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Document C(2023)5303

COMMISSION DELEGATED REGULATION (EU) /... supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards

C/2023/5303 final

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

For the Commission

   The President
   Ursula VON DER LEYEN

(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).
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ANNEX I

EUROPEAN SUSTAINABILITY REPORTING STANDARDS (ESRS)

ESRS 1

General requirements

ESRS 2

General disclosures

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

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.

Topical

ESRS

Sustainability matters covered in topical ESRS

Topic

Sub-topic

Sub-sub-topics

ESRS E1

Climate change

·Climate change adaptation

·Climate change mitigation

·Energy

ESRS E2

Pollution

·Pollution of air

·Pollution of water

·Pollution of soil

·Pollution of living organisms and food resources

·Substances of concern

·Substances of very high concern

·Microplastics

ESRS E3

Water    and marine resources

·Water 

·Marine resources

·Water consumption

·Water withdrawals

·Water discharges

·Water discharges in the oceans

·Extraction and use of marine resources

ESRS E4

Biodiversity and ecosystems

·Direct impact drivers of biodiversity loss

·Climate Change

·Land-use change, fresh water-use change and sea-use change

·Direct exploitation

·Invasive alien species

·Pollution

·Others

·Impacts on the state of species

Examples:

·Species population size

·Species global extinction risk

·Impacts on the extent and condition of ecosystems

Examples:

·Land degradation

·Desertification

·Soil sealing

·Impacts and dependencies on ecosystem services

ESRS E5

Circular economy

·Resources inflows, including resource use

·Resource outflows related to products and services

·Waste

   

ESRS S1

Own workforce

·Working conditions

·Secure employment

·Working time

·Adequate wages

·Social dialogue

·Freedom of association, the existence of works councils and the information, consultation and participation rights of workers

·Collective bargaining, including rate of workers covered by collective agreements

·Work-life balance

·Health and safety

·Equal treatment and opportunities for all

·Gender equality and equal pay for work of equal value

·Training and skills development

·Employment and inclusion of persons with disabilities

·Measures against violence and harassment in the workplace

·Diversity

·Other work-related rights

·Child labour

·Forced labour

·Adequate housing

·Privacy

ESRS S2

Workers in the value chain

·Working conditions

·Secure employment

·Working time

·Adequate wages

·Social dialogue

·Freedom of association, including the existence of work councils

·Collective bargaining

·Work-life balance

·Health and safety

·Equal treatment and opportunities for all

·Gender equality and equal pay for work of equal value

·Training and skills development

·The employment and inclusion of persons with disabilities

·Measures against violence and harassment in the workplace

·Diversity

·Other work-related rights

·Child labour

·Forced labour

·Adequate housing

·Water and sanitation

·Privacy

ESRS S3

Affected communities

·Communities’ economic, social and cultural rights

·Adequate housing

·Adequate food

·Water and sanitation

·Land-related impacts

·Security-related impacts

·Communities’ civil and political rights

·Freedom of expression

·Freedom of assembly

·Impacts on human rights defenders

·Rights of indigenous peoples

·Free, prior and informed consent

·Self-determination

·Cultural rights

ESRS S4

Consumers and    end- users

·Information-related impacts for consumers and/or end-users

·Privacy

·Freedom of expression

·Access to (quality) information

·Personal safety of consumers and/or end-users

·Health and safety

·Security of a person

·Protection of children

·Social inclusion of consumers and/or end-users

·Non-discrimination

·Access to products and services

·Responsible    marketing practices

ESRS G1

Business conduct

·Corporate culture

·Protection of whistle-blowers

·Animal welfare

·Political engagement    and lobbying activities

·Management of relationships with suppliers including payment practices

·Corruption and bribery

·Prevention    and    detection including training

·Incidents

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.

ESRS

Disclosure Requirement

Full name of the Disclosure Requirement

Phase-in or effective date (including the first year)

ESRS 2

SBM-1

Strategy, business model and value chain

The undertaking shall report the information prescribed by ESRS 2 SBM-1 paragraph 40(b) (breakdown of total revenue by significant ESRS sector) and 40(c) (list of additional significant ESRS sectors) starting from the application date specified in a Commission Delegated Act to be adopted pursuant to article 29b(1) third subparagraph, point (ii), of Directive 2013/34/EU.

ESRS 2

SBM-3

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

The undertaking may omit the information prescribed by ESRS 2 SBM-3 paragraph 48(e) (anticipated financial effects) for the first year of preparation of its sustainability statement. The undertaking may comply with ESRS 2 SBM-3 paragraph 48(e) by reporting only qualitative disclosures for the first 3 years of preparation of its sustainability statement, if it is impracticable to prepare quantitative disclosures.

