commission has also introduced certain flexibilities for some of the mandatory datapoints. For example, there are additional flexibilities in the disclosure requirements on the financial effects arising from sustainability risks and on engagement with stakeholders, and in the methodology to use for the materiality assessment process. Furthermore, the Commission has modified datapoints regarding corruption and bribery and regarding the protection of whistle-blowers that might be considered to have infringed on the right not to self-incriminate.

·Coherence with EU legal framework: Technical modifications to ensure better alignment with other provisions in the Accounting Directive and with other relevant pieces of legislation, for example regarding the Pay Transparency Directive and the European Pollutant Release and Transfer Register.

·Interoperability with global standard-setting initiatives: the Commission and EFRAG have continued to engage closely with International Sustainability Standards Board and the Global Reporting Initiative to ensure a high degree of interoperability with ESRS, and further modifications to the draft ESRS have been made in light of that engagement.  

·Editorial and presentational modifications: the Commission has made editorial and presentational changes to improve the clarity, usability, and coherence of the standards. This includes, for example, the introduction of a drafting convention to clearly identify all terms for which ESRS has a precise definition.

The Commission anticipates that the proposed additional phase-in measures will enable a total cost reduction during the phase-in period of EUR 1 172 million compared to the draft standards proposed by EFRAG. In addition, the Commission estimates that the proposed modifications with regard to materiality, combined with making certain disclosures voluntary, will reduce costs by EUR 230 million annually compared to EFRAG’s proposal. These cost-estimates are based on the most substantial modifications that have been made compared to the EFRAG drafts. They are based on conservative assumptions, as the additional cost reductions induced by other modifications (further flexibilities on certain disclosures, improved coherence with EU legal framework, interoperability with global standard-setting initiatives and editorial and presentational modifications) could not be quantified at this stage in a meaningful way.

The Commission is putting in place an interpretation mechanism to provide formal interpretation of the standards. The Commission has also asked EFRAG to publish additional guidance and educational material, addressing the materiality assessment process and other issues.

The Commission has also assessed the consistency of this delegated act with the climate-neutrality objective set out in Article 2(1) of the European Climate Law (Regulation (EU) 2021/1119) 25 , and with the objective of ensuring progress on adaptation as referred to in Article 5 of that Regulation.

3.LEGAL ELEMENTS OF THE DELEGATED ACT

This delegated act is based on Article 29b(1), first subparagraph, of the Accounting Directive.

It specifies the European Sustainability Reporting Standards (ESRS) undertakings shall use to carry out their sustainability reporting in accordance with Articles 19a and 29a of the Accounting Directive.

This delegated act is accompanied by the following Annexes:

–Annex I, which includes:

·Cross-cutting standards:

ESRS 1 General requirements

ESRS 2 General disclosures

·Standards on Environmental, Social and Governance matters:

ESRS E1 Climate change

ESRS E2 Pollution

ESRS E3 Water and marine resources

ESRS E4 Biodiversity and ecosystems

ESRS E5 Resource use and circular economy

ESRS S1 Own workforce

ESRS S2 Workers in the value chain

ESRS S3 Affected communities

ESRS S4 Consumers and end-users

ESRS G1 Business conduct

–Annex II, which includes the list of Acronyms and the Glossary with the definitions to be used for the purposes of carrying out sustainability reporting in accordance with ESRS.

This delegated act applies from 1 January 2024 to the undertakings that were already subject to the non-financial reporting requirements introduced by the Non-Financial Reporting Directive. Its application will be phased-in for other categories of undertakings based on the phased approach set out in Article 5 CSRD. 26  Listed SMEs will have the option of meeting their reporting requirements under the CSRD by reporting according to separate, proportionate standards that the Commission will adopt by end June 2024.

COMMISSION DELEGATED REGULATION (EU) …/...

of 31.7.2023

supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC 27 , and in particular Article 29b(1), first subparagraph, thereof,

Whereas:

(1)Directive 2013/34/EU, as amended by Directive (EU) 2022/2464 28 , requires large undertakings, small and medium-sized undertakings with securities admitted to trading on the EU regulated markets, as well as parent undertakings of large groups, to include in a dedicated section of their management report or consolidated management report the information necessary to understand the undertaking’s impacts on sustainability matters, and the information necessary to understand how sustainability matters affect the undertaking’s development, performance and position. Undertakings are to prepare this information in accordance with sustainability reporting standards starting from the financial year indicated in Article 5(2) of Directive (EU) 2022/2464 for each category of undertakings.

(2)The Commission is required to adopt by 30 June 2023 a first set of standards specifying the information that undertakings are to report in accordance with Article 19a(1) and (2), and Article 29a(1) and (2) of that Directive, including at least the information that financial market participants need in order to comply with the disclosure obligations of Regulation (EU) 2019/2088 of the European Parliament and of the Council 29 .

(3)The Commission has taken into account the technical advice provided by the EFRAG. EFRAG’s independent technical advice meets the criteria set out in Article 49(3b), first, second and third subparagraphs, of Directive 2013/34/EU. To ensure proportionality and to facilitate the correct application of the standards by undertakings, the Commission has introduced modifications to EFRAG’s technical advice as regards the materiality approach, the phasing-in of certain requirements, the conversion of certain requirements into voluntary datapoints, the introduction of flexibilities in a number of disclosure requirements, the introduction of technical modifications to ensure coherence with the Union’s legal framework and a high degree of interoperability with global standard-setting initiatives, as well as editorial modifications.

(4)These sustainability reporting standards meet the requirements set out in Article 29b of Directive 2013/34/EU.

(5)Common sustainability reporting standards should therefore be adopted.

(6)In accordance with Article 29b(1), fourth subparagraph, of Directive 2013/34/EU this Regulation should not enter into force earlier than 4 months after its adoption by the Commission. Considering that Article 5(2) of Directive (EU) 2022/2464 requires certain categories of undertakings to apply these sustainability reporting standards for financial years starting on or after 1 January 2024, this Regulation should enter into force on the third day following that of its publication in the Official Journal of the European Union.

(7)In accordance with Article 49(3b), fourth subparagraph, of Directive 2013/34/EU, the Commission has consulted jointly the Member State Expert Group on Sustainable Finance, referred to in Article 24 of Regulation (EU) 2020/852 of the European Parliament and of the Council 30 , and the Accounting Regulatory Committee, referred to in Article 6 of Regulation (EC) No 1606/2002 of the European Parliament and of the Council 31 . In accordance with Article 49(3b), fifth subparagraph, of Directive 2013/34/EU, the Commission has requested the opinion of the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), in particular with regard to the consistency of this Regulation with Regulation (EU) 2019/2088 and the delegated acts adopted pursuant to that Regulation. In accordance with Article 49(3b), sixth subparagraph, of Directive 2013/34/EU, the Commission has also consulted the European Environment Agency, the European Union Agency for Fundamental Rights, the European Central Bank, the Committee of European Auditing Oversight Bodies and the Platform on Sustainable Finance established pursuant to Article 20 of Regulation (EU) 2020/852,

HAS ADOPTED THIS REGULATION:

Article 1

Subject matter

The sustainability reporting standards that undertakings are to use for carrying out their sustainability reporting in accordance with Articles 19a and 29a of Directive 2013/34/EU following the timetable set out in Article 5(2) of Directive (EU) 2022/2464 are set out in Annexes I and II of this Regulation.

Article 2

Entry into force and application

This Regulation shall enter into force on the third day following that of its publication in the Official Journal of the European Union.

It shall apply from 1 January 2024 for financial years beginning on or after 1 January 2024.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 31.7.2023

(1)    Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19).

(2)    Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (OJ L 322, 16.12.2022, p. 15). This Directive strengthened and revised the non-financial disclosure requirements introduced in the Accounting Directive by Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (Non-Financial Reporting Directive – NFRD).

(3)    The sustainability reporting requirements for large undertakings and listed SMEs are set out in Articles 19a and 29a Accounting Directive. The Accounting Directive as amended by the CSRD also requires the branches or subsidiaries of certain non-EU companies to report certain sustainability information (Article 40a). The reporting obligation on these branches and subsidiary will apply as from financial year 2028 and the information to be reported will be specified in separate standards not covered by this delegated act.

(4)    Article 29b(1), first subparagraph, Accounting Directive.

(5)    Articles 19a(2), second subparagraph, and 29a(2), second subparagraph Accounting Directive.

(6)    Articles 19a(2) and (3) and 29a(2) and (3) Accounting Directive.

(7)    Article 29b(2), first subparagraph, Accounting Directive.

(8)    Article 29b(2), first subparagraph, Accounting Directive.

(9)    Article 29b(2), second subparagraph, Accounting Directive.

(10)    Article 29b(3) Accounting Directive.

(11)    Article 29b(4) Accounting Directive.

(12)    Article 29b(4) Accounting Directive.

(13)    Article 29b(4) Accounting Directive.

(14)    Article 29b(5) Accounting Directive. The Union legislation that must be taken into consideration is the Sustainable Finance Disclosures Regulation (SFDR - 2019/2088) and related delegated acts, the relevant delegated acts adopted under the Taxonomy Regulation (2020/852), the relevant delegated acts adopted under the Benchmark Regulation (2016/1011), certain implementing acts adopted pursuant to the Capital Requirements Regulation (CRR - 575/2013), Commission Recommendation on the life cycle environmental performance of products and organisations (2013/179/EU), Directive on greenhouse gas emission allowance trading (2003/87/EC), Regulation on climate neutrality (2021/1119), EMAS Regulation (1221/2009), Whistleblowing Directive (2019/1937).

(15)    Article 49(3b) Accounting Directive. EFRAG was previously called the European Financial Reporting Advisory Group. In 2022 it changed its name to simply EFRAG.

(16)    Article 49(3b) Accounting Directive specifies the following requirements for EFRAG’s technical advice: (i) it has been developed with proper due process, public oversight and transparency, with the expertise and balanced participation of relevant stakeholders, and with sufficient public funding to ensure its independence; (ii) it has been developed on the basis of a work programme on which the Commission has been consulted; (iii) it is accompanied by cost-benefit analyses that include analyses of the impacts of the technical advice on sustainability matters; (iv) it is accompanied by an explanation of how it takes account of the work of certain global standard-setting initiatives and of certain existing standards and frameworks, as well as the requirements stemming from specific pieces of Union acts; (v) participation in EFRAG’s work at technical level is based on expertise in sustainability reporting and is not conditional on a financial contribution; (vi) the accompanying documents are submitted together with the technical advice.

(17)    Article 29b(1), second subparagraph, of the Accounting Directive.

(18)    Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (OJ L 317, 9.12.2019, p. 1).

(19)    EFRAG’s first set of standards is available at https://www.efrag.org/lab6 .

(20)    Available at https://www.efrag.org/lab6 . This analysis was commissioned to the Centre for European Policy Studies (CEPS) and its partner Milieu .

(21)    The ESRS is likely to contribute to the reporting of more relevant, comparable, reliable and usable, digitally accessible, and mandatory sustainability information of a larger number of undertakings than NFRD. This will allow investors to take environmental and social risks better into account in their investment decisions and allows citizens, trade unions, NGOs, and other societal organisations to hold undertakings accountable for their societal and environmental impacts. The proper implementation of the ESRS is likely to ultimately contribute to a reduction in the systemic risks to the economy, increased capital flows to undertakings addressing sustainability issues and the strengthening of the social contract between undertakings and citizens. Moreover, it will contribute towards achieving the ambitious goals of the European Green Deal.

(22)    Article 49(3b) of the Accounting Directive.

(23)    In addition to the request for written comments submitted on 25 November 2022 to the ARC and on 28 November 2022 to the MSEGSF, a joint ARC-MSEGSF virtual meeting was organised on 15 December 2022.

(24)    “Non-employees” are self-employed persons or persons who provided by undertakings primarily engaged in “employment activities” (NACE Code N78).

(25)    Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (OJ L 243, 9.7.2021, p. 1).

(26)    From financial years starting on or after 1 January 2024:   From financial years starting on or after 1 January 2025: From financial years starting on or after 1 January 2026 (with the option of voluntarily opting out for financial years 2026 and 2027):

(27)    OJ L 182, 29.6.2013, p. 19.

(28)    Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (OJ L 322, 16.12.2022, p. 15).

(29)    Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (OJ L 317, 9.12.2019, p. 1).

(30)    Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198, 22.6.2020, p. 13).

(31)    Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (OJ L 243, 11.9.2002, p. 1).

ANNEX I

EUROPEAN SUSTAINABILITY REPORTING STANDARDS (ESRS)

ESRS 1

GENERAL REQUIREMENTS

Table of contents

Objective

1.Categories of ESRS Standards, reporting areas and drafting conventions

1.1 Categories of ESRS Standards

1.2 Reporting areas and minimum content disclosure requirements on policies, actions, targets and metrics

1.3 Drafting conventions

2.Qualitative characteristics of information

3.Double materiality as the basis for sustainability disclosures

3.1 Stakeholders and their relevance to the materiality assessment process

3.2 Material matters and materiality of information

3.3 Double materiality

3.4 Impact materiality

3.5 Financial materiality

3.6 Material impacts or risks arising from actions to address sustainability matters

3.7 Level of disaggregation

4.Due diligence

5.Value chain

5.1 Reporting undertaking and value chain

5.2 Estimation using sector averages and proxies

6.Time horizons

6.1 Reporting period

6.2 Linking past, present and future

6.3 Reporting progress against the base year

6.4 Definition of short-, medium- and long-term for reporting purposes

7Preparation and presentation of sustainability information

7.1Presenting comparative information

7.2Sources of estimation and outcome uncertainty

7.3Updating disclosures about events after the end of the reporting period

7.4Changes in preparation or presentation of sustainability information

7.5Reporting errors in prior periods

7.6Consolidated reporting and subsidiary exemption

7.7Classified and sensitive information, and information on intellectual property, know-how or results of innovation

7.8 Reporting on opportunities

8.Structure of sustainability statement

8.1General presentation requirement

8.2Content and structure of the sustainability statement

9.Linkages with other parts of corporate reporting and connected information

9.1Incorporation by reference

9.2Connected information and connectivity with financial statements

10.Transitional provisions

10.1Transitional provision related to entity-specific disclosures

10.2Transitional provision related to chapter 5 Value chain

10.3Transitional provision related to section 7.1 Presenting comparative information

10.4 Transitional provision: List of Disclosure Requirements that are phased-in

Appendix A: Application Requirements

-Entity-specific disclosures

-Double materiality

-Estimation using sector averages and proxies    

-Content and structure of the sustainability statement

Appendix B: Qualitative characteristics of information

Appendix C: List of phased-in Disclosure Requirements

Appendix D: Structure of ESRS sustainability statement

Appendix E: Flowchart for determining disclosures to be included

Appendix F: Example of structure of ESRS sustainability statement

Appendix G: Example of incorporation by reference

Objective

1.The objective of European Sustainability Reporting Standards (ESRS) is to specify the sustainability information that an undertaking shall disclose in accordance with Directive 2013/34/EU of the European Parliament and of the Council 1 , as amended by Directive (EU) 2022/2464 of the European Parliament and of the Council. 2  Reporting in accordance with ESRS does not exempt undertakings from other obligations laid down in Union law.

2.Specifically, ESRS specify the information that an undertaking shall disclose about its material impacts, risks and opportunities in relation to environmental, social, and governance sustainability matters. ESRS do not require undertakings to disclose any information on environmental, social and governance topics covered by ESRS when the undertaking has assessed the topic in question as non-material (See Appendix E of this Standard “Flowchart for determining disclosures to be included”).The information disclosed in accordance with ESRS enables users of the sustainability statement to understand the undertaking’s material impacts on people and environment and the material effects of sustainability matters on the undertaking’s development, performance and position.

3.The objective of this Standard (ESRS 1) is to provide an understanding of the architecture of ESRS, the drafting conventions and fundamental concepts used, and the general requirements for preparing and presenting sustainability information in accordance with Directive 2013/34/EU, as amended by Directive (EU) 2022/2464.

1.Categories of ESRS Standards, reporting areas and drafting conventions

1.1Categories of ESRS standards

4.There are three categories of ESRS:

(a)cross-cutting standards;

(b)topical standards (Environmental, Social and Governance standards); and

(c)sector-specific standards.

Cross-cutting standards and topical standards are sector-agnostic, meaning that they apply to all undertakings regardless of which sector or sectors the undertaking operates in.

5.The cross-cutting standards ESRS 1 General requirements and ESRS 2 General disclosures apply to the sustainability matters covered by topical standards and sector-specific standards.

6.This standard (ESRS 1) describes the architecture of ESRS standards, explains drafting conventions and fundamental concepts, and sets out general requirements for preparing and presenting sustainability-related information.

7.ESRS 2 establishes Disclosure Requirements on the information that the undertaking shall provide at a general level across all material sustainability matters on the reporting areas governance, strategy, impact, risk and opportunity management, and metrics and targets.

8.Topical ESRS cover a sustainability topic and are structured into topics and sub-topics, and where necessary sub-sub-topics. The table in Application Requirement 16 (AR 16) to this standard provides an overview of the sustainability topics, sub-topics and sub-sub-topics (collectively ‘sustainability matters’) covered by topical ESRS.

9.Topical ESRS can include specific requirements that complement the general level Disclosure Requirements of ESRS 2. ESRS 2 Appendix C Disclosure/Application Requirements in topical ESRS that are applicable jointly with ESRS 2 General Disclosures provides a list of the additional requirements in topical ESRS that the undertaking shall apply in conjunction with the general level disclosure requirements of ESRS 2.

10.Sector-specific standards are applicable to all undertakings within a sector. They address impacts, risks and opportunities that are likely to be material for all undertakings in a specific sector and that are not covered, or not sufficiently covered, by topical standards. Sector-specific standards are multi-topical and cover the topics that are most relevant to the sector in question. Sector-specific standards achieve a high degree of comparability.

11.In addition to the disclosure requirements laid down in the three categories of ESRS, when an undertaking concludes that an impact, risk or opportunity is not covered or not covered with sufficient granularity by an ESRS but is material due to its specific facts and circumstances, it shall provide additional entity-specific disclosures to enable users to understand the undertaking’s sustainability-related impacts, risks or opportunities. Application requirements AR 1 to AR 5 provide further guidance regarding entity-specific disclosures. 

1.2 Reporting areas and minimum content disclosure requirements on policies, actions, targets and metrics  

12.The Disclosure Requirements in ESRS 2, in topical ESRS and in sector-specific ESRS are structured into the following reporting areas:

(a)Governance (GOV): the governance processes, controls and procedures used to monitor, manage and oversee impacts, risks and opportunities (see ESRS 2, chapter 2 Governance);

(b)Strategy (SBM): how the undertaking’s strategy and business model interact with its material impacts, risks and opportunities, including how the undertaking addresses those impacts, risks and opportunities (see ESRS 2, chapter 3 Strategy);

(c)Impact, risk and opportunity management (IRO): the process(es) by which the undertaking:

I.identifies impacts, risks and opportunities and assesses their materiality (see IRO-1 in section 4.1 of ESRS 2),

II.manages material sustainability matters through policies and actions (see section 4.2 of ESRS 2).

(d)Metrics and targets (MT): the undertaking’s performance, including targets it has set and progress towards meeting them (see ESRS 2, chapter 5 Metrics and targets).

13.ESRS 2 includes:

(a)in section 4.2 Minimum Disclosure Requirements regarding policies (MDR-P) and actions (MDR-A);

(b)in section 5 Minimum Disclosure Requirements regarding metrics (MDR-M) and targets (MDR-T).  

The undertaking shall apply the minimum disclosure requirements regarding policies, actions, metrics and targets together with the corresponding Disclosure Requirements in topical and sector-specific ESRS.

1.3Drafting conventions

14.In all ESRS:

(a)the term “impacts” refers to positive and negative sustainability-related impacts that are connected with the undertaking’s business, as identified through an impact materiality assessment (see section 3.4 Impact materiality). It refers both to actual impacts and to potential future impacts.

(b)The term “risks and opportunities” refers to the undertaking’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 (see section 3.5).

Collectively, these are referred to as “impacts, risks and opportunities” (IROs). They reflect the double materiality perspective of ESRS described in section 3.

15.Throughout ESRS, the terms that are defined in the glossary of definitions (Annex II) are put in bold italic, except when a defined term is used more than once in the same paragraph.

16.ESRS structure the information to be disclosed under Disclosure Requirements. Each Disclosure Requirement consists of one or more distinct datapoints. The term “datapoint” can also refer to a narrative sub-element of a Disclosure Requirement.

17.In addition to Disclosure Requirements most ESRS also contain Application Requirements. Application Requirements support the application of Disclosure Requirements and have the same authority as other parts of an ESRS.

18.ESRS use the following terms to distinguish between different degrees of obligation on the undertaking to disclose information:

(a)“shall disclose” – indicates that the provision is prescribed by a Disclosure Requirement or datapoint;

(b)“may disclose” – indicates voluntary disclosure to encourage good practice.

In addition, ESRS use the term “shall consider” when referring to issues, resources or methodologies that the undertaking is expected to take into account or to use in the preparation of a given disclosure if applicable.

2.Qualitative characteristics of information

19.When preparing its sustainability statement, the undertaking shall apply:

(a)the fundamental qualitative characteristics of information, i.e. relevance and faithful representation; and

(b)the enhancing qualitative characteristics of information, i.e. comparability, verifiability and understandability.

20.These qualitative characteristics of information are defined and described in Appendix B of this Standard.

3. Double materiality as the basis for sustainability disclosures

21.The undertaking shall report on sustainability matters based on the double materiality principle as defined and explained in this chapter.

3.1Stakeholders and their relevance to the materiality assessment process

22.Stakeholders are those who can affect or be affected by the undertaking. There are two main groups of stakeholders:

(a)affected stakeholders: individuals or groups whose interests are affected or could be affected – positively or negatively – by the undertaking’s activities and its direct and indirect business relationships across its value chain; and

(b)users of sustainability statements: primary users of general-purpose financial reporting (existing and potential investors, lenders and other creditors, including asset managers, credit institutions, insurance undertakings), and other users of sustainability statements, including the undertaking’s business partners, trade unions and social partners, civil society and non-governmental organisations, governments, analysts and academics.

23.Some, but not all, stakeholders may belong to both groups referred to in paragraph 22.

24.Engagement with affected stakeholders is central to the undertaking’s on-going due diligence process (see chapter 4 Due diligence) and sustainability materiality assessment. This includes its processes to identify and assess actual and potential negative impacts, which then inform the assessment process to identify the material impacts for the purposes of sustainability reporting (see section 3.4 of this Standard).

3.2Material matters and materiality of information

25.Performing a materiality assessment (see sections 3.4 Impact materiality and 3.5 Financial materiality) is necessary for the undertaking to identify the material impacts, risks and opportunities to be reported.

26.Materiality assessment is the starting point for sustainability reporting under ESRS. IRO-1 in section 4.1 of ESRS 2, includes general disclosure requirements about the undertaking’s process to identify impacts, risks and opportunities and assess their materiality. SBM-3 of ESRS 2 provides general disclosure requirements on the material impacts, risks and opportunities resulting from the undertaking’s materiality assessment.

27.The Application Requirements in Appendix A of this Standard include a list of sustainability matters covered in topical ESRS, categorised by topics, sub-topics and sub-sub-topics, to support the materiality assessment. Appendix E Flowchart for determining disclosures to be included of this Standard provides an illustration of the materiality assessment described in this section.

28.A sustainability matter is “material” when it meets the criteria defined for impact materiality (see section 3.4 of this Standard) or financial materiality (see section 3.5 of this Standard), or both.

29.Irrespective of the outcome of its materiality assessment, the undertaking shall always disclose the information required by: ESRS 2 General Disclosures (i.e. all the Disclosure Requirements and data points specified in ESRS 2) and the Disclosure Requirements (including their datapoints) in topical ESRS related to the Disclosure Requirement IRO-1 Description of the process to identify and assess material impacts, risks and opportunities, as listed in ESRS 2 Appendix C Disclosure/Application Requirements in topical ESRS that are applicable jointly with ESRS 2 General Disclosures. 

30.When the undertaking concludes that a sustainability matter is material as a result of its materiality assessment, on which ESRS 2 IRO-1, IRO-2 and SBM-3 set disclosure requirements, it shall:

(a)disclose information according to the Disclosure Requirements (including Application Requirements) related to that specific sustainability matter in the corresponding topical and sector-specific ESRS; and

(b)disclose additional entity-specific disclosures (see paragraph 11 and AR 1 to AR 5 of this Standard) when the material sustainability matter is not covered by an ESRS or is covered with insufficient granularity.

31.The applicable information prescribed within a Disclosure Requirement, including its datapoints, or an entity-specific disclosure, shall be disclosed when the undertaking assesses, as part of its assessment of material information, that the information is relevant from one or more of the following perspectives:

(a)the significance of the information in relation to the matter it purports to depict or explain; or

(b)the capacity of such information to meet the users’ decision-making needs, including the needs of primary users of general-purpose financial reporting described in paragraph 48 and/or the needs of users whose principal interest is in information about the undertaking’s impacts.

32.If the undertaking concludes that climate change is not material and therefore omits all disclosure requirements in ESRS E1 Climate change, it shall disclose a detailed explanation of the conclusions of its materiality assessment with regard to climate change (see ESRS 2 IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement), including a forward-looking analysis of the conditions that could lead the undertaking to conclude that climate change is material in the future. If the undertaking concludes that a topic other than climate change is not material and therefore it omits all the Disclosure Requirements in the corresponding topical ESRS, it may briefly explain the conclusions of its materiality assessment for that topic. 

33.When disclosing information on policies, actions and targets in relation to a sustainability matter that has been assessed to be material, the undertaking shall include the information prescribed by all the Disclosure Requirements and datapoints in the topical and sector-specific ESRS related to that matter and in the corresponding Minimum Disclosure Requirement on policies, actions, and targets required under ESRS 2. If the undertaking cannot disclose the information prescribed by either the Disclosure Requirements and datapoints in the topical or sector-specific ESRS, or the Minimum Disclosure Requirements in ESRS 2 on policies, actions and targets, because it has not adopted the respective policies, implemented the respective actions or set the respective targets, it shall disclose this to be the case and it may report a timeframe in which it aims to have these in place.

34.When disclosing information on metrics for a material sustainability matter according to the Metrics and Targets section of the relevant topical ESRS, the undertaking:

(a)shall include the information prescribed by a Disclosure Requirement if it assesses such information to be material; and

(b)may omit the information prescribed by a datapoint of a Disclosure Requirement if it assesses such information to be not material and concludes that such information is not needed to meet the objective of the Disclosure Requirement.

35.If the undertaking omits the information prescribed by a datapoint that derives from other EU legislation listed in Appendix B of ESRS 2, it shall explicitly state that the information in question is “not material”.

36.The undertaking shall establish how it applies criteria, including appropriate thresholds, to determine:

(a)the information it discloses on metrics for a material sustainability matter according to the Metrics and Targets section of the relevant topical ESRS, in accordance with paragraph 34; and

(b)the information to be disclosed as entity-specific disclosures.

3.3Double materiality

37.Double materiality has two dimensions, namely: impact materiality and financial materiality. Unless specified otherwise, the terms “material” and “materiality” are used throughout ESRS to refer to double materiality.

38.Impact materiality and financial materiality assessments are inter-related and the interdependencies between these two dimensions shall be considered. In general, the starting point is the assessment of impacts, although there may also be material risks and opportunities that are not related to the undertaking’s impacts. A sustainability impact may be financially material from inception or become financially material, when it could reasonably be expected to affect the undertaking’s financial position, financial performance, cash flows, its access to finance or cost of capital over the short-, medium- or long-term. Impacts are captured by the impact materiality perspective irrespective of whether or not they are financially material.

39.In identifying and assessing the impacts, risks and opportunities in the undertaking’s value chain to determine their materiality, the undertaking shall focus on areas where impacts, risks and opportunities are deemed likely to arise, based on the nature of the activities, business relationships, geographies or other factors concerned.

40.The undertaking shall consider how it is affected by its dependencies on the availability of natural, human and social resources at appropriate prices and quality, irrespective of its potential impacts on those resources.

41.An undertaking’s principal impacts, risks and opportunities are understood to be the same as the material impacts, risks and opportunities identified under the double materiality principle and therefore reported on in its sustainability statement.

42.The undertaking shall apply the criteria set under sections 3.4 and 3.5 in this Standard, using appropriate quantitative and/or qualitative thresholds. Appropriate thresholds are necessary to determine which impacts, risks and opportunities are identified and addressed by the undertaking as material and to determine which sustainability matters are material for reporting purposes. Some existing standards and frameworks use the term "most significant impacts” when referring to the threshold used to identify the impacts that are described in ESRS as "material impacts."

3.4Impact materiality

43.A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- or long-term. Impacts include those connected with the undertaking’s own operations and upstream and downstream value chain, including through its products and services, as well as through its business relationships. Business relationships include those in the undertaking’s upstream and downstream value chain and are not limited to direct contractual relationships.

44.In this context, impacts on people or the environment include impacts in relation to environmental, social and governance matters.

45.The materiality assessment of a negative impact is informed by the due diligence process defined in the international instruments of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. For actual negative impacts, materiality is based on the severity of the impact, while for potential negative impacts it is based on the severity and likelihood of the impact. Severity is based on the following factors:

(a)the scale;

(b)scope; and

(c)irremediable character of the impact.

In the case of a potential negative human rights impact, the severity of the impact takes precedence over its likelihood.

46.For positive impacts, materiality is based on:

(a)the scale and scope of the impact for actual impacts; and

(b)the scale, scope and likelihood of the impact for potential impacts.

3.5Financial materiality

47.The scope of financial materiality for sustainability reporting is an expansion of the scope of materiality used in the process of determining which information should be included in the undertaking’s financial statements.

48.The financial materiality assessment corresponds to the identification of information that is considered material for primary users of general-purpose financial reports in making decisions relating to providing resources to the entity. In particular, information is considered material for primary users of general-purpose financial reports if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that they make on the basis of the undertaking’s sustainability statement.

49.A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the undertaking. This is the case when a sustainability matter generates risks or opportunities that have a material influence, or could reasonably be expected to have a material influence, on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term. Risks and opportunities may derive from past events or future events.  The financial materiality of a sustainability matter is not constrained to matters that are within the control of the undertaking but includes information on material risks and opportunities attributable to business relationships beyond the scope of consolidation used in the preparation of financial statements.

50.Dependencies on natural, human and social resources can be sources of financial risks or opportunities. Dependencies may trigger effects in two possible ways:

(a)they may influence the undertaking’s ability to continue to use or obtain the resources needed in its business processes, as well as the quality and pricing of those resources; and

(b)they may affect the undertaking’s ability to rely on relationships needed in its business processes on acceptable terms.

51.The materiality of risks and opportunities is assessed based on a combination of the likelihood of occurrence and the potential magnitude of the financial effects.

3.6Material impacts or risks arising from actions to address sustainability matters

52.The undertaking’s materiality assessment may lead to the identification of situations in which its actions to address certain impacts or risks, or to benefit from certain opportunities in relation to a sustainability matter, might have material negative impacts or cause material risks in relation to one or more other sustainability matters. For example:

(a)an action plan to decarbonise production that involves abandoning certain products might have material negative impacts on the undertaking’s own workforce and result in material risks due to redundancy payments; or

(b)an action plan of an automotive supplier to focus on the supply of e-vehicles might lead to stranded assets for the production of supply parts for conventional vehicles.

53.In such situations, the undertaking shall:

(a)disclose the existence of material negative impacts or material risks together with the actions that generate them, with a cross-reference to the topic to which the impacts or risks relate; and

(b)provide a description of how the material negative impacts or material risks are addressed under the topic to which they relate.

3.7Level of disaggregation

54.When needed for a proper understanding of its material impacts, risks and opportunities, the undertaking shall disaggregate the reported information:

(a)by country, when there are significant variations of material impacts, risks and opportunities across countries and when presenting the information at a higher level of aggregation would obscure material information about impacts, risks or opportunities; or

(b)by significant site or by significant asset, when material impacts, risks and opportunities are highly dependent on a specific location or asset.

55.When defining the appropriate level of disaggregation for reporting, the undertaking shall consider the disaggregation adopted in its materiality assessment. Depending on the undertaking’s specific facts and circumstances, a disaggregation by subsidiary may be necessary.

56.Where data from different levels, or multiple locations within a level, is aggregated, the undertaking shall ensure that this aggregation does not obscure the specificity and context necessary to interpret the information. The undertaking shall not aggregate material items that differ in nature.

57.When the undertaking presents information disaggregated by sectors, it shall adopt the ESRS sector classification to be specified in a delegated act adopted by the Commission pursuant to article 29b(1) third subparagraph, point (ii), of Directive 2013/34/EU. When a topical or sector-specific ESRS requires that a specific level of disaggregation is adopted in preparing a specific item of information, the requirement in the topical or sector-specific ESRS shall prevail.

4.Due diligence

58.The outcome of the undertaking’s sustainability due diligence process (referred to as “due diligence” in the international instruments mentioned below) informs the undertaking’s assessment of its material impacts, risks and opportunities. ESRS do not impose any conduct requirements in relation to due diligence; nor do they extend or modify the role of the administrative, management or supervisory bodies of the undertaking with regard to the conduct of due diligence.

59.Due diligence is the process by which undertakings identify, prevent, mitigate and account for how they address the actual and potential negative impacts on the environment and people connected with their business. These include negative impacts connected with the undertaking’s own operations and its upstream and downstream value chain, including through its products or services, as well as through its business relationships. Due diligence is an on-going practice that responds to and may trigger changes in the undertaking’s strategy, business model, activities, business relationships, operating, sourcing and selling contexts. This process is described in the international instruments of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

60.These international instruments identify a number of steps in the due diligence process, including the identification and assessment of negative impacts connected with the undertaking’s own operations and its upstream and downstream value chain, including through its products or services, as well as through its business relationships. Where the undertaking cannot address all impacts at once, the due diligence process allows for action to be prioritised based on the severity and likelihood of the impacts. It is this aspect of the due diligence process that informs the assessment of material impacts (see section 3.4 of this Standard). The identification of material impacts also supports the identification of material sustainability risks and opportunities, which are often a product of such impacts.