ESRS E1

E1-6

Gross Scopes 1, 2, 3 and Total GHG emissions

Undertakings or groups not exceeding on their balance sheet dates the average number of 750 employees during the financial year (on a consolidated basis where applicable) may omit the datapoints on scope 3 emissions and total GHG emissions for the first year of preparation of their sustainability statement.

ESRS E1

E1-9

Anticipated financial effects from material physical and transition risks and potential climate-related opportunities

The undertaking may omit the information prescribed by ESRS E1-9 for the first year of preparation of its sustainability statement. The undertaking may comply with ESRS E1-9 by reporting only qualitative disclosures for the first 3 years of preparation of its sustainability statement, if it is impracticable to prepare quantitative disclosures.

ESRS E2

E2-6

Anticipated financial effects from pollution-related impacts, risks and opportunities

The undertaking may omit the information prescribed by ESRS E2-6 for the first year of preparation of its sustainability statement. Except for the information prescribed by paragraph 40 (b) on the operating and capital expenditures occurred in the reporting period in conjunction with major incidents and deposits, the undertaking may comply with ESRS E2-6 by reporting only qualitative disclosures, for the first 3 years of preparation of its sustainability statement.

 ESRS E3

E3-5

Anticipated financial effects from water and marine resources-related impacts, risks and opportunities

The undertaking may omit the information prescribed by ESRS E3-5 for the first year of preparation of its sustainability statement.The undertaking may comply with ESRS E3-5 by reporting only qualitative disclosures, for the first 3 years of preparation of its sustainability statement.

ESRS E4

All disclosure requirements

All disclosure requirements

Undertakings or groups not exceeding on their balance sheet dates the average number of 750 employees during the financial year (on a consolidated basis where applicable) may omit the information specified in the disclosure requirements of ESRS E4 for the first 2 years of preparation of their sustainability statement.

ESRS E4

E4-6

Anticipated financial effects from biodiversity and ecosystem-related impacts, risks and opportunities

The undertaking may omit the information prescribed by ESRS E4-6 for the first year of preparation of its sustainability statement.

The undertaking may comply with ESRS E4-6 by reporting only qualitative disclosures, for the first 3 years of preparation of its sustainability statement.

ESRS E5

E5-6

Anticipated financial effects from resource use and circular economy-related impacts, risks and opportunities

The undertaking may omit the information prescribed by ESRS E5-6 for the first year of preparation of its sustainability statement.

The undertaking may comply with ESRS E5-6 by reporting only qualitative disclosures, for the first 3 years of preparation of its sustainability statement.

ESRS S1

All disclosure requirements

All disclosure requirements

Undertakings or groups not exceeding on their balance sheet dates the average number of 750 employees during the financial year (on a consolidated basis where applicable) may omit the information specified in the disclosure requirements of ESRS S1 for the first year of preparation of their sustainability statement.

ESRS S1

S1-7

Characteristics of non-employee workers in the undertaking’s own workforce

The undertaking may omit reporting for all datapoints in this Disclosure Requirement for the first year of preparation of its sustainability statement.

ESRS S1

S1-8

Collective bargaining coverage and social dialogue

The undertaking may omit this Disclosure Requirement with regard to its own employees in non-EEA countries for the first year of preparation of its sustainability statement.

ESRS S1

S1-11

Social protection

The undertaking may omit the information prescribed by ESRS S1-11 for the first year of preparation of its sustainability statement.

ESRS S1

S1-12

Percentage of employees with disabilities

The undertaking may omit the information prescribed by ESRS S1-12 for the first year of preparation of its sustainability statement.

ESRS S1

S1-13

Training and skills development

The undertaking may omit the information prescribed by ESRS S1-13 for the first year of preparation of its sustainability statement.

ESRS S1

S1-14

Health and safety

The undertaking may omit the data points on cases of work-related ill-health and on number of days lost to injuries, accidents, fatalities and work-related ill health for the first year of preparation of its sustainability statement.

ESRS S1

S1-14

Health and safety

The undertaking may omit reporting on non-employees for the first year of preparation of its sustainability statement.

ESRS S1

S1-15

Work-life balance

The undertaking may omit the information prescribed by ESRS S1-15 for the first year of preparation of its sustainability statement.

ESRS S2

All disclosure requirements

All disclosure requirements

Undertakings or groups not exceeding on their balance sheet dates the average number of 750 employees during the financial year (on a consolidated basis where applicable) may omit the information specified in the disclosure requirements of ESRS S2 for the first 2 years of preparation of their sustainability statement.