61.The core elements of due diligence are reflected directly in Disclosure Requirements set out in ESRS 2 and in the topical ESRS, as illustrated below:

(a)embedding due diligence in governance, strategy and business model 3 . This is addressed under:

I.ESRS 2 GOV-2: Information provided to and sustainability matters addressed by the undertaking’s administrative, management and supervisory bodies;

II.ESRS 2 GOV-3: Integration of sustainability-related performance in incentive schemes; and

III.ESRS 2 SBM-3: Material impacts, risks and opportunities and their interaction with strategy and business model.

(b)engaging with affected stakeholders 4 . This is addressed under:

I.ESRS 2 GOV-2;

II.ESRS 2 SBM-2: Interests and views of stakeholders;

III.ESRS 2 IRO-1;

IV.ESRS 2 MDR-P; and

V.Topical ESRS: reflecting the different stages and purposes of stakeholder engagement throughout the due diligence process.

(c)identifying and assessing negative impacts on people and the environment 5 . This is addressed under: 

I.ESRS 2 IRO-1 (including Application Requirements related to specific sustainability matters in the relevant ESRS); and

II.ESRS 2 SBM-3;

(d)taking action to address negative impacts on people and the environment 6 . This is addressed under:

I.ESRS 2 MDR-A; and

II.Topical ESRS: reflecting the range of actions, including transition plans, through which impacts are addressed.

(e)tracking the effectiveness of these efforts 7 . This is addressed under:

I.ESRS 2 MDR-M;

II.ESRS 2 MDR-T; and

III.Topical ESRS: regarding metrics and targets.

5.Value chain

5.1Reporting undertaking and value chain

62.The sustainability statement shall be for the same reporting undertaking as the financial statements. For example, if the reporting undertaking is a parent company required to prepare consolidated financial statements, the sustainability statement will be for the group. This requirement does not apply where the reporting undertaking is not required to draw-up financial statements or where the reporting undertaking is preparing consolidated sustainability reporting pursuant to Article 48i of Directive 2013/34/EU.

63.The information about the reporting undertaking provided in the sustainability statement shall be extended to include information on the material impacts, risks and opportunities connected with the undertaking through its direct and indirect business relationships in the upstream and/or downstream value chain (“value chain information”). In extending the information about the reporting undertaking, the undertaking shall include material impacts, risks and opportunities connected with its upstream and downstream value chain:

(a)following the outcome of its due diligence process and of its materiality assessment; and

(b)in accordance with any specific requirements related to the value chain in other ESRS.

64.Paragraph 63 does not require information on each and every actor in the value chain, but only the inclusion of material upstream and downstream value chain information. Different sustainability matters can be material in relation to different parts of the undertaking’s upstream and downstream value chain. The information shall be extended to include value chain information only in relation to the parts of the value chain for which the matter is material.

65.The undertaking shall include material value chain information when this is necessary to:

(a)allow users of sustainability statements to understand the undertaking’s material impacts, risks and opportunities; and/or

(b)produce a set of information that meets the qualitative characteristics of information (see Appendix B of this Standard).

66.When determining at which level within its own operations and its upstream and downstream value chain a material sustainability matter arises, the undertaking shall use its assessment of impacts, risks and opportunities following the double materiality principle (see chapter 3 of this Standard).

67.When associates or joint ventures, accounted for under the equity method or proportionally consolidated in the financial statements, are part of the undertaking’s value chain, for example as suppliers, the undertaking shall include information related to those associates or joint ventures in accordance with paragraph 63 consistent with the approach adopted for the other business relationships in the value chain. In this case, when determining impact metrics, the data of the associate or joint venture are not limited to the share of equity held, but shall be taken into account on the basis of the impacts that are connected with the undertaking’s products and services through its business relationships.

5.2Estimation using sector averages and proxies

68.The undertaking’s ability to obtain the necessary upstream and downstream value chain information may vary depending on various factors, such as the undertaking’s contractual arrangements, the level of control that it exercises on the operations outside the consolidation scope and its buying power. When the undertaking does not have the ability to control the activities of its upstream and/or downstream value chain and its business relationships, obtaining value chain information may be more challenging.

69.There are circumstances where the undertaking cannot collect the information about its upstream and downstream value chain as required by paragraph 63 after making reasonable efforts to do so. In these circumstances, the undertaking shall estimate the information to be reported about its upstream and downstream value chain, by using all reasonable and supportable information, such as sector-average data and other proxies.

70.Obtaining value chain information could also be challenging in the case of SMEs and other upstream and/or downstream value chain entities that are not in the scope of the sustainability reporting required by Articles 19a and 29a of Directive 2013/34/EU (see ESRS 2 BP-2 Disclosures in relation to specific circumstances).

71.With reference to policies, actions and targets, the undertaking’s reporting shall include upstream and/or downstream value chain information to the extent that those policies, actions and targets involve actors in the value chain. With reference to metrics, in many cases, in particular for environmental matters for which proxies are available, the undertaking may be able to comply with the reporting requirements without collecting data from the actors in its upstream and downstream value chain, especially from SMEs, for example, when calculating the undertaking’s GHG Scope 3 emissions.

72.The incorporation of estimates made using sector-average data or other proxies shall not result in information that does not meet the qualitative characteristics of information (see chapter 2 and section 7.2 Sources of estimation and outcome uncertainty of this Standard).

6.Time horizons

6.1Reporting period

73.The reporting period for the undertaking’s sustainability statement shall be consistent with that of its financial statements.

6.2Linking past, present and future

74.The undertaking shall establish appropriate linkages in its sustainability statement between retrospective and forward-looking information, when relevant, to foster a clear understanding of how historical information relates to future-oriented information.

6.3Reporting progress against the base year

75.A base year is the historical reference date or period for which information is available and against which subsequent information can be compared over time.

76.The undertaking shall present comparative information in respect of the base year for amounts reported in the current period when reporting the developments and progress towards a target, unless the relevant Disclosure Requirement already defines how to report progress. The undertaking may also include historical information about achieved milestones between the base year and the reporting period when this is relevant information.

6.4Definition of short-, medium- and long-term for reporting purposes

77.When preparing its sustainability statement, the undertaking shall adopt the following time intervals as of the end of the reporting period:

(a)for the short-term time horizon: the period adopted by the undertaking as the reporting period in its financial statements;

(b)for the medium-term time horizon: from the end of the short-term reporting period defined in (a) up to 5 years; and

(c)for the long-term time horizon: more than 5 years.

78.The undertaking shall use an additional breakdown for the long-term time horizon when impacts or actions are expected in a period longer than 5 years if necessary to provide relevant information to users of sustainability statements.

79.If different definitions of medium- or long-term time horizons are required for specific items of disclosure in other ESRS, the definitions in those ESRS shall prevail.

80.There may be circumstances where the use of the medium- or long-term time horizons defined in paragraph 77 results in non-relevant information, as the undertaking uses a different definition for (i) its processes of identification and management of material impacts, risks and opportunities or (ii) the definition of its actions and setting targets. These circumstances may be due to industry-specific characteristics, such as cash flow and business cycles, the expected duration of capital investments, the time horizons over which the users of sustainability statements conduct their assessments or the planning horizons typically used in the undertaking’s industry for decision-making. In these circumstances, the undertaking may adopt a different definition of medium- and/or long- term time horizons (see ESRS 2 BP–2, paragraph 9).

81.References to “short-term”, “medium-term”, and “long-term” in ESRS refer to the time horizon as determined by the undertaking according to the provisions in paragraphs 77 to 80.

7.Preparation and presentation of sustainability information

82.This chapter provides general requirements to be applied when preparing and presenting sustainability information.

7.1Presenting comparative information

83.The undertaking shall disclose comparative information in respect of the previous period for all quantitative metrics and monetary amounts disclosed in the current period. When relevant to an understanding of the current period’s sustainability statement, the undertaking shall also disclose comparative information for narrative disclosures.

84.When the undertaking reports comparative information that differs from the information reported in the previous period it shall disclose:

(a)the difference between the figure reported in the previous period and the revised comparative figure; and

(b)the reasons for the revision of the figure.

85.Sometimes, it is impracticable to adjust comparative information for one or more prior periods to achieve comparability with the current period. For example, data might not have been collected in the prior period(s) in a way that allows either retrospective application of a new definition of a metric or target, or retrospective restatement to correct a prior period error, and it may be impracticable to recreate the information (see ESRS 2 BP-2). When it is impracticable to adjust comparative information for one or more prior periods, the undertaking shall disclose this fact.

86.When an ESRS requires the undertaking to present more than one comparative period for a metric or datapoint, the requirements of that ESRS shall prevail.

7.2Sources of estimation and outcome uncertainty

87.When quantitative metrics and monetary amounts, including upstream and downstream  value chain information (see chapter 5 of this Standard), cannot be measured directly and can only be estimated, measurement uncertainty may arise.

88.An undertaking shall disclose information to enable users to understand the most significant uncertainties affecting the quantitative metrics and monetary amounts reported in its sustainability statement.

89.The use of reasonable assumptions and estimates, including scenario or sensitivity analysis, is an essential part of preparing sustainability-related information and does not undermine the usefulness of that information, provided that the assumptions and estimates are accurately described and explained. Even a high level of measurement uncertainty would not necessarily prevent such an assumption or estimate from providing useful information or meeting the qualitative characteristics of information (see Appendix B of this Standard).

90.Data and assumptions used in preparing the sustainability statement shall be consistent to the extent possible with the corresponding financial data and assumptions used in the undertaking’s financial statements.

91.Some ESRS require the disclosure of information such as explanations about possible future events that have uncertain outcomes. In judging whether information about such possible future events is material, the undertaking shall refer to the criteria in Chapter 3 of this Standard and consider:

(a)the potential financial effects of the events (the possible outcome);

(b)the severity and likelihood of the impacts on people or the environment resulting from the possible events, taking account of the factors of severity specified in paragraph 45; and

(c)the full range of possible outcomes and the likelihood of the possible outcomes within that range.

92.When assessing the possible outcomes, the undertaking shall consider all relevant facts and circumstances, including information about low-probability and high-impact outcomes, which, when aggregated, could become material. For example, the undertaking might be exposed to several impacts or risks, each of which could cause the same type of disruption, such as disruptions to the undertaking’s supply chain. Information about an individual source of risk might not be material if disruption from that source is highly unlikely to occur. However, information about the aggregate risk of supply chain disruption from all sources might be material (see ESRS 2 BP-2).

7.3Updating disclosures about events after the end of the reporting period

93.In some cases, the undertaking may receive information after the reporting period but before the management report is approved for issuance. If such information provides evidence or insights about conditions existing at period end, the undertaking shall, where appropriate, update estimates and sustainability disclosures, in the light of the new information.

94.When such information provides evidence or insights about material transactions, other events and conditions that arise after the end of the reporting period, the undertaking shall, where appropriate, provide narrative information indicating the existence, nature and potential consequences of these post-year end events.

7.4Changes in preparation or presentation of sustainability information

95.The definition and calculation of metrics, including metrics used to set targets and monitor progress towards them, shall be consistent over time. The undertaking shall provide restated comparative figures, unless it is impracticable to do so (see ESRS 2 BP-2), when it has:  

(a)redefined or replaced a metric or target;

(b)identified new information in relation to the estimated figures disclosed in the preceding period and the new information provides evidence of circumstances that existed in that period.

7.5Reporting errors in prior periods

96.The undertaking shall correct material prior period errors by restating the comparative amounts for the prior period(s) disclosed, unless it is impracticable to do so. This requirement does not extend to reporting periods before the first year of application of ESRS by the undertaking.

97.Prior period errors are omissions from, and misstatements in, the undertaking’s sustainability statement for one or more prior periods. Such errors arise from a failure to use, or misuse of, reliable information that:

(a)was available when the management report that includes the sustainability statement for those periods was authorised for issuance; and

(b)could reasonably be expected to have been obtained and considered in the preparation of sustainability disclosures included in these reports.

98.Such errors include: the effects of mathematical mistakes, mistakes in applying the definitions for metrics or targets, oversights or misinterpretations of facts, and fraud.

99.Potential errors in the current period discovered in that period are corrected before the management report is authorised for issuance. However, material errors are sometimes only discovered in a subsequent period.

100.When it is impracticable to determine the effect of an error on all prior periods presented, the undertaking shall restate the comparative information to correct the error from the earliest date practicable. When correcting disclosures for a prior period, the undertaking shall not use hindsight either in making assumptions about what the management’s intentions would have been in a prior period or in estimating the amounts disclosed in a prior period. This requirement applies to correction of both backward-looking and forward- looking disclosures.

101.Corrections of errors are distinguished from changes in estimates. Estimates may need to be revised as additional information becomes known (see ESRS 2 BP-2).

7.6Consolidated reporting and subsidiary exemption

102.When the undertaking is reporting at a consolidated level, it shall perform its assessment of material impacts, risks and opportunities for the entire consolidated group, regardless of its group legal structure. It shall ensure that all subsidiaries are covered in a way that allows for the unbiased identification of material impacts, risks and opportunities. Criteria and thresholds for assessing an impact, risk or opportunity as material shall be determined based on chapter 3 of this Standard.

103.Where the undertaking identifies significant differences between material impacts, risks or opportunities at group level and material impacts, risks or opportunities of one or more of its subsidiaries, the undertaking shall provide an adequate description of the impacts, risks and opportunities, as appropriate, of the subsidiary or subsidiaries concerned.

104.When assessing whether the differences between material impacts, risks or opportunities at group level and material impacts, risks or opportunities of one or more of its subsidiaries are significant, the undertaking may consider different circumstances, such as whether the subsidiary or subsidiaries operate in a different sector than the rest of the group or the circumstances reflected in section 3.7 Level of disaggregation.

7.7Classified and sensitive information, and information on intellectual property, know-how or results of innovation

105.The undertaking is not required to disclose classified information or sensitive information, even if such information is considered material.

106.When disclosing information about its strategy, plans and actions, where a specific piece of information corresponding to intellectual property, know-how or the results of innovation is relevant to meet the objective of a Disclosure Requirement, the undertaking may nevertheless omit that specific piece of information if it:

(a)is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b)has commercial value because it is secret; and

(c)has been subject to reasonable steps by the undertaking to keep it secret.

107.If the undertaking omits classified information or sensitive information, or a specific piece of information corresponding to intellectual property, know-how or the results of innovation because it meets the criteria established in the previous paragraph, it shall comply with the disclosure requirement in question by disclosing all other required information.

108.The undertaking shall make every reasonable effort to ensure that beyond the omission of the classified information or sensitive information, or of the specific piece of information corresponding to intellectual property, know-how or the results of innovation, the overall relevance of the disclosure in question is not impaired.

7.8Reporting on opportunities

109.When reporting on opportunities, the disclosure should consist of descriptive information allowing the reader to understand the opportunity for the undertaking or the entire sector. When reporting on opportunities, the undertaking shall consider the materiality of the information to be disclosed. In this context, it shall consider, among other factors:

(a)whether the opportunity is currently being pursued and is incorporated in its general strategy, as opposed to a general opportunity for the undertaking or the sector; and

(b)whether the inclusion of quantitative measures of anticipated financial effects is appropriate, taking into account the number of assumptions that it could require and consequential uncertainty.

8.    Structure of the sustainability statement

110.This chapter provides the basis for the presentation of the information about sustainability matters prepared in compliance with Articles 19a and 29a of Directive 2013/34/EU (i.e., the sustainability statement) within the undertaking’s management report. Such information is presented in a dedicated section of the management report identified as the sustainability statement. Appendix F Example of structure of ESRS sustainability statement of this Standard provides an illustrative example of a sustainability statement structured according to the requirements of this chapter.

8.1 General presentation requirement

111.Sustainability information shall be presented:

(a)in a way that allows a distinction between information required by disclosures in ESRS and other information included in the management report; and

(b)under a structure that facilitates access to and understanding of the sustainability statement, in a format that is both human-readable and machine-readable.

8.2 Content and structure of the sustainability statement

112.Except for the possibility to incorporate information by reference in accordance with section 9.1 Incorporation by reference of this Standard, the undertaking shall report all the applicable disclosures required by ESRS in accordance with chapter 1 of this Standard, within a dedicated section of the management report.

113.The undertaking shall include in its sustainability statement the disclosures pursuant to Article 8 of Regulation (EU) 2020/852 of the European Parliament and the Council 8  and to the Commission Delegated Regulations that specify the content and other modalities of those disclosures. The undertaking shall ensure that these disclosures are separately identifiable within the sustainability statement. The disclosures relating to each of the environmental objectives defined in the Taxonomy Regulation shall be presented together in a clearly identifiable part of the environmental section of the sustainability statement. These disclosures are not subject to the provisions of ESRS, with the exception of this paragraph and the first sentence of paragraph 115 of this standard.  

114.When the undertaking includes in its sustainability statement additional disclosures stemming from (i) other legislation which requires the undertaking to disclose sustainability information, or (ii) generally accepted sustainability reporting standards and frameworks, including non-mandatory guidance and sector-specific guidance, published by other standard-setting bodies (such as technical material issued by the International Sustainability Standards Board or the Global Reporting Initiative), such disclosures shall:

(a) be clearly identified with an appropriate reference to the related legislation, standard or framework (see ESRS 2 BP-2, paragraph 15);

(b) meet the requirements for qualitative characteristics of information specified in chapter 2 and Appendix B of this standard.

115.The undertaking shall structure its sustainability statement in four parts, in the following order: general information, environmental information (including disclosures pursuant to Article 8 of Regulation (EU) 2020/852), social information and governance information. Respecting the provision in section 3.6 Material impacts or risks arising from actions to address sustainability matters of this Standard, when information provided in one part contains information to be reported in another part, the undertaking may refer in one part to information presented in another part, avoiding duplications. The undertaking may apply the detailed structure illustrated in Appendix F of this Standard.

116.The disclosures required by sector-specific ESRS shall be grouped by reporting area and, where applicable, by sustainability topic. They shall be presented alongside the disclosures required by ESRS 2 and the corresponding topical ESRS.

117.Where the undertaking develops material entity-specific disclosures in accordance with paragraph 11 it shall report those disclosures alongside the most relevant sector-agnostic and sector-specific disclosures.

9.Linkages with other parts of corporate reporting and connected information

118.The undertaking shall provide information that enables users of its sustainability statement to understand the connections between different pieces of information in the statement, and the connections between the information in the sustainability statement and other information that the undertaking discloses in other parts of its corporate reporting.

9.1 Incorporation by reference

119.Provided that the conditions in paragraph 120 are met, information prescribed by a Disclosure Requirement of an ESRS, including a specific datapoint prescribed by a Disclosure Requirement, may be incorporated in the sustainability statement by reference to:

(a)another section of the management report;

(b)the financial statements;

(c)the corporate governance statement (if not part of the management report);

(d)the remuneration report required by Directive 2007/36/EC of the European Parliament and of the Council 9 ; 

(e)the universal registration document, as referred to in Article 9 of Regulation (EU) 2017/1129 10 ; and

(f)public disclosures under Regulation (EU) No 575/2013 of the European Parliament and of the Council (Pillar 3 disclosures) 11 . If the undertaking incorporates by reference information from Pillar 3 disclosures, it shall ensure that the information matches the scope of consolidation used for the sustainability statement by complementing the incorporated information with additional elements as necessary.

120.The undertaking may incorporate information by reference to the documents, or part of the documents, listed in paragraph 119, provided that the disclosures incorporated by reference:

(a)constitute a separate element of information and are clearly identified in the document concerned as addressing the relevant Disclosure Requirement, or the relevant specific datapoint prescribed by a Disclosure Requirement;

(b)are published before or at the same time as the management report;

(c)are in the same language as the sustainability statement;

(d)are subject to at least the same level of assurance as the sustainability statement; and

(e)meet the same technical digitalisation requirements as the sustainability statement.

121.Provided that the conditions established in paragraph 120 are met, information prescribed by a Disclosure Requirement of an ESRS, including a specific datapoint prescribed by a Disclosure Requirement, may be incorporated in the sustainability statement by reference to the undertaking’s report prepared according to EU Eco-Management and Audit Scheme (EMAS) Regulation (EU) No 1221/2009 12 . In this case, the undertaking shall ensure that the information incorporated by reference is produced using the same basis for preparation of ESRS information, including scope of consolidation and treatment of value chain information.

122.In the preparation of its sustainability statement using incorporation by reference, the undertaking shall consider the overall cohesiveness of the reported information and ensure that the incorporation by reference does not impair the readability of the sustainability statement. Appendix G Example of incorporation by reference of this Standard is an illustrative example of incorporation by reference (See ESRS 2 BP-2).

9.2 Connected information and connectivity with financial statements

123.The undertaking shall describe the relationships between different pieces of information. Doing so could require connecting narrative information on governance, strategy and risk management to related metrics and targets. For example, in providing connected information, the undertaking may need to explain the effect or likely effect of its strategy on its financial statements or financial plans, or explain how its strategy relates to metrics and targets used to measure progress against performance. Furthermore, the undertaking may need to explain how its use of natural resources and changes within its supply chain could amplify, change or reduce its material impacts, risks and opportunities. It may need to link this information to information about current or anticipated financial effects on its production costs, to its strategic response to mitigate such impacts or risks, and to its related investment in new assets. The undertaking may also need to link narrative information to the related metrics and targets and to information in the financial statements. Information that describes connections shall be clear and concise.

124.When the sustainability statement includes monetary amounts or other quantitative data points that exceed a threshold of materiality and that are presented in the financial statements (direct connectivity between information disclosed in sustainability statement and information disclosed in financial statements), the undertaking shall include a reference to the relevant paragraph of its financial statements where the corresponding information can be found.

125.The sustainability statement may include monetary amounts or other quantitative datapoints that exceed a threshold of materiality and that are either an aggregation of, or a part of, monetary amounts or quantitative data presented in the undertaking’s financial statements (indirect connectivity between information disclosed in sustainability statement and information disclosed in financial statements). If this is the case, the undertaking shall explain how these amounts or datapoints in the sustainability statement relate to the most relevant amounts presented in the financial statements. This disclosure shall include a reference to the line item and/or to the relevant paragraphs of its financial statements where the corresponding information can be found. Where appropriate, a reconciliation may be provided, and it may be presented in a tabular form.

126.In the case of information not covered by paragraphs 124 and 125, the undertaking shall explain, based on a threshold of materiality, the consistency of significant data, assumptions, and qualitative information included in its sustainability statement with the corresponding data, assumptions and qualitative information included in the financial statements. This may occur when the sustainability statement includes:

(a)monetary amounts or other quantitative data linked to monetary amounts or other quantitative data presented in the financial statements; or

(b)qualitative information linked to qualitative information presented in the financial statements.

127.Consistency as required by paragraph 126 shall be at the level of a single datapoint and shall include a reference to the relevant line item or paragraph of notes to the financial statements. When significant data, assumptions and qualitative information are not consistent, the undertaking shall state that fact and explain the reason.

128.Examples of items for which the explanation in paragraph 126 is required, are:

(a)when the same metric is presented as of the reporting date in financial statements and as a forecast for future periods in the sustainability statement; and

(b)when macroeconomic or business projections are used to develop metrics in the sustainability statement and they are also relevant in estimating the recoverable amount of assets, the amount of liabilities or provisions in financial statements.

129.Topical and sector-specific ESRS may include requirements to include reconciliations or to illustrate consistency of data and assumptions for specific Disclosure Requirements. In such cases, the requirements in those ESRS shall prevail.

10 Transitional provisions

10.1 Transitional provision related to entity-specific disclosures

130.The extent to which sustainability matters are covered by ESRS is expected to evolve as further Disclosure Requirements are developed. Therefore, the need for entity-specific disclosures is likely to decrease over time, in particular as a result of the future adoption of sector specific standards.

131.When defining its entity-specific disclosures, the undertaking may adopt transitional measures for their preparation in the first three annual sustainability statements under which it may as a priority:

(a)introduce in its reporting those entity-specific disclosures that it reported in prior periods, if these disclosures meet or are adapted to meet the qualitative characteristics of information referred to under chapter 2 of this Standard; and

(b)complement its disclosures prepared on the basis of the topical ESRS with an appropriate set of additional disclosures to cover sustainability matters that are material for the undertaking in its sector(s), using available best practice and/or available frameworks or reporting standards, such as IFRS industry-based guidance and GRI Sector Standards.

10.2 Transitional provision related to chapter 5 Value chain

132.For the first 3 years of the undertaking’s sustainability reporting under the ESRS, in the event that not all the necessary information regarding its upstream and downstream value chain is available, the undertaking shall explain the efforts made to obtain the necessary information about its upstream and downstream value chain, the reasons why not all of the necessary information could be obtained, and its plans to obtain the necessary information in the future.

133.For the first 3 years of its sustainability reporting under the ESRS, in order to take account of the difficulties that undertakings may encounter in gathering information from actors throughout their value chain and in order to limit the burden for SMEs in the value chain:

(a)when disclosing information on policies, actions and targets in accordance with ESRS2 and other ESRS, the undertaking may limit upstream and downstream value chain information to information available in-house, such as data already available to the undertaking and publicly available information; and

(b)when disclosing metrics, the undertaking is not required to include upstream and downstream value chain information, except for datapoints derived from other EU legislation, as listed in ESRS 2 Appendix B.

134.Paragraphs 132 and 133 apply irrespective of whether or not the relevant actor in the value chain is an SME.

135.Starting from the fourth year of its reporting under the ESRS, the undertaking shall include upstream and/or downstream value chain information according to paragraph 63. In this context, the information required by ESRS to be obtained from SME undertakings in the undertaking’s upstream and/or downstream value chain will not exceed the content of the future ESRS for listed SMEs.

10.3 Transitional provision related to section 7.1 Presenting comparative information

136.To ease the first-time application of this Standard, the undertaking is not required to disclose the comparative information required by section 7.1 Presenting comparative information in the first year of preparation of the sustainability statement under the ESRS. For disclosure requirements listed in Appendix C List of phased-in Disclosure Requirements, this transitional provision applies with reference to the first year of mandatory application of the phased-in disclosure requirement.

10.4 Transitional provision: List of Disclosure Requirements that are phased-in

137.Appendix C List of phased-in Disclosure Requirements in this Standard sets phase-in provisions for the Disclosure Requirements or datapoints of Disclosure Requirements in ESRS that may be omitted or that are not applicable in the first year(s) of preparation of the sustainability statement under the ESRS.

Appendix A: Application Requirements

This appendix is an integral part of ESRS 1 and has the same authority as the other parts of the Standard.

Entity specific disclosures

AR 1.The entity-specific disclosures shall enable users to understand the undertaking’s impacts, risks and opportunities in relation to environmental, social or governance matters. 

AR 2.When developing entity-specific disclosures, the undertaking shall ensure that: 

(a)the disclosures meet the qualitative characteristics of information as set out in chapter 2 Qualitative characteristics of information; and 

(b)its disclosures include, where applicable, all material information related to the reporting areas of governance; strategy; impact, risk and opportunity management; and metrics and targets (see ESRS 2 chapters 2 to 5). 

AR 3.When determining the usefulness of metrics for inclusion in its entity-specific disclosures, the undertaking shall consider whether: 

(a)its chosen performance metrics provide insight into: 

I.how effective its practices are in reducing negative outcomes and/or increasing positive outcomes for people and the environment (for impacts); and/or 

II.the likelihood that its practices result in financial effects on the undertaking (for risks and opportunities); 

(b)the measured outcomes are sufficiently reliable, meaning that they do not involve an excessive number of assumptions and unknowns that would render the metrics too arbitrary to provide a faithful representation; and 

(c)it has provided sufficient contextual information to interpret performance metrics appropriately, and whether variations in such contextual information may impact the comparability of the metrics over time. 

AR 4.When developing its entity-specific disclosures, the undertaking shall carefully consider: 

(a)comparability between undertakings, while still ensuring relevance of the information provided, recognising that comparability may be limited for entity- specific disclosures. The undertaking shall consider whether the available and relevant frameworks, initiatives, reporting standards and benchmarks (such as technical material issued by the International Sustainability Standards Board or the Global Reporting Initiative) provide elements that can support comparability to the maximum extent possible; and 

(b)comparability over time: consistency of methodologies and disclosures is a key factor for achieving comparability over time. 

AR 5.Further guidance for developing entity-specific disclosures can be found by considering the information required under topical ESRS that addresses similar sustainability matters.

Double materiality

Stakeholders and their relevance to the materiality assessment process

AR 6.In addition to the categories of stakeholder listed in paragraph 22, common categories of stakeholders are: employees and other workers, suppliers, consumers, customers, end- users, local communities and persons in vulnerable situations, and public authorities, including regulators, supervisors and central banks.

AR 7.Nature may be considered as a silent stakeholder. In this case, ecological data and data on the conservation of species may support the undertaking’s materiality assessment.

AR 8.Materiality assessment is informed by dialogue with affected stakeholders. The undertaking may engage with affected stakeholders or their representatives (such as employees or trade unions), along with users of sustainability reporting and other experts, to provide inputs or feedback on its conclusions regarding its material impacts, risks and opportunities.

Assessment of impact materiality

AR 9.In assessing impact materiality and determining the material matters to be reported, the undertaking shall consider the following three steps:

(a)understanding of the context in relation to its impacts including its activities, business relationships, and stakeholders;

(b)identification of actual and potential impacts (both negative and positive), including through engaging with stakeholders and experts. In this step, the undertaking may rely on scientific and analytical research on impacts on sustainability matters;

(c)assessment of the materiality of its actual and potential impacts and determination of the material matters. In this step, the undertaking shall adopt thresholds to determine which of the impacts will be covered in its sustainability statement.

Characteristics of severity

AR 10.The severity is determined by the following factors:

(a)scale: how grave the negative impact is or how beneficial the positive impact is for people or the environment;

(b)scope: how widespread the negative or positive impacts are. In the case of environmental impacts, the scope may be understood as the extent of environmental damage or a geographical perimeter. In the case of impacts on people, the scope may be understood as the number of people adversely affected; and

(c)irremediable character: whether and to what extent the negative impacts could be remediated, i.e., restoring the environment or affected people to their prior state.

AR 11.Any of the three characteristics (scale, scope, and irremediable character) can make a negative impact severe. In the case of a potential negative human rights impact, the severity of the impact takes precedence over its likelihood.

Impacts connected with the undertaking

AR 12.As an illustration:

(a)if the undertaking uses cobalt in its products that is mined using child labour, the negative impact (i.e., child labour) is connected with the undertaking’s products through the tiers of business relationships in its upstream value chain. These relationships include the smelter and minerals trader and the mining enterprise that uses child labour; and

(b)if the undertaking provides financial loans to an enterprise for business activities that, in breach of agreed standards, result in the contamination of water and land surrounding the operations, this negative impact is connected with the undertaking through its relationship with the enterprise it provides the loans to.

Assessment of financial materiality

AR 13.The following are examples of how impacts and dependencies are sources of risks or opportunities:

(a)when the undertaking’s business model depends on a natural resource – for example water – it is likely to be affected by changes in the quality, availability and pricing of that resource;

(b)when the undertaking’s activities result in negative impacts, e.g., on local communities, the activities could become subject to stricter government regulation and/or the impact could trigger consequences of a reputational nature. These might have negative effects on the undertaking’s brand and higher recruitment costs might arise; and

(c)when the undertaking’s business partners face material sustainability-related risks, the undertaking could be exposed to related consequences as well.

AR 14.The identification of risks and opportunities that affect or could reasonably be expected to affect the undertaking’s financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term is the starting point for financial materiality assessment. In this context, the undertaking shall consider:

(a)the existence of dependencies on natural and social resources as sources of financial effects (see paragraph 50);

(b)their classification as sources of:

I.risks (contributing to negative deviation in future expected cash inflows or increase in deviation in future expected cash outflows and/or negative deviation from an expected change in capitals not recognised in the financial statements); or

II.opportunities (contributing to positive deviation in future expected cash inflows or decrease in deviation in future cash outflows and/or positive deviation from expected change in capitals not recognised in financial statements).

AR 15.Once the undertaking has identified its risks and opportunities, it shall determine which of them are material for reporting. This shall be based on a combination of (i) the likelihood of occurrence and (ii) the potential magnitude of financial effects determined on the basis of appropriate thresholds. In this step it shall consider the contribution of those risks and opportunities to financial effects in the short-, medium- and long-term based on:

(a)scenarios/forecasts that are deemed likely to materialise; and

(b)potential financial effects related to sustainability matters deriving either from situations with a below the “more likely than not” threshold or assets/liabilities not, or not yet, reflected in financial statements. This includes:

I.potential situations that following the occurrence of future events may affect cash flow generation potential;

II.capitals that are not recognised as assets from an accounting and financial reporting perspective but have a significant influence on financial performance, such as natural, intellectual (organisational), human, social and relationship capitals; and

III.possible future events that may have an influence on the evolution of such capitals.

Sustainability matters to be included in the materiality assessment

AR 16.When performing its materiality assessment, the undertaking shall consider the following list of sustainability matters covered in the topical ESRS. When, as a result of the undertaking’s materiality assessment (see ESRS 2 IRO-1), a given sustainability matter in this list is assessed to be material, the undertaking shall report according to the corresponding Disclosure Requirements of the relevant topical ESRS. Using this list is not a substitute for the process of determining material matters. This list is a tool to support the undertaking’s materiality assessment. The undertaking still needs to consider its own specific circumstances when determining its material matters. The undertaking, where necessary, also shall develop entity-specific disclosures on material impacts, risks and opportunities not covered by ESRS as described in paragraph 11 of this Standard.

Estimation using sector averages and proxies

AR 17.When the undertaking cannot collect upstream and downstream value chain information as required by paragraph 63 after making reasonable efforts to do so, it shall estimate the information to be reported using all reasonable and supportable information that is available to the undertaking at the reporting date without undue cost or effort. This includes, but is not limited to, internal and external information, such as data from indirect sources, sector-average data, sample analyses, market and peer groups data, other proxies or spend-based data.

Content and structure of the sustainability statement

AR 18.As an illustration for paragraph 115 in section 8.2 Content and structure of the sustainability statement of this Standard, the undertaking that covers environmental and social matters in the same policy may cross-refer. That means that the undertaking may report on the policy in its environmental disclosures and cross-refer to it from the relevant social disclosures or vice versa. Consolidated presentation of policies across topics is allowed.