ESRS S3

All disclosure requirements

All disclosure requirements

Undertakings or groups not exceeding on their balance sheet dates the average number of 750 employees during the financial year (on a consolidated basis where applicable) may omit the information specified in the disclosure requirements of ESRS S3 for the first 2 years of preparation of their sustainability statement.

ESRS S4

All disclosure requirements

All disclosure requirements

Undertakings or groups not exceeding on their balance sheet dates the average number of 750 employees during the financial year (on a consolidated basis where applicable) may omit the information specified in the disclosure requirements of ESRS S4 for the first 2 years of preparation of their sustainability statement.

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.

Part of the management report

ESRS codification

Title

1. General information

ESRS 2

General disclosures, including information provided under the Application Requirements of topical ESRS listed in ESRS 2 Appendix C.

2. Environmental information

 Not applicable

Disclosures pursuant to Article 8 of Regulation (EU) 2020/852 (Taxonomy Regulation)

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

3. Social information

ESRS S1

Own workforce

ESRS S2

Workers in the value chain

ESRS S3

Affected communities

ESRS S4

Consumers and end-users

4. Governance information

ESRS G1

Business conduct

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)).

The undertaking can omit all disclosure requirements of the topical standard. But shall in case of ESRS E1 Climate change, disclose a detailed explanation of why climate change is not material and may disclose a brief explanation in the case of other topical standards (ESRS1 32)

Yes

The undertaking shall disclose the information required by the DP (ESRS1 para 34 (a))

Is the individual Data Point (DP) material?

Has the undertaking established policies, taken actions or set targets for the topic?

For metrics

Is the Disclosure Requirement (DR) material?

Yes

No

No

Yes

Is the topic covered by a topical standard material?

Perform the impact and financial materiality assessment (informed by the table in AR 16 in Appendix A)

The undertaking shall disclose this to be the case and may report a timeframe in which it aims to have these in place (ESRS1 33)

Yes

The undertaking does not have to disclose the DRs or related Data Points (DP)

No

The undertaking does not have to disclose the Data Point (ESRS1 para 34 (b))

No

Disclose the Data Points from the topical standard in conjunction with the relevant DRs of ESRS 2 (see ESRS 2 Appendix C).

Disclosures pursuant to Article 8 of the taxonomy

regulation

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.

CORE ELEMENTS OF DUE DILIGENCE

PARAGRAPHS IN THE SUSTAINABILITY STATEMENT

a) Embedding due diligence in governance, strategy and business model

b) Engaging with affected stakeholders in all key steps of the due diligence

c) Identifying and assessing adverse impacts

d) Taking actions to address those adverse impacts

e) Tracking the effectiveness of these efforts and communicating

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.

Disclosure Requirement and related datapoint

SFDR 23  reference

Pillar 3 24  reference

Benchmark Regulation 25 reference

EU

Climate Law 26  reference

ESRS 2 GOV-1

Board's gender diversity

paragraph 21 (d)

Indicator number 13 of Table #1 of Annex 1

Commission Delegated Regulation (EU) 2020/1816 27 , Annex II

ESRS 2 GOV-1

Percentage of board members who are independent paragraph 21 (e)

Delegated Regulation (EU) 2020/1816, Annex II

ESRS 2 GOV-4

Statement on due

diligence

paragraph 30

Indicator number 10 Table #3 of Annex 1

ESRS 2 SBM-1

Involvement in activities

related to fossil fuel

activities

paragraph 40 (d) i

Indicators number 4 Table

#1 of Annex 1

Article 449a Regulation (EU) No 575/2013;

Commission Implementing Regulation (EU) 2022/2453 28 Table 1: Qualitative information on Environmental risk and Table 2: Qualitative information on Social risk

Delegated Regulation (EU) 2020/1816, Annex II

ESRS 2 SBM-1

Involvement in activities

related to chemical

production

paragraph 40 (d) ii

Indicator number 9 Table #2 of Annex 1

Delegated Regulation (EU) 2020/1816, Annex II

ESRS 2 SBM-1

Involvement in activities related to controversial

weapons

paragraph 40 (d) iii

Indicator number 14 Table #1 of Annex 1

Delegated Regulation (EU) 2020/1818 29 , Article 12(1) Delegated Regulation (EU) 2020/1816, Annex II

ESRS 2 SBM-1

Involvement in activities

related to cultivation

and production of

tobacco

paragraph 40 (d) iv

Delegated Regulation (EU) 2020/1818, Article 12(1) Delegated Regulation (EU) 2020/1816, Annex II