Appendix B: Qualitative characteristics of information

This appendix is an integral part of ESRS 1 and has the same authority as the other parts of the Standard. This appendix defines the qualitative characteristics that the information presented in the sustainability statement prepared according to ESRS shall meet.

Relevance

QC 1.Sustainability information is relevant when it may make a difference in the decisions of users under a double materiality approach (see chapter 3 of this Standard).

QC 2.Information may make a difference in a decision even if some users choose not to take advantage of it or are already aware of it from other sources. Sustainability information may impact decisions of users if it has predictive value, confirmatory value or both. Information has predictive value if it can be used as an input to processes employed by users to predict future outcomes. Sustainability information does not need to be a prediction or forecast to have predictive value, but rather has predictive value if employed by users in making their own predictions.

QC 3.Information has confirmatory value if it provides feedback about (confirms or changes) previous evaluations.

QC 4.Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates, as assessed in the context of the undertaking’s sustainability reporting (see chapter 3 of this Standard).

Faithful representation

QC 5.To be useful, the information must not only represent relevant phenomena, it must also faithfully represent the substance of the phenomena that it purports to represent. Faithful representation requires information to be (i) complete, (ii) neutral and (iii) accurate.

QC 6.A complete depiction of an impact, a risk or an opportunity includes all material information necessary for the users to understand that impact, risk or opportunity. This includes how the undertaking has adapted its strategy, risk management and governance in response to that impact, risk or opportunity, as well as the metrics identified to set targets and measure performance.

QC 7.A neutral depiction is without bias in its selection or disclosure of information. Information is neutral if it is not slanted, weighted, emphasised, de-emphasised or otherwise manipulated to make it more likely that the users will receive that information favourably or unfavourably. It shall be balanced, so as to cover favourable/positive and unfavourable/negative aspects. Both negative and positive material impacts from an impact materiality perspective as well as material risks and opportunities from a financial materiality perspective shall receive equal attention. Any aspirational sustainability information, for example targets or plans, shall cover both aspirations and factors that could prevent the undertaking from achieving these aspirations in order to have a neutral depiction.

QC 8.Neutrality is supported by the exercise of prudence which is the exercise of caution when making judgements under conditions of uncertainty. Information shall not be netted or compensated to be neutral. The exercise of prudence means that opportunities are not overstated and risks are not understated. Equally, the exercise of prudence does not allow for the understatement of opportunities or the overstatement of risks. The undertaking may present net information, in addition to gross values, if such presentation does not obscure relevant information and includes a clear explanation about the effects of the netting and the reasons for the netting.

QC 9.Information can be accurate without being perfectly precise in all respects. Accurate information implies that the undertaking has implemented adequate processes and internal controls to avoid material errors or material misstatements. As such, estimates shall be presented with a clear emphasis on their possible limitations and associated uncertainty (see section 7.2 of this Standard). The amount of precision needed and attainable, and the factors that make information accurate, depend on the nature of the information and the nature of the matters it addresses. For example, accuracy requires that:

(a)factual information is free from material error;

(b)descriptions are precise;

(c)estimates, approximations and forecasts are clearly identified as such;

(d)no material errors have been made in selecting and applying an appropriate process for developing an estimate, approximation or forecast, and the inputs to that process are reasonable and supportable;

(e)assertions are reasonable and based on information of sufficient quality and quantity; and

(f)information about judgements about the future faithfully reflects both those judgements and the information on which they are based.

Comparability

QC 10.Sustainability information is comparable when it can be compared with information provided by the undertaking in previous periods and, can be compared with information provided by other undertakings, in particular those with similar activities or operating within the same industry. A point of reference for comparison can be a target, a baseline, an industry benchmark, comparable information from either other undertakings or from an internationally recognised organisation, etc.

QC 11.Consistency is related to, but is not the same as, comparability. Consistency refers to the use of the same approaches or methods for the same sustainability matter, from period to period by the undertaking and other undertakings. Consistency helps to achieve the goal of comparability.

QC 12.Comparability is not uniformity. For information to be comparable, like components shall look alike and different components shall look different. Comparability of sustainability information is not enhanced by making unlike things look alike any more than it is enhanced by making like things look different.

Verifiability

QC 13.Verifiability helps to give users confidence that information is complete, neutral and accurate. Sustainability information is verifiable if it is possible to corroborate the information itself or the inputs used to derive it.

QC 14.Verifiability means that various knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. Sustainability information shall be provided in a way that enhances its verifiability, for example:

(a)including information that can be corroborated by comparing it with other information available to users about the undertaking’s business, about other businesses or about the external environment;

(b)providing information about inputs and methods of calculation used to produce estimates or approximations; and

(c)providing information reviewed and agreed by the administrative, management and supervisory bodies or their committees.

QC 15.Some sustainability information will be in the form of explanations or forward-looking information. Those disclosures can be supportable by faithfully representing on a factual basis for example the strategies, plans and risk analyses of the undertaking. To help users decide whether to use such information, the undertaking shall describe the underlying assumptions and methods of producing the information, as well as other factors that provide evidence that it reflects the actual plans or decisions made by the undertaking.

Understandability

QC 16.Sustainability information is understandable when it is clear and concise. Understandable information enables any reasonably knowledgeable user to readily comprehend the information being communicated.

QC 17.For sustainability disclosures to be concise, they need to (a) avoid generic “boilerplate” information, which is not specific to the undertaking; (b) avoid unnecessary duplication of information, including information also provided in financial statements; and (c) use clear language and well-structured sentences and paragraphs. Concise disclosures shall only include material information. Complementary information presented pursuant to paragraph 113 shall be provided in a way that avoids obscuring material information.

QC 18.Clarity might be enhanced by distinguishing information about developments in the reporting period from “standing” information that remains relatively unchanged from one period to the next. This can be done, for example, by separately describing features of the undertaking’s sustainability-related governance and risk management processes that have changed since the previous reporting period compared to those that remain unchanged.

QC 19.The completeness, clarity and comparability of sustainability disclosures all rely on information being presented as a coherent whole. For sustainability disclosures to be coherent, they shall be presented in a way that explains the context and the connections between the related information. Coherence also requires the undertaking to provide information in a way that allows users to relate information about its sustainability-related impacts, risks and opportunities to information in the undertaking’s financial statements.

QC 20.If sustainability-related risks and opportunities discussed in the financial statements have implications for sustainability reporting, the undertaking shall include in the sustainability statement the information necessary for users to assess those implications and present appropriate links to the financial statements (see chapter 9 of this Standard). The level of information, granularity and technicality shall be aligned with the needs and expectations of users. Abbreviations shall be avoided and the units of measure shall be defined and disclosed.

Appendix C: List of phased-in Disclosure Requirements

This appendix is an integral part of ESRS 1 and has the same authority as the other parts of the Standard.

Appendix D: Structure of the ESRS sustainability statement

This appendix is an integral part of ESRS 1 and has the same authority as the other parts of the Standard with respect to reporting in four parts as outlined in paragraph 115.

Appendix E: Flowchart for determining disclosures under ESRS

Materiality assessment is the starting point for sustainability reporting under ESRS. This appendix provides a non-binding illustration of the impact- and financial materiality assessment outlined in chapter 3. IRO-1 in section 4.1 of ESRS 2 includes general disclosure requirements (DR) about the undertaking’s process to identify impacts, risks and opportunities and assess their materiality. SBM-3 of ESRS 2 provides general disclosures requirements on the material impact, risks and opportunities resulting from the undertaking’s materiality assessment. The undertaking can omit all disclosure requirements in a topical standard if it assessed that the topic in question is not material. In that case it may disclose a brief explanation of the conclusions of the materiality assessment for that topic but shall disclose a detailed explanation in the case of ESRS E1 climate change (IRO-2 ESRS 2). ESRS set disclosure requirements, not behavioral requirements. Disclosure requirements in relation to action plans, targets, policies, scenario analysis and transition plans are proportionate because they are contingent on the undertaking having these, which may depend on the size, capacity, resources, and skills of the undertaking. Note: The flowchart below does not cover the situation in which the undertaking assesses a sustainability matter as material but it is not covered by a topical standard, in which case the undertaking shall make additional entity specific disclosures (ESRS 1 (30 (b)).

Appendix F: Example of structure of ESRS sustainability statement

This appendix complements ESRS 1. It provides a non-binding illustration of the structure of the sustainability statement outlined in section 8.2 of this Standard. In this illustration, the undertaking has concluded that biodiversity and ecosystems, pollution, and affected communities, are not material.

Appendix G: Example of incorporation by reference

This appendix complements ESRS 1. It provides non-binding illustrations of incorporation by reference of another section of the management report into the sustainability statement as outlined in section 9.1 of this Standard.

ESRS 2

GENERAL DISCLOSURES

Table of contents

Objective    

1.    Basis for preparation    

-Disclosure Requirement BP-1 – General basis for preparation of sustainability statements

-Disclosure Requirement BP-2 – Disclosures in relation to specific circumstances

2.    Governance

-Disclosure Requirement GOV-1 – The role of the administrative, management and supervisory bodies

-Disclosure Requirement GOV-2 – Information provided to and sustainability matters addressed by the undertaking’s administrative, management and supervisory bodies    

-Disclosure Requirement GOV-3 - Integration of sustainability-related performance in incentive schemes

-Disclosure Requirement GOV-4 - Statement on due diligence

-Disclosure Requirement GOV-5 - Risk management and internal controls over sustainability reporting

3.    Strategy    

-Disclosure Requirement SBM-1 – Strategy, business model and value chain

-Disclosure Requirement SBM-2 – Interests and views of stakeholders

-Disclosure Requirement SBM-3 - Material impacts, risks and opportunities and their interaction with strategy and business model    

4.    Impact, risk and opportunity management    

4.1Disclosures on the materiality assessment process    

-Disclosure Requirement IRO-1 - Description of the processes to identify and assess material impacts, risks and opportunities    

-Disclosure Requirement IRO-2 – Disclosure requirements in ESRS covered by the undertaking’s sustainability statement

4.2    Minimum disclosure requirement on policies and actions    

-Minimum disclosure requirement - Policies MDR-P – Policies adopted to manage material sustainability matters

-Minimum disclosure requirement - Actions MDR-A – Actions and resources in relation to material sustainability matters

5. Metrics and targets    

-Minimum disclosure requirement – Metrics MDR-M – Metrics in relation to material sustainability matters

-Minimum disclosure requirement – Targets MDR-T – Tracking effectiveness of policies and actions through targets

Appendix A: Application Requirements    

1. Basis for preparation

-Disclosure Requirement BP-1 – General basis for preparation of the sustainability statement

2.  Governance    

-Disclosure Requirement GOV-1 – The role of the administrative, management and supervisory bodies

-Disclosure Requirement GOV-2 – Information provided to and sustainability matters addressed by the undertaking’s administrative, management and supervisory bodies

-Disclosure Requirement GOV-3 – Integration of sustainability-related performance in incentive schemes    

-Disclosure Requirement GOV-4 – Statement on due diligence    

-Disclosure Requirement GOV-5 – Risk management and internal controls over sustainability reporting

3.Strategy    

-Disclosure Requirement SBM–1 Strategy, business model and value chain

-Disclosure Requirement SBM-2 – Interests and views of stakeholders    

-Disclosure Requirement SBM-3 - Material impacts, risks and opportunities and their interaction with strategy and business model    

4.Impact, risk and opportunity management    

-Disclosure Requirement IRO-2 – Disclosure requirements in ESRS covered by the undertaking’s sustainability statement

-Minimum Disclosure Requirement - Policies MDR-P – Policies adopted to manage material sustainability matters

-Minimum Disclosure Requirement - Actions MDR-A – Actions and resources in relation to material sustainability matters

5.Metrics and targets    

-Minimum Disclosure Requirement - Targets MDR-T – Tracking effectiveness of policies and actions through targets

Appendix B: List of datapoints in cross-cutting and topical standards that derive from other EU legislation

Appendix C: Disclosure/Application Requirements in topical ESRS that are applicable jointly with ESRS 2 General Disclosures

Objective

1.This ESRS sets out the disclosure requirements that apply to all undertakings regardless of their sector of activity (i.e., sector agnostic) and apply across sustainability topics (i.e., cross-cutting). This ESRS covers the reporting areas defined in ESRS 1 General requirements section 1.2 Cross-Cutting Standards and reporting areas.

2.In the preparation of disclosures under this Standard, the undertaking shall apply the Disclosure Requirements (including their datapoints) set in topical ESRS, as listed in Appendix C of this Standard Disclosure/Application Requirements in topical ESRS that are applicable jointly with ESRS 2 General Disclosures. The undertaking shall apply the requirements listed in Appendix C:

(a)in all instances for the requirements in topical standards related to Disclosure Requirement IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities; and

(b)for all other requirements listed in appendix C, only if the sustainability topic is material based on the undertaking’s materiality assessment (see ESRS 1 chapter 3 Double materiality as the basis for sustainability disclosures).

1.Basis for preparation

Disclosure Requirement BP-1 – General basis for preparation of the sustainability statement

3.The undertaking shall disclose the general basis for preparation of its sustainability statement.

4.The objective of this Disclosure Requirement is to provide an understanding of how the undertaking prepares its sustainability statement, including the scope of consolidation, the upstream and downstream value chain information and, where relevant, whether the undertaking has used any of the options for omitting information referred to in points d) and e) in the following paragraph.

5.The undertaking shall disclose the following information:

(a)whether the sustainability statement has been prepared on a consolidated or individual basis;

(b)for consolidated sustainability statements:

I.a confirmation that the scope of consolidation is the same as for the financial statements, or, where applicable, a declaration that the reporting undertaking is not required to draw-up financial statements or that the reporting undertaking is preparing consolidated sustainability reporting pursuant to Article 48i of Directive 2013/34/EU; and

II.where applicable, an indication of which subsidiary undertakings included in the consolidation are exempted from individual or consolidated sustainability reporting pursuant to Articles 19a(9) or 29a(8) of Directive 2013/34/EU;

(c)to what extent the sustainability statement covers the undertaking’s upstream and downstream value chain (see ESRS 1 section 5.1 Reporting undertaking and value chain);

(d)whether the undertaking has used the option to omit a specific piece of information corresponding to intellectual property, know-how or the results of innovation (see ESRS 1 section 7.7 Classified and sensitive information and information on intellectual property, know-how or results of innovation); and

(e)for undertakings based in an EU member state that allows for the exemption from disclosure of impending developments or matters in the course of negotiation, as provided for in articles 19a(3) and 29a(3) of Directive 2013/34/EU, whether the undertaking has used that exemption.

Disclosure Requirement BP-2 – Disclosures in relation to specific circumstances

6.The undertaking shall provide disclosures in relation to specific circumstances.

7. The objective of this Disclosure Requirement is to provide an understanding of the effect of these specific circumstances on the preparation of the sustainability statement.

8.The undertaking may report this information alongside the disclosures to which they refer.

Time horizons

9.When the undertaking has deviated from the medium- or long-term time horizons defined by ESRS 1 section 6.4 Definition of short-, medium- and long-term for reporting purposes, it shall describe:

(a)its definitions of medium- or long-term time horizons; and

(b)the reasons for applying those definitions.

Value chain estimation

10.When metrics include upstream and/or downstream value chain data estimated using indirect sources, such as sector-average data or other proxies, the undertaking shall:

(a)identify the metrics; 

(b)describe the basis for preparation; 

(c)describe the resulting level of accuracy; and

(d)where applicable, describe the planned actions to improve the accuracy in the future (see ESRS 1 chapter 5 Value chain).

Sources of estimation and outcome uncertainty

11.In accordance with ESRS 1 section 7.2 Sources of estimation and outcome uncertainty, the undertaking shall:

(a)identify the quantitative metrics and monetary amounts it has disclosed that are subject to a high level of measurement uncertainty;

(b)in relation to each quantitative metric and monetary amount identified:

I.disclose information about the sources of measurement uncertainty (for example, the dependence of the amount on the outcome of a future event, on a measurement technique or on the availability and quality of data from the entity’s upstream and/or downstream value chain); and

II.disclose the assumptions, approximations and judgements the entity has made in measuring it.

12.When disclosing forward-looking information, the undertaking may indicate that it considers such information to be uncertain.

Changes in preparation or presentation of sustainability information

13.When changes in the preparation and presentation of sustainability information occur compared to the previous reporting period(s), (see ESRS 1 section 7.4 Changes in preparation or presentation in sustainability information), the undertaking shall:

(a)explain the changes and the reasons for them, including why the replaced metric provides more useful information;

(b)disclose revised comparative figures, unless it is impracticable to do so. When it is impracticable to adjust comparative information for one or more prior periods, the undertaking shall disclose that fact; and

(c)disclose the difference between the figure disclosed in the preceding period and the revised comparative figure.

Reporting errors in prior periods

14.When the undertaking identifies material prior period errors (see ESRS 1 section 7.5 Reporting errors in prior periods), it shall disclose:

(a)the nature of the prior period material error;

(b)to the extent practicable, the correction for each prior period included in the sustainability statement; and

(c)if correction of the error is not practicable, the circumstances that led to the existence of that condition.

Disclosures stemming from other legislation or generally accepted sustainability reporting pronouncements

15.When the undertaking includes in its sustainability statement information stemming from other legislation which requires the undertaking to disclose sustainability information or from generally accepted sustainability reporting standards and frameworks (see ESRS 1 section 8.2 Content and structure of the sustainability statement), in addition to the information prescribed by ESRS, it shall disclose this fact. In case of partial application of other reporting standards or frameworks, the undertaking shall provide a precise reference to the paragraphs of the standard or framework applied.

Incorporation by reference

16.When the undertaking incorporates information by reference (see ESRS 1 section 9.1 Incorporation by reference), it shall disclose a list of the disclosure requirements of ESRS, or the specific datapoints mandated by a Disclosure Requirement, that have been incorporated by reference.

Use of phase-In provisions in accordance with Appendix C of ESRS 1

17.If an undertaking or group not exceeding on its balance sheet date the average number of 750 employees during the financial year decides to omit the information required by ESRS E4, ESRS S1, ESRS S2, ESRS S3 or ESRS S4 in accordance with Appendix C of ESRS 1, it shall nevertheless disclose whether the sustainability topics covered respectively by ESRS E4, ESRS S1, ESRS S2, ESRS S3 and ESRS S4 have been assessed to be material as a result of the undertaking’s materiality assessment. In addition, if one or more of these topics has been assessed to be material, the undertaking shall, for each material topic:

(a)disclose the list of matters (i.e. topic, sub-topic or sub-sub-topic) in AR 16 ESRS 1 Appendix A that are assessed to be material and briefly describe how the undertaking’s business model and strategy take account of the impacts of the undertaking related to those matters. The undertaking may identify the matter at the level of topic, sub-topic or sub-sub-topic;

(b)briefly describe any time-bound targets it has set related to the matters in question, the progress it has made towards achieving those targets, and whether its targets related to biodiversity and ecosystems are based on conclusive scientific evidence;

(c)briefly describe its policies in relation to the matters in question;

(d)briefly describe actions it has taken to identify, monitor, prevent, mitigate, remediate or bring an end to actual or potential adverse impacts related to the matters in question, and the result of such actions; and

(e)disclose metrics relevant to the matters in question.

2.Governance

18.The objective of this chapter is to set disclosure requirements that enable an understanding of the governance processes, controls and procedures put in place to monitor, manage and oversee sustainability matters.

Disclosure Requirement GOV-1 – The role of the administrative, management and supervisory bodies

19.The undertaking shall disclose the composition of the administrative, management and supervisory bodies, their roles and responsibilities and access to expertise and skills with regard to sustainability matters.

20.The objective of this Disclosure Requirement is to provide an understanding of:

(a)the composition and diversity of the administrative, management and supervisory bodies;

(b)the roles and responsibilities of the administrative, management and supervisory bodies in exercising oversight of the process to manage material impacts, risks and opportunities, including management’s role in these processes; and

(c)the expertise and skills of its administrative, management and supervisory bodies on sustainability matters or access to such expertise and skills.

21.The undertaking shall disclose the following information about the composition and diversity of the members of the undertaking’s administrative, management and supervisory bodies:

(a)the number of executive and non-executive members;

(b)representation of employees and other workers;

(c)experience relevant to the sectors, products and geographic locations of the undertaking;

(d)percentage by gender and other aspects of diversity that the undertaking considers. The board's gender diversity 13 shall be calculated as an average ratio of female to male board members; and

(e)the percentage of independent board members 14 . For undertakings with a unitary board, this corresponds to the percentage of independent non-executive board members. For undertakings with a dual board, it corresponds to the percentage of independent members of the supervisory body.

22.The undertaking shall disclose the following information about the roles and responsibilities of the administrative, management and supervisory bodies:

(a)the identity of the administrative, management and supervisory bodies (such as a board committee or similar) or individual(s) within a body responsible for oversight of impacts, risks and opportunities;

(b)how each body’s or individual’s responsibilities for impacts, risks and opportunities are reflected in the undertaking’s terms of reference, board mandates and other related policies;

(c)a description of management’s role in the governance processes, controls and procedures used to monitor, manage and oversee impacts, risks and opportunities, including:

I. whether that role is delegated to a specific management-level position or committee and how oversight is exercised over that position or committee;

II.information about the reporting lines to the administrative, management and supervisory bodies;

III.whether dedicated controls and procedures are applied to the management of impacts, risks and opportunities and, if so, how they are integrated with other internal functions; and

(d)how the administrative, management and supervisory bodies and senior executive management oversee the setting of targets related to material impacts, risks and opportunities, and how they monitor progress towards them.

23.The disclosure shall include a description of how the administrative, management and supervisory bodies determine whether appropriate skills and expertise are available or will be developed to oversee sustainability matters, including:

(a)the sustainability-related expertise that the bodies, as a whole, either directly possess or can leverage, for example through access to experts or training; and

(b)how those skills and expertise relate to the undertaking's material impacts, risks and opportunities.

Disclosure Requirement GOV-2 – Information provided to and sustainability matters addressed by the undertaking’s administrative, management and supervisory bodies

24.The undertaking shall disclose how the administrative, management and supervisory bodies are informed about sustainability matters and how these matters were addressed during the reporting period.

25.The objective of this Disclosure Requirement is to provide an understanding of how administrative, management and supervisory bodies are informed about sustainability matters, as well as what information and matters they addressed during the reporting period. This in turn allows an understanding of whether the members of these bodies were adequately informed and whether they were able to fulfil their roles.

26.The undertaking shall disclose the following information:

(a)whether, by whom and how frequently the administrative, management and supervisory bodies, including their relevant committees, are informed about material impacts, risks and opportunities (see Disclosure Requirement IRO–1 - Description of the processes to identify and assess material impacts, risks and opportunities of this Standard), the implementation of due diligence, and the results and effectiveness of policies, actions, metrics and targets adopted to address them;

(b)how the administrative, management and supervisory bodies consider impacts, risks and opportunities when overseeing the undertaking’s strategy, its decisions on major transactions, and its risk management process, including whether they have considered trade-offs associated with those impacts, risks and opportunities; and

(c)a list of the material impacts, risks and opportunities addressed by the administrative, management and supervisory bodies, or their relevant committees during the reporting period.

Disclosure Requirement GOV-3 – Integration of sustainability-related performance in incentive schemes

27.The undertaking shall disclose information about the integration of its sustainability-related performance in incentive schemes.

28.The objective of this Disclosure Requirement is to provide an understanding of whether incentive schemes are offered to members of the administrative, management and supervisory bodies that are linked to sustainability matters.

29.The undertaking shall disclose the following information about the incentive schemes and remuneration policies linked to sustainability matters for members of the undertaking's administrative, management and supervisory bodies, where they exist:

(a)a description of the key characteristics of the incentive schemes;

(b)whether performance is being assessed against specific sustainability-related targets and/or impacts, and if so, which ones;

(c)whether and how sustainability-related performance metrics are considered as performance benchmarks or included in remuneration policies;

(d)the proportion of variable remuneration dependent on sustainability-related targets and/or impacts; and

(e)the level in the undertaking at which the terms of incentive schemes are approved and updated.

Disclosure Requirement GOV–4 - Statement on due diligence

30.The undertaking shall disclose a mapping of the information provided in its sustainability statement about the due diligence process.

31.The objective of this Disclosure Requirement is to facilitate an understanding of the undertaking’s due diligence process with regard to sustainability matters.

32.The main aspects and steps of due diligence referred to under ESRS 1 chapter 4 Due diligence are related to a number of cross-cutting and topical Disclosure Requirements under the ESRS. The undertaking shall provide a mapping that explains how and where its application of the main aspects and steps of the due diligence process are reflected in its sustainability statement, to allow a depiction of the actual practices of the undertaking with regard to due diligence 15 .

33.This disclosure requirement does not mandate any specific behavioural requirements with regard to due diligence actions and does not extend or modify the role of administrative, management and supervisory bodies as mandated by other legislation or regulation.

Disclosure Requirement GOV–5 - Risk management and internal controls over sustainability reporting

34.The undertaking shall disclose the main features of its risk management and internal control system in relation to the sustainability reporting process.

35.The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s risk management and internal control processes in relation to sustainability reporting.

36.The undertaking shall disclose the following information:

(a)the scope, main features and components of the risk management and internal control processes and systems in relation to sustainability reporting;

(b)the risk assessment approach followed, including the risk prioritisation methodology;

(c)the main risks identified and their mitigation strategies including related controls;

(d)a description of how the undertaking integrates the findings of its risk assessment and internal controls as regards the sustainability reporting process into relevant internal functions and processes; and

(e)a description of the periodic reporting of the findings referred to in point (d) to the administrative, management and supervisory bodies.

3.Strategy

37.This chapter sets disclosure requirements that enable an understanding of:

(a)the elements of the undertaking’s strategy that relate to or affect sustainability matters, its business model and its value chain;

(b)how the interests and views of the undertaking’s stakeholders are taken into account by the undertaking’s strategy and business model; and

(c)the outcome of the undertaking’s assessment of material impacts, risks and opportunities, including how they inform its strategy and business model.

Disclosure Requirement SBM-1 – Strategy, business model and value chain

38.The undertaking shall disclose the elements of its strategy that relate to or impact sustainability matters, its business model and its value chain.

39.The objective of this Disclosure Requirement is to describe the key elements of the undertaking’s general strategy that relate to or affect sustainability matters, and the key elements of the undertaking’s business model and value chain, in order to provide an understanding of its exposure to impacts, risks and opportunities and where they originate.

40.The undertaking shall disclose the following information about the key elements of its general strategy that relate to or affect sustainability matters:

(a)a description of:

I.significant groups of products and/or services offered, including changes in the reporting period (new/removed products and/or services);

II.significant markets and/or customer groups served, including changes in the reporting period (new/removed markets and/or customer groups);

III.headcount of employees by geographical areas; and

IV.where applicable and material, products and services that are banned in certain markets; 

(b)a breakdown of total revenue, as included in its financial statements, by significant ESRS sectors. When the undertaking provides segment reporting as required by IFRS 8 Operating segments in its financial statements, this sector revenue information shall be, as far as possible, reconciled with IFRS 8 information;

(c)a list of the additional significant ESRS sectors beyond the ones reflected under paragraph 40(b), such as activities that give rise to intercompany revenues, in which the undertaking develops significant activities, or in which it is or may be connected to material impacts. The identification of these additional ESRS sectors shall be consistent with the way they have been considered by the undertaking when performing its materiality assessment and with the way it discloses material sector-specific information;

(d)where applicable, a statement indicating, together with the related revenues, that the undertaking is active in:

I.the fossil fuel (coal, oil and gas) sector 16 , (i.e., it derives revenues from exploration, mining, extraction, production, processing, storage, refining or distribution, including transportation, storage and trade, of fossil fuels as defined in Article 2, point (62), of Regulation (EU) 2018/1999 of the European Parliament and the Council 17 ), including a disaggregation of revenues derived from coal, from oil and from gas, as well as the revenues derived from Taxonomy-aligned economic activities related to fossil gas as required under Article 8(7)(a) of Commission Delegated Regulation 2021/2178 18 ;

II.chemicals production 19 , i.e., its activities fall under Division 20.2 of Annex I to Regulation (EC) No 1893/2006;

III.controversial weapons 20  (anti-personnel mines, cluster munitions, chemical weapons and biological weapons); and/or

IV.the cultivation and production of tobacco 21 ;

(e)its sustainability-related goals in terms of significant groups of products and services, customer categories, geographical areas and relationships with stakeholders;

(f)an assessment of its current significant products and/or services, and significant markets and customer groups, in relation to its sustainability-related goals; and

(g)the elements of the undertaking’s strategy that relate to or impact sustainability matters, including the main challenges ahead, critical solutions or projects to be put in place, when relevant for sustainability reporting.

41.If the undertaking is based in an EU Member State that allows for an exemption from the disclosure of the information referred to in Article 18, paragraph 1, sub-point (a) of Directive 2013/34/EU 22 , and if the undertaking has made use of that exemption, it may omit the breakdown of revenue by significant ESRS sector required by paragraph 40(b). In this case the undertaking shall nevertheless disclose the list of ESRS sectors that are significant for the undertaking.

42.The undertaking shall disclose a description of its business model and value chain, including:

(a)its inputs and its approach to gathering, developing and securing those inputs;

(b)its outputs and outcomes in terms of current and expected benefits for customers, investors and other stakeholders; and

(c)the main features of its upstream and downstream value chain and the undertaking’s position in its value chain, including a description of the main business actors (such as key suppliers, customers, distribution channels and end-users) and their relationship to the undertaking. When the undertaking has multiple value chains, the disclosure shall cover the key value chains.

Disclosure Requirement SBM-2 – Interests and views of stakeholders

43.The undertaking shall disclose how the interests and views of its stakeholders are taken into account by the undertaking’s strategy and business model.

44.The objective of this Disclosure Requirement is to provide an understanding of how stakeholders’ interests and views inform the undertaking’s strategy and business model.

45.The undertaking shall disclose a summarised description of:

(a)its stakeholder engagement, including:

I.the undertaking’s key stakeholders;

II.whether engagement with them occurs and for which categories of stakeholders;

III.how it is organised;

IV.its purpose; and 

V.how its outcome is taken into account by the undertaking;

(b)the undertaking’s understanding of the interests and views of its key stakeholders as they relate to the undertaking’s strategy and business model, to the extent that these were analysed during the undertaking’s due diligence process and/or materiality assessment process (see Disclosure Requirement IRO-1 of this Standard);

(c)where applicable, amendments to its strategy and/or business model, including:

I.how the undertaking has amended or expects to amend its strategy and/or business model to address the interests and views of its stakeholders;

II.any further steps that are being planned and in what timeline; and 

III.whether these steps are likely to modify the relationship with and views of stakeholders; and

(d)whether and how the administrative, management and supervisory bodies are informed about the views and interests of affected stakeholders with regard to the undertaking’s sustainability-related impacts.

Disclosure Requirement SBM-3 - Material impacts, risks and opportunities and their interaction with strategy and business model

46.The undertaking shall disclose its material impacts, risks and opportunities and how they interact with its strategy and business model.

47.The objective of this Disclosure Requirement is to provide an understanding of the material impacts, risks and opportunities as they result from the undertaking’s materiality assessment and how they originate from and trigger adaptation of the undertaking’s strategy and business model including its resources allocation. The information to be disclosed about the management of the undertaking’s material impacts, risks and opportunities is prescribed in topical ESRS and in sector-specific standards, which shall be applied in conjunction with the Minimum Disclosure Requirements on policies, actions and targets established in this Standard.

48.The undertaking shall disclose:

(a)a brief description of its material impacts, risks and opportunities resulting from its materiality assessment (see Disclosure Requirement IRO-1 of this standard), including a description of where in its business model, its own operations and its upstream and downstream value chain these material impacts, risks and opportunities are concentrated;

(b)the current and anticipated effects of its material impacts, risks and opportunities on its business model, value chain, strategy and decision-making, and how it has responded or plans to respond to these effects, including any changes it has made or plans to make to its strategy or business model as part of its actions to address particular material impacts or risks, or to pursue particular material opportunities;

(c)with reference to the undertaking’s material impacts:

I.how the undertaking’s material negative and positive impacts affect (or, in the case of potential impacts, are likely to affect) people or the environment; 

II.whether and how the impacts originate from or are connected to the undertaking's strategy and business model;

III.the reasonably expected time horizons of the impacts; and 

IV.whether the undertaking is involved with the material impacts through its activities or because of its business relationships, describing the nature of the activities or business relationships concerned;

(d)the current financial effects of the undertaking’s material risks and opportunities on its financial position, financial performance and cash flows and the material risks and opportunities for which there is a significant risk of a material adjustment within the next annual reporting period to the carrying amounts of assets and liabilities reported in the related financial statements;

(e)the anticipated financial effects of the undertaking’s material risks and opportunities on its financial position, financial performance and cash flows over the short-, medium- and long-term, including the reasonably expected time horizons for those effects. This shall include how the undertaking expects its financial position, financial performance and cash flows to change over the short, medium- and long-term, given its strategy to manage risks and opportunities, taking into consideration:

I.its investment and disposal plans (for example, capital expenditure, major acquisitions and divestments, joint ventures, business transformation, innovation, new business areas and asset retirements), including plans the undertaking is not contractually committed to; and

II.its planned sources of funding to implement its strategy.

(f)information about the resilience of the undertaking's strategy and business model regarding its capacity to address its material impacts and risks and to take advantage of its material opportunities. The undertaking shall disclose a qualitative and, when applicable, a quantitative analysis of the resilience, including how the analysis was conducted and the time horizons that were applied as defined in ESRS 1 (see ESRS 1 chapter 6 Time horizons). When providing quantitative information, the undertaking may disclose single amounts or ranges;

(g)changes to the material impacts, risks and opportunities compared to the previous reporting period; and

(h)a specification of those impacts, risks and opportunities that are covered by ESRS Disclosure Requirements as opposed to those covered by the undertaking using additional entity-specific disclosures.

49.The undertaking may disclose the descriptive information required in paragraph 46 alongside the disclosures provided under the corresponding topical ESRS, in which case it shall still present a statement of its material impacts, risks and opportunities alongside its disclosures prepared under this chapter of ESRS 2.