ESRS E1-1

Transition plan to reach climate neutrality by 2050

paragraph 14

Regulation (EU) 2021/1119, Article 2(1)

ESRS E1-1

Undertakings excluded

from Paris-aligned

Benchmarks

paragraph 16 (g)

Article 449a

Regulation (EU) No 575/2013; Commission Implementing Regulation (EU) 2022/2453 Template 1: Banking book-Climate Change transition risk: Credit quality of exposures by sector, emissions and residual maturity

Delegated Regulation (EU) 2020/1818, Article12.1 (d) to (g), and Article 12.2

ESRS E1-4

GHG emission

reduction targets

paragraph 34

Indicator number 4 Table #2 of Annex 1

Article 449a

Regulation (EU) No 575/2013; Commission Implementing Regulation (EU) 2022/2453 Template 3: Banking book – Climate change transition risk: alignment metrics

Delegated Regulation (EU) 2020/1818, Article 6

ESRS E1-5

Energy consumption from fossil

sources disaggregated

by sources (only high

climate impact sectors)

paragraph 38

Indicator number 5 Table #1 and Indicator n. 5 Table #2 of Annex 1

ESRS E1-5 Energy

consumption and mix paragraph 37

Indicator number 5 Table #1 of Annex 1

ESRS E1-5

Energy intensity

associated with

activities in high climate

impact sectors

paragraphs 40 to 43

Indicator number 6 Table #1 of Annex 1

ESRS E1-6

Gross Scope 1, 2, 3

and Total GHG

emissions

paragraph 44

Indicators number 1 and 2 Table #1 of Annex 1

Article 449a; Regulation (EU) No 575/2013; Commission Implementing Regulation (EU) 2022/2453 Template 1: Banking book – Climate change transition risk: Credit quality of exposures by sector, emissions and residual maturity

Delegated Regulation (EU) 2020/1818, Article 5(1), 6 and 8(1)

ESRS E1-6

Gross GHG emissions

intensity

paragraphs 53 to 55

Indicators number 3 Table

#1 of Annex 1

Article 449a Regulation (EU) No 575/2013; Commission Implementing Regulation (EU) 2022/2453 Template 3: Banking book – Climate change transition risk: alignment metrics

Delegated Regulation (EU) 2020/1818, Article 8(1)

ESRS E1-7

GHG removals and

carbon credits

paragraph 56

Regulation (EU) 2021/1119, Article 2(1)

ESRS E1-9

Exposure of the

benchmark portfolio to

climate-related physical

risks

paragraph 66

Delegated Regulation (EU) 2020/1818, Annex II Delegated Regulation (EU) 2020/1816, Annex II

ESRS E1-9

Disaggregation of monetary amounts by acute and chronic physical risk paragraph 66 (a)

ESRS E1-9

Location of significant

assets at material

physical risk

paragraph 66 (c).

Article 449a Regulation (EU) No 575/2013; Commission Implementing Regulation (EU) 2022/2453 paragraphs 46 and 47; Template 5: Banking book - Climate change physical risk: Exposures subject to physical risk.

ESRS E1-9 Breakdown

of the carrying value of

its real estate assets by energy-efficiency

classes

paragraph 67 (c).

Article 449a Regulation (EU) No 575/2013; Commission Implementing Regulation (EU) 2022/2453 paragraph 34;Template 2:Banking book -Climate change transition risk: Loans collateralised by immovable property - Energy efficiency of the collateral

ESRS E1-9

Degree of exposure of

the portfolio to climate-

related opportunities

paragraph 69

Delegated Regulation (EU) 2020/1818, Annex II

ESRS E2-4

Amount of each pollutant listed in Annex II of the E-PRTR Regulation (European Pollutant Release and Transfer Register) emitted to air, water and soil, paragraph 28

Indicator number 8 Table #1 of Annex 1 Indicator number 2 Table #2 of Annex 1 Indicator number 1 Table #2 of Annex 1 Indicator number 3 Table #2 of Annex 1

ESRS E3-1

Water and marine resources paragraph 9

Indicator number 7 Table #2 of Annex 1

ESRS E3-1

Dedicated policy paragraph 13

Indicator number 8 Table 2 of Annex 1

ESRS E3-1

Sustainable oceans and seas

paragraph 14

Indicator number 12 Table #2 of Annex 1

ESRS E3-4

Total water recycled and reused paragraph 28 (c)

Indicator number 6.2 Table #2 of Annex 1

ESRS E3-4

Total water consumption in m3 per net revenue on own operations

paragraph 29

Indicator number 6.1 Table #2 of Annex 1

ESRS 2- IRO 1 - E4

paragraph 16 (a) i

Indicator number 7 Table #1 of Annex 1

ESRS 2- IRO 1 - E4

paragraph 16 (b)