4.Impact, risk and opportunity management

4.1 Disclosures on the materiality assessment process

50.This chapter sets disclosure requirements that enable an understanding of:

(a)the process to identify material impacts, risks and opportunities; and

(b)the information that, as a result of its materiality assessment, the undertaking has included in its sustainability statement.

Disclosure Requirement IRO-1 - Description of the process to identify and assess material impacts, risks and opportunities

51.The undertaking shall disclose its process to identify its impacts, risks and opportunities and to assess which ones are material.

52.The objective of this Disclosure Requirement is to provide an understanding of the process through which the undertaking identifies impacts, risks and opportunities and assesses their materiality, as the basis for determining the disclosures in its sustainability statement (see ESRS 1 chapter 3 and its related Application Requirements, which set out requirements and principles regarding the process to identify and assess material impacts, risks and opportunities based on the principle of double materiality).

53.The undertaking shall disclose the following information:

(a)a description of the methodologies and assumptions applied in the described process;

(b)an overview of the process to identify, assess, prioritise and monitor the undertaking’s potential and actual impacts on people and the environment, informed by the undertaking’s due diligence process, including an explanation of whether and how the process:

I.focusses on specific activities, business relationships, geographies or other factors that give rise to heightened risk of adverse impacts;

II.considers the impacts with which the undertaking is involved through its own operations or as a result of its business relationships;

III.includes consultation with affected stakeholders to understand how they may be impacted and with external experts;

IV.prioritises negative impacts based on their relative severity and likelihood, (see ESRS 1 section 3.4 Impact materiality) and, if applicable, positive impacts on their relative scale, scope and likelihood, and determines which sustainability matters are material for reporting purposes, including the qualitative or quantitative thresholds and other criteria used as prescribed by ESRS 1 section 3.4 Impact materiality;

(c)an overview of the process used to identify, assess, prioritise and monitor risks and opportunities that have or may have financial effects. The disclosure shall include: 

I.how the undertaking has considered the connections of its impacts and dependencies with the risks and opportunities that may arise from those impacts and dependencies; 

II.how the undertaking assesses the likelihood, magnitude, and nature of effects of the identified risk and opportunities (such as the qualitative or quantitative thresholds and other criteria used as prescribed by ESRS 1 section 3.3 Financial materiality);

III.how the undertaking prioritises sustainability-related risks relative to other types of risks, including its use of risk-assessment tools;

(d)a description of the decision-making process and the related internal control procedures;

(e)the extent to which and how the process to identify, assess and manage impacts and risks is integrated into the undertaking’s overall risk management process and used to evaluate the undertaking’s overall risk profile and risk management processes;

(f)the extent to which and how the process to identify, assess and manage opportunities is integrated into the undertaking’s overall management process where applicable;

(g)the input parameters it uses (for example, data sources, the scope of operations covered and the detail used in assumptions); and

(h)whether and how the process has changed compared to the prior reporting period, when the process was modified for the last time and future revision dates of the materiality assessment.

Disclosure Requirement IRO-2 – Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement

54.The undertaking shall report on the Disclosure Requirements complied with in its sustainability statements.

55.The objective of this Disclosure Requirement is to provide an understanding of the Disclosure Requirements included in the undertaking’s sustainability statement and of the topics that have been omitted as not material, as a result of the materiality assessment.

56.The undertaking shall include a list of the Disclosure Requirements complied with in preparing the sustainability statement, following the outcome of the materiality assessment (see ESRS 1 chapter 3), including the page numbers and/or paragraphs where the related disclosures are located in the sustainability statement. This may be presented as a content index. The undertaking shall also include a table of all the datapoints that derive from other EU legislation as listed in Appendix B of this standard, indicating where they can be found in the sustainability statement and including those that the undertaking has assessed as not material, in which case the undertaking shall indicate “Not material” in the table in accordance with ESRS 1 paragraph 35.

57.If the undertaking concludes that climate change is not material and therefore omits all disclosure requirements in ESRS E1 Climate change, it shall disclose a detailed explanation of the conclusions of its materiality assessment with regard to climate change (see ESRS 2 IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement), including a forward-looking analysis of the conditions that could lead the undertaking to conclude that climate change is material in the future.

58.If the undertaking concludes that a topic other than climate change is not material and therefore omits all the Disclosure Requirements in the corresponding topical ESRS, it may provide a brief explanation of the conclusions of its materiality assessment for that topic.

59.The undertaking shall provide an explanation of how it has determined the material information to be disclosed in relation to the impacts, risks and opportunities that it has assessed to be material, including the use of thresholds and/or how it has implemented the criteria in ESRS 1 section 3.2 Material matters and materiality of information. 

4.2 Minimum disclosure requirements on policies and actions

60.This section sets out minimum disclosure requirements to be included when the undertaking discloses information on its policies and actions to prevent, mitigate and remediate actual and potential material impacts, to address material risks and/or to pursue material opportunities (collectively, to “manage material sustainability matters”). They shall be applied together with the Disclosure Requirements, including Application Requirements, provided in the relevant topical and sector-specific ESRS. They shall also be applied when the undertaking prepares entity-specific disclosures.

61.The corresponding disclosures shall be located alongside disclosures prescribed by the relevant ESRS. When a single policy or same actions address several interconnected sustainability matters, the undertaking may disclose the required information in its reporting under one topical ESRS and cross reference to it in its reporting under other topical ESRS.

62.If the undertaking cannot disclose the information on policies and actions required under relevant ESRS, because it has not adopted policies and/or actions with reference to the specific sustainability matter concerned, it shall disclose this to be the case, and provide reasons for not having adopted policies and/or actions. The undertaking may disclose a timeframe in which it aims to adopt them.

Minimum Disclosure Requirement – Policies MDR-P – Policies adopted to manage material sustainability matters

63.The undertaking shall apply the minimum disclosure requirements defined in this provision when it discloses the policies it has in place with regard to each sustainability matter identified as material.

64.The objective of this Minimum Disclosure Requirement is to provide an understanding of the policies that the undertaking has in place to prevent, mitigate and remediate actual and potential impacts, to address risks and to pursue opportunities.

65.The undertaking shall disclose information about policies adopted to manage material sustainability matters. The disclosure shall include the following information:

(a)a description of the key contents of the policy, including its general objectives and which material impacts, risks or opportunities the policy relates to and the process for monitoring;

(b)a description of the scope of the policy, or of its exclusions, in terms of activities, upstream and/or downstream value chain, geographies and if relevant, affected stakeholder groups;

(c)the most senior level in the undertaking’s organisation that is accountable for the implementation of the policy;

(d)a reference, if relevant, to the third-party standards or initiatives the undertaking commits to respect through the implementation of the policy;

(e)if relevant, a description of the consideration given to the interests of key stakeholders in setting the policy; and

(f)if relevant, whether and how the undertaking makes the policy available to potentially affected stakeholders, and stakeholders who need to help implement it.

Minimum Disclosure Requirement – Actions MDR-A – Actions and resources in relation to material sustainability matters

66.The undertaking shall apply the requirements for the content of disclosures in this provision when it describes the actions through which it manages each material sustainability matter including action plans and resources allocated and/or planned.

67.The objective of this Minimum Disclosure Requirement is to provide an understanding of the key actions taken and/or planned to prevent, mitigate and remediate actual and potential impacts, and to address risks and opportunities, and where applicable achieve the objectives and targets of related policies.

68.Where the implementation of a policy requires actions, or a comprehensive action plan, to achieve its objectives, as well as when actions are implemented without a specific policy, the undertaking shall disclose the following information:

(a)the list of key actions taken in the reporting year and planned for the future, their expected outcomes and, where relevant, how their implementation contributes to the achievement of policy objectives and targets;

(b)the scope of the key actions (i.e., coverage in terms of activities, upstream and/or downstream value chain, geographies and, where applicable, affected stakeholder groups);

(c)the time horizons under which the undertaking intends to complete each key action;

(d)if applicable, key actions taken (along with results) to provide for and cooperate in or support the provision of remedy for those harmed by actual material impacts;

(e)if applicable, quantitative and qualitative information regarding the progress of actions or action plans disclosed in prior periods.

69.Where the implementation of an action plan requires significant operational expenditures (Opex) and/or capital expenditures (Capex) the undertaking shall:

(a)describe the type of current and future financial and other resources allocated to the action plan, including if applicable, the relevant terms of sustainable finance instruments, such as green bonds, social bonds and green loans, the environmental or social objectives, and whether the ability to implement the actions or action plan depends on specific preconditions, e.g., granting of financial support or public policy and market developments;

(b)provide the amount of current financial resources and explain how they relate to the most relevant amounts presented in the financial statements; and

(c)provide the amount of future financial resources.

5.Metrics and targets

70.This chapter sets out Minimum Disclosure Requirements that shall be included when the undertaking discloses information on its metrics and targets related to each material sustainability matter. They shall be applied together with the Disclosure Requirements, including Application Requirements, provided in the relevant topical ESRS. They shall also be applied when the undertaking prepares entity-specific disclosures.

71.The corresponding disclosures shall be located alongside disclosures prescribed by the topical ESRS.

72.If the undertaking cannot disclose the information on targets required under the relevant topical ESRS, because it has not set targets with reference to the specific sustainability matter concerned, it shall disclose this to be the case, and provide reasons for not having adopted targets. The undertaking may disclose a timeframe in which it aims to adopt them.

Minimum disclosure requirement – Metrics MDR-M – Metrics in relation to material sustainability matters

73.The undertaking shall apply the requirements for the content of disclosures in this provision when it discloses on the metrics it has in place with regard to each material sustainability matter.

74.The objective of this Minimum Disclosure Requirement is to provide an understanding of the metrics the undertaking uses to track the effectiveness of its actions to manage material sustainability matters.

75.The undertaking shall disclose any metrics that it uses to evaluate performance and effectiveness, in relation to a material impact, risk or opportunity.

76.Metrics shall include those defined in ESRS, as well as metrics identified on an entity-specific basis, whether taken from other sources or developed by the undertaking itself.

77.For each metric, the undertaking shall:

(a)disclose the methodologies and significant assumptions behind the metric, including the limitations of the methodologies used;

(b)disclose whether the measurement of the metric is validated by an external body other than the assurance provider and, if so, which body;

(c)label and define the metric using meaningful, clear and precise names and descriptions;

(d)when currency is specified as the unit of measure, use the presentation currency of its financial statements.

Minimum Disclosure Requirement – Targets MDR-T – Tracking effectiveness of policies and actions through targets

78.The undertaking shall apply the requirements for the content of disclosures in this provision when it discloses information about the targets it has set with regard to each material sustainability matter.

79.The objective of this Minimum Disclosure Requirement is to provide for each material sustainability matter an understanding of:

(a)whether and how the undertaking tracks the effectiveness of its actions to address material impacts, risks and opportunities, including the metrics it uses to do so;

(b)measurable time-bound outcome-oriented targets set by the undertaking to meet the policy’s objectives, defined in terms of expected results for people, the environment or the undertaking regarding material impacts, risks and opportunities;

(c)the overall progress towards the adopted targets over time;

(d)in the case that the undertaking has not set measurable time-bound outcome-oriented targets, whether and how it nevertheless tracks the effectiveness of its actions to address material impacts, risks and opportunities and measures the progress in achieving its policy objectives; and 

(e)whether and how stakeholders have been involved in target setting for each material sustainability matter.

80.The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure shall include the following information:

(a)a description of the relationship of the target to the policy objectives;

(b)the defined target level to be achieved, including, where applicable, whether the target is absolute or relative and in which unit it is measured;

(c)the scope of the target, including the undertaking’s activities and/or its upstream and/or downstream value chain where applicable and geographical boundaries;

(d)the baseline value and base year from which progress is measured;

(e)the period to which the target applies and if applicable, any milestones or interim targets;

(f)the methodologies and significant assumptions used to define targets, including where applicable, the selected scenario, data sources, alignment with national, EU or international policy goals and how the targets consider the wider context of sustainable development and/or local situation in which impacts take place;

(g)whether the undertaking’s targets related to environmental matters are based on conclusive scientific evidence;

(h)whether and how stakeholders have been involved in target setting for each material sustainability matter;

(i)any changes in targets and corresponding metrics or underlying measurement methodologies, significant assumptions, limitations, sources and processes to collect data adopted within the defined time horizon. This includes an explanation of the rationale for those changes and their effect on comparability (see Disclosure Requirement BP-2 Disclosures in relation to specific circumstances of this Standard); and

(j)the performance against its disclosed targets, including information on how the target is monitored and reviewed and the metrics used, whether the progress is in line with what had been initially planned, and an analysis of trends or significant changes in the performance of the undertaking towards achieving the target.

81.If the undertaking has not set any measurable outcome-oriented targets:

(a)it may disclose whether such targets will be set and the timeframe for setting them, or the reasons why the undertaking does not plan to set such targets;

(b)it shall disclose whether it nevertheless tracks the effectiveness of its policies and actions in relation to the material sustainability-related impact, risk and opportunity, and if so:

I.any processes through which it does so;

II.the defined level of ambition to be achieved and any qualitative or quantitative indicators it uses to evaluate progress, including the base period from which progress is measured.

Appendix A: Application Requirements

This appendix is an integral part of ESRS 2 and has the same authority as other parts of the Standard.

1.Basis for preparation

Disclosure Requirement BP-1 – General basis for preparation of sustainability statements

AR 1.When describing to what extent the sustainability statement covers the undertaking’s upstream and downstream value chain (see ESRS 1 section 5.1 Reporting undertaking and value chain), the undertaking may distinguish between:

(a)the extent to which its materiality assessment of impacts, risks and opportunities extends to its upstream and/or downstream value chain;

(b)the extent to which its policies, actions and targets extend to its value chain; and

(c)the extent to which it includes upstream and/or downstream value chain data when disclosing on metrics.

Disclosure Requirement BP-2 – Disclosures in relation to specific circumstances

AR 2.The undertaking may disclose whether it relies on any European standards approved by the European Standardisation System (ISO/IEC or CEN/CENELEC standards), as well as the extent to which data and processes that are used for sustainability reporting purposes have been verified by an external assurance provider and found to conform to the corresponding ISO/IEC or CEN/CENELEC standard.

2.Governance

Disclosure Requirement GOV-1 – The role of the administrative, management and supervisory bodies

AR 3.In describing the role and responsibilities of the administrative, management and supervisory bodies with regard to sustainability matters, the undertaking may specify:

(a)the aspects of sustainability over which oversight is exercised with regard to the environmental, social and governance matters the undertaking may be facing, including:

I.any assessment of and changes to sustainability-related aspects of the undertaking’s strategy and business model;

II.the identification and assessment of material risks, opportunities and impacts;

III.related policies and targets, action plans and dedicated resources; and

IV.sustainability reporting;

(b)the form such oversight takes for each of the above aspects: i.e., information, consultation or decision-making; and

(c)the way such oversight is organised and formalised, i.e., processes by which the administrative, management and supervisory bodies engage with these aspects of sustainability.

AR 4.In describing the undertaking’s organisation of governance regarding sustainability matters, a description of complex governance structure may be complemented by their presentation in the form of a diagram.

AR 5.The description of the level of expertise or access to expertise of the administrative, management and supervisory bodies may be substantiated by illustrating the composition of the bodies, including members on whom these bodies rely for expertise to oversee sustainability matters, and how they leverage that expertise as a body. In the description, the undertaking shall consider how the expertise and skills are relevant to the undertaking’s material impacts, risks and opportunities and whether the bodies and/or its members have access to other sources of expertise, such as specific experts and training and other educational initiatives to update and develop sustainability-related expertise within these bodies.

Disclosure Requirement GOV-2 – Information provided to and sustainability matters addressed by the undertaking’s administrative, management and supervisory bodies

AR 6.Depending on the undertaking’s structure, the administrative, management and supervisory bodies may focus on overarching targets, while management focuses on the more detailed targets. In this case, the undertaking may disclose how the governance bodies ensure that an appropriate mechanism for performance monitoring is in place.

Disclosure Requirement GOV-3 – Integration of sustainability-related performance in incentive schemes

AR 7.For listed undertakings, this Disclosure Requirement should be consistent with the remuneration report prescribed in articles 9a and 9b of Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies. Subject to the provisions of ESRS 1, paragraphs 119, 120 and 122, a listed undertaking may make a reference to its remuneration report.

Disclosure Requirement GOV-4 – Statement on due diligence

AR 8.The mapping required by paragraph 30 may be presented in the form of a table, cross-referencing the core elements of due diligence, for impacts on people and the environment, to the relevant disclosures in the undertaking’s sustainability statement, as set out below.

AR 9.The undertaking may include additional columns to the table below to clearly identify those disclosures that relate to impacts on people and/or the environment given that, in some cases, more than one disclosure may provide information about the same due diligence step.

AR 10.The main references in the international instruments of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises to the core elements of the due diligence process are listed in ESRS 1 chapter 4.

Disclosure Requirement GOV-5 – Risk management and internal controls over sustainability reporting

AR 11.This Disclosure Requirement focuses solely on the internal control processes over the sustainability reporting process. The undertaking may consider risks such as the completeness and integrity of the data, the accuracy of estimation results, the availability of upstream and/or downstream value chain data, and the timing of the availability of the information.