Indicator number 10 Table #2 of Annex 1

ESRS 2- IRO 1 - E4

paragraph 16 (c)

Indicator number 14 Table #2 of Annex 1

ESRS E4-2

Sustainable land / agriculture practices or policies

paragraph 24 (b)

Indicator number 11 Table #2 of Annex 1

ESRS E4-2

Sustainable oceans / seas practices or policies

paragraph 24 (c)

Indicator number 12 Table #2 of Annex 1

ESRS E4-2

Policies to address deforestation paragraph 24 (d)

Indicator number 15 Table #2 of Annex 1

ESRS E5-5

Non-recycled waste paragraph 37 (d)

Indicator number 13 Table #2 of Annex 1

ESRS E5-5

Hazardous waste and radioactive waste paragraph 39

Indicator number 9 Table #1 of Annex 1

ESRS 2- SBM3 - S1

Risk of incidents of forced labour paragraph 14 (f)

Indicator number 13 Table #3 of Annex I

ESRS 2- SBM3 - S1

Risk of incidents of child labour

paragraph 14 (g)

Indicator number 12 Table #3 of Annex I

ESRS S1-1

Human rights policy commitments

paragraph 20

Indicator number 9 Table #3 and Indicator number 11 Table #1 of Annex I

ESRS S1-1

Due diligence policies on issues addressed by the fundamental International Labor Organisation Conventions 1 to 8,

paragraph 21

Delegated Regulation (EU) 2020/1816, Annex II

ESRS S1-1

processes and measures for preventing trafficking in human beings

paragraph 22

Indicator number 11 Table #3 of Annex I

ESRS S1-1

workplace accident prevention policy or management system paragraph 23

Indicator number 1 Table #3 of Annex I

ESRS S1-3

grievance/complaints handling mechanisms paragraph 32 (c)

Indicator number 5 Table #3 of Annex I

ESRS S1-14

Number of fatalities and number and rate of work-related accidents paragraph 88 (b) and (c)

Indicator number 2 Table #3 of Annex I

Delegated Regulation (EU) 2020/1816, Annex II

ESRS S1-14

Number of days lost to injuries, accidents, fatalities or illness

paragraph 88 (e)

Indicator number 3 Table #3 of Annex I

ESRS S1-16

Unadjusted gender pay gap

paragraph 97 (a)

Indicator number 12 Table #1 of Annex I

Delegated Regulation (EU) 2020/1816, Annex II

ESRS S1-16

Excessive CEO pay ratio

paragraph 97 (b)

Indicator number 8 Table #3 of Annex I

ESRS S1-17

Incidents of discrimination paragraph 103 (a)

Indicator number 7 Table #3 of Annex I

ESRS S1-17 Non-respect of UNGPs on Business and Human Rights and OECD

paragraph 104 (a)

Indicator number 10 Table #1 and Indicator n. 14 Table #3 of Annex I

Delegated Regulation (EU) 2020/1816, Annex II Delegated Regulation (EU) 2020/1818 Art 12 (1)

ESRS 2- SBM3 – S2

Significant risk of child labour or forced labour in the value chain paragraph 11 (b)

Indicators number 12 and n. 13 Table #3 of Annex I

ESRS S2-1

Human rights policy commitments

paragraph 17

Indicator number 9 Table #3 and Indicator n. 11 Table #1 of Annex 1

ESRS S2-1 Policies related to value chain workers

paragraph 18

Indicator number 11 and n. 4 Table #3 of Annex 1

ESRS S2-1Non-respect of UNGPs on Business and Human Rights principles and OECD guidelines

paragraph 19

Indicator number 10 Table #1 of Annex 1

Delegated Regulation (EU) 2020/1816, Annex II Delegated Regulation (EU) 2020/1818, Art 12 (1)

ESRS S2-1

Due diligence policies on issues addressed by the fundamental International Labor Organisation Conventions 1 to 8,

paragraph 19

Delegated Regulation (EU) 2020/1816, Annex II

ESRS S2-4

Human rights issues and incidents connected to its upstream and downstream value chain

paragraph 36

Indicator number 14 Table #3 of Annex 1

ESRS S3-1

Human rights policy commitments paragraph 16

Indicator number 9 Table #3 of Annex 1 and Indicator number 11 Table #1 of Annex 1

ESRS S3-1

non-respect of UNGPs on Business and Human Rights, ILO principles or and OECD guidelines

paragraph 17

Indicator number 10 Table #1 Annex 1

Delegated Regulation (EU) 2020/1816, Annex II Delegated Regulation (EU) 2020/1818, Art 12 (1)

ESRS S3-4

Human rights issues and incidents paragraph 36

Indicator number 14 Table #3 of Annex 1

ESRS S4-1 Policies related to consumers and end-users paragraph 16

Indicator number 9 Table #3 and Indicator number 11 Table #1 of Annex 1

ESRS S4-1

Non-respect of UNGPs on Business and Human Rights and OECD guidelines

paragraph 17

Indicator number 10 Table #1 of Annex 1

Delegated Regulation (EU) 2020/1816, Annex II Delegated Regulation (EU) 2020/1818, Art 12 (1)

ESRS S4-4

Human rights issues and incidents paragraph 35

Indicator number 14 Table #3 of Annex 1

ESRS G1-1

United Nations Convention against Corruption paragraph 10 (b)

Indicator number 15 Table #3 of Annex 1

ESRS G1-1

Protection of whistle- blowers

paragraph 10 (d)

Indicator number 6 Table #3 of Annex 1

ESRS G1-4

Fines for violation of anti-corruption and anti-bribery laws paragraph 24 (a)

Indicator number 17 Table #3 of Annex 1

Delegated Regulation (EU) 2020/1816, Annex II)

ESRS G1-4

Standards of anti- corruption and anti- bribery

paragraph 24 (b)

Indicator number 16 Table #3 of Annex 1

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 2 Disclosure

Requirement

Related ESRS paragraph

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

ESRS G1 Business conduct (paragraph 5)

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

ESRS E1 Climate change (paragraph 13)

SBM–2 Interests and views of stakeholders

ESRS S1 Own workforce (paragraph 12)

ESRS S2 Workers in the value chain (paragraph 9)

ESRS S3 Affected communities (paragraph 7)

ESRS S4 Consumers and end-users (paragraph 8)

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

ESRS E1 Climate Change (paragraphs 18 to 19)

ESRS E4 Biodiversity and ecosystems (paragraph 16)

ESRS S1 Own workforce (paragraph 13 to 16)

ESRS S2 Workers in the value chain (paragraph 10 to 13)

ESRS S3 Affected communities (paragraph 8 to 11)

ESRS S4 Consumers and end-users (paragraph 9 to 12)

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

ESRS E1 Climate change (paragraph 20 to 21)

ESRS E2 Pollution (paragraph 11)

ESRS E3 Water and marine resources (paragraph 8)

ESRS E4 Biodiversity and ecosystems (paragraph 17 to 19)

ESRS E5 Resource use and circular economy (paragraph 11)

ESRS G1 Business conduct (paragraph 6)

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

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.The undertaking shall disclose its climate change mitigation and adaptation actions and the resources allocated for their implementation.

27.The objective of this Disclosure Requirement is to provide an understanding of the key actions taken and planned to achieve climate-related policy objectives and targets.

28.The description of the actions and resources related to climate change mitigation and adaptation shall follow the principles stated in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.

29.In addition to ESRS 2 MDR-A, the undertaking shall:

(a)when listing key actions taken in the reporting year and planned for the future, present the climate change mitigation actions by decarbonisation lever including the nature- based solutions;

(b)when describing the outcome of the actions for climate change mitigation, include the achieved and expected GHG emission reductions; and

(c)relate significant monetary amounts of CapEx and OpEx required to implement the actions taken or planned to:

I.the relevant line items or notes in the financial statements;

II.the key performance indicators required under Commission Delegated Regulation (EU) 2021/2178; and

III.if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178.

Metrics and targets

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

30.The undertaking shall disclose the climate-related targets it has set.

31.The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has set to support its climate change mitigation and adaptation policies and address its material climate-related impacts, risks and opportunities.

32.The disclosure of the targets required in paragraph 30 shall contain the information required in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.

33.For the disclosure required by paragraph 30, the undertaking shall disclose whether and how it has set GHG emissions reduction targets and/or any other targets to manage material climate-related impacts, risks and opportunities, for example, renewable energy deployment, energy efficiency, climate change adaptation, and physical or transition risk mitigation.