3.Strategy

Disclosure Requirement SBM–1 Strategy, business model and value chain

AR 12.To provide the information on sectors required by paragraph 40, the undertaking shall map its significant activities in accordance with ESRS sectors. If a code for a sub-sector does not exist, the caption “others” shall be used.

AR 13.For the purposes of the disclosures required in paragraph 40, a group of products and/or services offered, a group of markets and/or customer groups served, or an ESRS sector, is significant for the undertaking if it meets one or both of the following criteria:

(a)it accounts for more than 10 per cent of the undertaking’s revenue; 

(b)it is connected with material actual impacts or material potential negative impacts of the undertaking. 

AR 14.In preparing disclosures relating to its business model and value chain, the undertaking shall consider:

(a)its key activities, resources, distribution channels and customer segments;

(b)its key business relationships and their key characteristics, including relationships with customers and suppliers;

(c)the cost structure and revenue of its business segments, in line with IFRS 8 disclosure requirements in the financial statement, where applicable;

(d)the potential impacts, risks and opportunities in its significant sector(s) and their possible relationship to its own business model or value chain.

AR 15.Contextual information may be particularly relevant for users of the undertaking’s sustainability statement, to understand to what extent the disclosures include upstream and/or downstream value chain information. The description of the main features of the upstream and/or downstream value chain and where applicable the identification of key value chains should support an understanding of how the undertaking applies the requirements of ESRS 1 chapter 5 and the materiality assessment performed by the undertaking in line with ESRS 1 chapter 3. The description may provide a high-level overview of the key features of upstream and/or downstream value chain entities indicating their relative contribution to the undertaking’s performance and position and explaining how they contribute to the value creation of the undertaking.

Disclosure Requirement SBM-2 – Interests and views of stakeholders

AR 16.The views and interests of stakeholders that are expressed as part of the undertaking’s engagement with stakeholders through its due diligence process may be relevant to one or more aspects of its strategy or business model. As such, they may affect the undertaking’s decisions regarding the future direction of the strategy or business model.

Disclosure Requirement SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model

AR 17.When describing where in its upstream and/or downstream value chain material impacts, risks and opportunities are concentrated, the undertaking shall consider: geographical areas, facilities or types of assets, inputs, outputs and distribution channels.

AR 18.This disclosure may be expressed in terms of a single impact, risk or opportunity or by aggregating groups of material impacts, risks and opportunities, when this provides more relevant information and does not obscure material information.

4.Impact, risk and opportunity management

Disclosure Requirement IRO-2 – Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement

AR 19.Notwithstanding the basis for the presentation of the information about sustainability matters included in ESRS 1 chapter 8 Structure of sustainability statement, the undertaking may disclose the list of the Disclosure Requirements complied with in preparing the sustainability statement (see paragraph 54) in the general information part or in other parts of the sustainability statement as it deems appropriate. The undertaking may use a content index, i.e., a tabular list of the Disclosure Requirements included in the sustainability statement, with the indication of where they are located (page/paragraphs).

Minimum Disclosure Requirement – Policies MDR-P – Policies adopted to manage material sustainability matters

AR 20.Due to the interdependency between impacts on people and the environment, risks and opportunities, a single policy may apply to several material sustainability matters, including matters addressed by more than one topical ESRS. For example, if a single policy covers both an environmental matter and a social matter, the undertaking may report on the policy in the environmental section of its sustainability statement. In this case, it should include in the social section a cross-reference to the environmental section where the policy is reported. Equally a policy may be reported in the social section with a cross-reference to it in the environmental section.

AR 21.The description of the scope of the policy may explain which activities and/or segments of the undertaking’s own operations or upstream and downstream value chain it concerns. The description may also explain further boundaries relevant to the specific topic or the undertaking’s circumstances, which may include geographies, life cycles, etc. In certain cases, such as if the policy does not cover the full value chain, the undertaking may provide clear information regarding the extent of the value chain covered by the policy.

Minimum disclosure requirement – Actions MDR-A – Actions and resources in relation to material sustainability matters

AR 22.Key actions in the context of this Minimum Disclosure Requirement are those actions that materially contribute to achieving the undertaking’s objectives in addressing material impacts, risks and opportunities. For reasons of understandability, key actions may be aggregated where appropriate.

AR 23.Information on resource allocation may be presented in the form of a table and broken down between capital expenditure and operating expenditure, and across the relevant time horizons, and between resources applied in the current reporting year and the planned allocation of resources over specific time horizons.

5.Metrics and targets

Minimum Disclosure Requirement – Targets MDR-T – Tracking effectiveness of policies and actions through targets

AR 24.When disclosing targets related to the prevention or mitigation of environmental impacts, the undertaking shall prioritise targets related to the reduction of the impacts in absolute terms rather than in relative terms. When targets address the prevention or mitigation of social impacts, they may be specified in terms of the effects on human rights, welfare or positive outcomes for affected stakeholders.

AR 25.The information on progress made towards achieving the targets may be presented in a comprehensive table, including information on the baseline and target value, milestones, and achieved performance over the prior periods.

AR 26.Where the undertaking describes progress in achieving the objectives of a policy in the absence of a measurable target, it may specify a baseline against which the progress is considered. For example, the undertaking may assess an increase of wages by a certain percentage for those below a fair wage; or may assess the quality of its relationships with local communities by reference to the proportion of issues raised by communities that were resolved to their satisfaction. The baseline and the assessment of the progress shall be related to the impacts, risks and opportunities which underpin the materiality of the matter addressed by the policy.

Appendix B: List of datapoints in cross-cutting and topical standards that derive from other EU legislation

This appendix is an integral part of the ESRS 2. The table below illustrates the datapoints in ESRS 2 and topical ESRS that derive from other EU legislation.

Appendix C: Disclosure and Application Requirements in Topical ESRS that are applicable in conjunction with ESRS 2 General disclosures

This appendix is an integral part of ESRS 2 and has the same authority as the other parts of the standard. The following table outlines the requirements in topical ESRS that need to be taken into account when reporting against the Disclosure Requirements in ESRS 2.

ESRS E1

CLIMATE CHANGE

Table of contents

Objective    

Interactions with other ESRS    

Disclosure Requirements    

-ESRS 2 General disclosures

Governance

oDisclosure requirement related to ESRS 2 GOV-3 Integration of sustainability-related performance in incentive schemes    

Strategy    

oDisclosure Requirement E1-1 – Transition plan for climate change mitigation

oDisclosure Requirement related to ESRS 2 SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model    

Impact, risk and opportunity management    

oDisclosure requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material climate-related impacts, risks and opportunities    

oDisclosure Requirement E1-2 – Policies related to climate change mitigation and adaptation

oDisclosure Requirement E1-3 – Actions and resources in relation to climate change policies

Metrics and targets

oDisclosure Requirement E1-4 – Targets related to climate change mitigation and adaptation

oDisclosure Requirement E1-5 – Energy consumption and mix    

oDisclosure Requirement E1-6 – Gross Scopes 1, 2, 3 and Total GHG emissions    

oDisclosure Requirement E1-7 – GHG removals and GHG mitigation projects financed through carbon credits

oDisclosure Requirement E1-8 – Internal carbon pricing    

oDisclosure Requirement E1-9 – Anticipated financial effects from material physical and transition risks and potential climate-related opportunities    

Appendix A: Application Requirements    

-ESRS 2 General disclosures

Strategy

oDisclosure Requirement E1-1 – Transition plan for climate change mitigation

Impact, risk and opportunity management

oDisclosure Requirement E1-2 – Policies related to climate change mitigation and adaptation

oDisclosure Requirements E1-3 – Actions and resources in relation to climate change policies

Metrics and targets

oDisclosure Requirement E1-4 – Targets related to climate change mitigation and adaptation

oDisclosure Requirement E1-5 – Energy consumption and mix    

oDisclosure Requirements E1-6 – Gross Scopes 1, 2, 3 and Total GHG emissions    

oDisclosure Requirement E1-7 – GHG removals and GHG mitigation projects financed through carbon credits    

oDisclosure Requirement E1-8 – Internal carbon pricing    

oDisclosure Requirement E1-9 – Anticipated financial effects from material physical and transition risks and potential climate-related opportunities    

Objective 

1.The objective of this Standard is to specify Disclosure Requirements which will enable users of sustainability statements to understand:

(a)how the undertaking affects climate change, in terms of material positive and negative actual and potential impacts;

(b)the undertaking’s past, current, and future mitigation efforts in line with the Paris Agreement (or an updated international agreement on climate change) and compatible with limiting global warming to 1.5°C;

(c)the plans and capacity of the undertaking to adapt its strategy and business model, in line with the transition to a sustainable economy and to contribute to limiting global warming to 1.5°C;

(d)any other actions taken by the undertaking, and the result of such actions to prevent, mitigate or remediate actual or potential negative impacts, and to address risks and opportunities;

(e)the nature, type and extent of the undertaking’s material risks and opportunities arising from the undertaking’s impacts and dependencies on climate change, and how the undertaking manages them; and

(f)the financial effects on the undertaking over the short-, medium- and long-term of risks and opportunities arising from the undertaking’s impacts and dependencies on climate change.

2.The Disclosure Requirements of this Standard take into account the requirements of related EU legislation and regulation (i.e., EU Climate Law 30 , Climate Benchmark Standards Regulation 31 , Sustainable Finance Disclosure Regulation (SFDR) 32 , EU Taxonomy 33 , and EBA Pillar 3 disclosure requirements 34 ).

3.This Standard covers Disclosure Requirements related to the following sustainability matters: “Climate change mitigation” and “Climate change adaptation”. It also covers energy-related matters, to the extent that they are relevant to climate change.

4.Climate change mitigation relates to the undertaking’s endeavours to the general process of limiting the increase in the global average temperature to 1,5 °C above pre-industrial levels in line with the Paris Agreement. This Standard covers disclosure requirements related but not limited to the seven Greenhouse gases (GHG) carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). It also covers Disclosure Requirements on how the undertaking addresses its GHG emissions as well as the associated transition risks.

5.Climate change adaptation relates to the undertaking’s process of adjustment to actual and expected climate change.

6.This Standard covers Disclosure Requirements regarding climate-related hazards that can lead to physical climate risks for the undertaking and its adaptation solutions to reduce these risks. It also covers transition risks arising from the needed adaptation to climate- related hazards.

7.The Disclosure Requirements related to “Energy” cover all types of energy production and consumption.

Interactions with other ESRS

8.Ozone-depleting substances (ODS), nitrogen oxides (NOX) and sulphur oxides (SOX), among other air emissions, are connected to climate change but are covered under the reporting requirements in ESRS E2.

9.Impacts on people that may arise from the transition to a climate-neutral economy are covered under the ESRS S1 Own workforce, ESRS S2 Workers in the value chain, ESRS S3 Affected communities and ESRS S4 Consumers and end-users.

10.Climate change mitigation and adaptation are closely related to topics addressed in particular in ESRS E3 Water and marine resources and ESRS E4 Biodiversity and ecosystems. With regard to water and as illustrated in the table of climate-related hazards in AR 11, this standard addresses acute and chronic physical risks which arise from the water and ocean-related hazards. Biodiversity loss and ecosystem degradation that may be caused by climate change are addressed in ESRS E4 Biodiversity and ecosystems.

11.This Standard should be read and applied in conjunction with ESRS 1 General requirements and ESRS 2 General disclosures.

Disclosure Requirements

ESRS 2 General disclosures

12.The requirements of this section should be read and applied in conjunction with the disclosures required by ESRS 2 on Chapter 2 Governance, Chapter 3 Strategy and Chapter 4 Impact, risk and opportunity management. The resulting disclosures shall be presented in the sustainability statement alongside the disclosures required by ESRS 2, except for ESRS 2 SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model, for which the undertaking may, in accordance with ESRS2 paragraph 46, present the disclosures alongside the other disclosures required in this topical standard.

Governance

Disclosure requirement related to ESRS 2 GOV-3 Integration of sustainability-related performance in incentive schemes

13.The undertaking shall disclose whether and how climate-related considerations are factored into the remuneration of members of the administrative, management and supervisory bodies, including if their performance has been assessed against the GHG emission reduction targets reported under Disclosure Requirement E1-4 and the percentage of the remuneration recognised in the current period that is linked to climate related considerations, with an explanation of what the climate considerations are.

Strategy

Disclosure Requirement E1-1 – Transition plan for climate change mitigation

14.The undertaking shall disclose its transition plan for climate change mitigation 35 .

15.The objective of this Disclosure Requirement is to enable an understanding of the undertaking’s past, current, and future mitigation efforts to ensure that its strategy and business model are compatible with the transition to a sustainable economy, and with the limiting of global warming to 1.5 °C in line with the Paris Agreement and with the objective of achieving climate neutrality by 2050 and, where relevant, the undertaking’s exposure to coal, oil and gas-related activities.

16.The information required by paragraph 14 shall include:

(a)by reference to GHG emission reduction targets (as required by Disclosure Requirement E1-4), an explanation of how the undertaking’s targets are compatible with the limiting of global warming to 1.5°C in line with the Paris Agreement;

(b)by reference to GHG emission reduction targets (as required by Disclosure Requirement E1-4) and the climate change mitigation actions (as required by Disclosure Requirement E1-3), an explanation of the decarbonisation levers identified, and key actions planned, including changes in the undertaking’s product and service portfolio and the adoption of new technologies in its own operations, or the upstream and/or downstream value chain;

(c)by reference to the climate change mitigation actions (as required by Disclosure Requirement E1-3), an explanation and quantification of the undertaking’s investments and funding supporting the implementation of its transition plan, with a reference to the key performance indicators of taxonomy-aligned CapEx, and where relevant the CapEx plans, that the undertaking discloses in accordance with Commission Delegated Regulation (EU) 2021/2178;

(d)a qualitative assessment of the potential locked-in GHG emissions from the undertaking’s key assets and products. This shall include an explanation of if and how these emissions may jeopardise the achievement of the undertaking’s GHG emission reduction targets and drive transition risk, and if applicable, an explanation of the undertaking’s plans to manage its GHG-intensive and energy-intensive assets and products;

(e)for undertakings with economic activities that are covered by delegated regulations on climate adaptation or mitigation under the Taxonomy Regulation, an explanation of any objective or plans (CapEX, CapEx plans, OpEX) that the undertaking has for aligning its economic activities (revenues, CapEx, OpEx) with the criteria established in Commission Delegated Regulation 2021/2139 36 ;

(f)if applicable, a disclosure of significant CapEx amounts invested during the reporting period related to coal, oil and gas-related economic activities; 37

(g)a disclosure on whether or not the undertaking is excluded from the EU Paris-aligned Benchmarks; 38

(h)an explanation of how the transition plan is embedded in and aligned with the undertaking’s overall business strategy and financial planning;

(i)whether the transition plan is approved by the administrative, management and supervisory bodies; and

(j)an explanation of the undertaking’s progress in implementing the transition plan.

17.In case the undertaking does not have a transition plan in place, it shall indicate whether and, if so, when it will adopt a transition plan.

Disclosure Requirement related to ESRS 2 SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model

18.The undertaking shall explain for each material climate-related risk it has identified, whether the entity considers the risk to be a climate-related physical risk or climate-related transition risk.

19.The undertaking shall describe the resilience of its strategy and business model in relation to climate change. This description shall include:

(a)the scope of the resilience analysis;

(b)how and when the resilience analysis has been conducted, including the use of climate scenario analysis as referenced in the Disclosure Requirement related to ESRS 2 IRO-1 and the related application requirement paragraphs; and

(c)the results of the resilience analysis including the results from the use of scenario analysis.

Impact, risk and opportunity management

Disclosure requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material climate-related impacts, risks and opportunities

20.The undertaking shall describe the process to identify and assess climate-related impacts, risks and opportunities. This description shall include its process in relation to:

(a)impacts on climate change, in particular, the undertaking’s GHG emissions (as required by Disclosure Requirement ESRS E1-6);

(b)climate-related physical risks in own operations and along the upstream and downstream value chain, in particular:

I.the identification of climate-related hazards, considering at least high emission climate scenarios; and

II.the assessment of how its assets and business activities may be exposed and are sensitive to these climate-related hazards, creating gross physical risks for the undertaking.

(c)climate-related transition risks and opportunities in own operations and along the upstream and downstream value chain, in particular:

I.the 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; and

II.the assessment of how its assets and business activities may be exposed to these climate-related transition events, creating gross transition risks or opportunities for the undertaking.

21.When disclosing the information required under paragraphs 20 (b)and 20 (c) the undertaking shall explain how it has used climate-related scenario analysis, including a range of climate scenarios, to inform the identification and assessment of physical risks and transition risks and opportunities over the short-, medium- and long-term.

Disclosure Requirement E1-2 – Policies related to climate change mitigation and adaptation

22.The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to climate change mitigation and adaptation.

23.The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material climate change mitigation and adaptation impacts, risks and opportunities.

24.The disclosure required by paragraph 22 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to climate change mitigation and adaptation in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.

25.The undertaking shall indicate whether and how its policies address the following areas:

(a)climate change mitigation;

(b)climate change adaptation;

(c)energy efficiency; 

(d)renewable energy deployment; and

(e)other

Disclosure Requirement E1-3 – Actions and resources in relation to climate change policies

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