34.If the undertaking has set GHG emission reduction targets 39 , ESRS 2 MDR-T and the following requirements shall apply:

(a)GHG emission reduction targets shall be disclosed in absolute value (either in tonnes of CO2eq or as a percentage of the emissions of a base year) and, where relevant, in intensity value;

(b)GHG emission reduction targets shall be disclosed for Scope 1, 2, and 3 GHG emissions, either separately or combined. The undertaking shall specify, in case of combined GHG emission reduction targets, which GHG emission Scopes (1, 2 and/or 3) are covered by the target, the share related to each respective GHG emission Scope and which GHGs are covered. The undertaking shall explain how the consistency of these targets with its GHG inventory boundaries is ensured (as required by Disclosure Requirement E1-6). The GHG emission reduction targets shall be gross targets, meaning that the undertaking shall not include GHG removals, carbon credits or avoided emissions as a means of achieving the GHG emission reduction targets;

(c)the undertaking shall disclose its current base year and baseline value, and from 2030 onwards, update the base year for its GHG emission reduction targets after every five-year period thereafter. The undertaking may disclose the past progress made in meeting its targets before its current base year provided that this information is consistent with the requirements of this Standard;

(d)GHG emission reduction targets shall at least include target values for the year 2030 and, if available, for the year 2050. From 2030, target values shall be set after every 5-year period thereafter;

(e)the undertaking shall state whether the GHG emission reduction targets are science- based and compatible with limiting global warming to 1.5°C. The undertaking shall state which framework and methodology has been used to determine these targets including whether they are derived using a sectoral decarbonisation pathway and what the underlying climate and policy scenarios are and whether the targets have been externally assured. As part of the critical assumptions for setting GHG emission reduction targets, the undertaking shall briefly explain how it has considered future developments (e.g., changes in sales volumes, shifts in customer preferences and demand, regulatory factors, and new technologies) and how these will potentially impact both its GHG emissions and emissions reductions; and

(f)the undertaking shall describe the expected decarbonisation levers and their overall quantitative contributions to achieve the GHG emission reduction targets (e.g., energy or material efficiency and consumption reduction, fuel switching, use of renewable energy, phase out or substitution of product and process).

Disclosure Requirement E1-5 – Energy consumption and mix

35.The undertaking shall provide information on its energy consumption and mix.

36.The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s total energy consumption in absolute value, improvement in energy efficiency, exposure to coal, oil and gas-related activities, and the share of renewable energy in its overall energy mix.

37.The disclosure required by paragraph 35 shall include the total energy consumption in MWh related to own operations disaggregated by:

(a)total energy consumption from fossil sources 40 ;

(b)total energy consumption from nuclear sources;

(c)total energy consumption from renewable sources disaggregated by:

I.fuel consumption for renewable sources including biomass (also comprising industrial and municipal waste of biologic origin), biofuels, biogas, hydrogen from renewable sources 41 , etc.;

II.consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources; and

III.consumption of self-generated non-fuel renewable energy.

38.The undertaking with operations in high climate impact sectors 42 shall further disaggregate their total energy consumption from fossil sources by:

(a)fuel consumption from coal and coal products;

(b)fuel consumption from crude oil and petroleum products;

(c)fuel consumption from natural gas;

(d)fuel consumption from other fossil sources;

(e)consumption of purchased or acquired electricity, heat, steam, or cooling from fossil sources;

39.In addition, where applicable, the undertaking shall disaggregate and disclose separately its non-renewable energy production and renewable energy production in MWh. 43

Energy intensity based on net revenue 44

40.The undertaking shall provide information on the energy intensity (total energy consumption per net revenue) associated with activities in high climate impact sectors.

41.The disclosure on energy intensity required by paragraph 40 shall only be derived from the total energy consumption and net revenue from activities in high climate impact sectors.

42.The undertaking shall specify the high climate impact sectors that are used to determine the energy intensity required by paragraph 40.

43.The undertaking shall disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amount from activities in high climate impact sectors (the denominator in the calculation of the energy intensity required by paragraph 40).

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

44.The undertaking shall disclose in metric tonnes of CO2eq its 45 :

(a)gross Scope 1 GHG emissions;

(b)gross Scope 2 GHG emissions;

(c)gross Scope 3 GHG emissions; and

(d)total GHG emissions.

45.The objective of the Disclosure Requirement in paragraph 44 in respect of:

(a)gross Scope 1 GHG emissions as required by paragraph 44 (a) is to provide an understanding of the direct impacts of the undertaking on climate change and the proportion of its total GHG emissions that are regulated under emission trading schemes.

(b)gross Scope 2 GHG emissions as required by paragraph 44 (b) is to provide an understanding of the indirect impacts on climate change caused by the undertaking’s consumed energy whether externally purchased or acquired.

(c)gross Scope 3 GHG emissions as required by paragraph 44 (c) is to provide an understanding of the GHG emissions that occur in the undertaking’s upstream and downstream value chain beyond its Scope 1 and 2 GHG emissions. For many undertakings, Scope 3 GHG emissions may be the main component of their GHG inventory and are an important driver of the undertaking’s transition risks.

(d)total GHG emissions as required by paragraph 44 (d) is to provide an overall understanding of the undertaking’s GHG emissions and whether they occur from its own operations or the usptream and donwstream value chain. This disclosure is a prerequisite for measuring progress towards reducing GHG emissions in accordance with the undertaking’s climate-related targets and EU policy goals.

The information from this Disclosure Requirement is also needed to understand the undertaking’s climate-related transition risks.

46.When disclosing the information on GHG emissions required under paragraph 44, the undertaking shall refer to ESRS 1 paragraphs from 62 to 67. In principle, the data on GHG emissions of its associates or joint ventures that are part of the undertaking’s upstream and downstream value chain (ESRS 1 Paragraph 67) are not limited to the share of equity held.  For its associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements that are joint arrangements not structured through an entity (i.e., jointly controlled operations and assets), the undertaking shall include the GHG emissions in accordance with the extent of the undertaking’s operational control over them.

47.In case of significant changes in the definition of what constitutes the reporting undertaking and its upstream and downstream value chain, the undertaking shall disclose these changes and explain their effect on the year-to-year comparability of its reported GHG emissions (i.e., the effect on the comparability of current versus previous reporting period GHG emissions).

48.The disclosure on gross Scope 1 GHG emissions required by paragraph 44 (a) shall include:

(a)the gross Scope 1 GHG emissions in metric tonnes of CO2eq; and

(b)the percentage of Scope 1 GHG emissions from regulated emission trading schemes.

49.The disclosure on gross Scope 2 GHG emissions required by paragraph 44 (b) shall include:

(a)the gross location-based Scope 2 GHG emissions in metric tonnes of CO2eq; and

(b)the gross market-based Scope 2 GHG emissions in metric tonnes of CO2eq.

50.For Scope 1 and Scope 2 emissions disclosed as required by paragraphs 44 (a) and (b) the undertaking shall disaggregate the information, separately disclosing emissions from:

(a)the consolidated accounting group (the parent and subsidiaries); and

(b)investees such as associates, joint ventures, or unconsolidated subsidiaries that are not fully consolidated in the financial statements of the consolidated accounting group, as well as contractual arrangements that are joint arrangements not structured through an entity (i.e., jointly controlled operations and assets), for which it has operational control.

51.The disclosure of gross Scope 3 GHG emissions required by paragraph 44 (c) shall include GHG emissions in metric tonnes of CO2eq from each significant Scope 3 category (i.e. each Scope 3 category that is a priority for the undertaking) .

52.The disclosure of total GHG emissions required by paragraph 44 (d) shall be the sum of Scope 1, 2 and 3 GHG emissions required by paragraphs 44 (a) to (c). The total GHG emissions shall be disclosed with a disaggregation that makes a distinction of:

(a)the total GHG emissions derived from the underlying Scope 2 GHG emissions being measured using the location-based method; and

(b)the total GHG emissions derived from the underlying Scope 2 GHG emissions being measured using the market-based method.

GHG Intensity based on net revenue 46

53.The undertaking shall disclose its GHG emissions intensity (total GHG emissions per net revenue).

54.The disclosure on GHG intensity required by paragraph 53 shall provide the total GHG emissions in metric tonnes of CO2eq (required by paragraph 44 (d)) per net revenue.

55.The undertaking shall disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amounts (the denominator in the calculation of the GHG emissions intensity required by paragraph 53).

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

56.The undertaking shall disclose:

(a)GHG removals and storage in metric tonnes of CO2eq resulting from projects it may have developed in its own operations, or contributed to in its upstream and downstream value chain; and

(b)the amount of GHG emission reductions or removals from climate change mitigation projects outside its value chain it has financed or intends to finance through any purchase of carbon credits.

57.The objective of this Disclosure Requirement is:

(a)to provide an understanding of the undertaking’s actions to permanently remove or actively support the removal of GHG from the atmosphere, potentially for achieving net-zero targets (as stated in paragraph 60).

(b)to provide an understanding of the extent and quality of carbon credits the undertaking has purchased or intends to purchase from the voluntary market, potentially for supporting its GHG neutrality claims (as stated in paragraph 61).

58.The disclosure on GHG removals and storage required by paragraph 56 (a) shall include, if applicable:

(a)the total amount of GHG removals and storage in metric tonnes of CO2eq disaggregated and separately disclosed for the amount related to the undertaking’s own operations and its upstream and donwstream value chain, and broken down by removal activity; and

(b)the calculation assumptions, methodologies and frameworks applied by the undertaking.

59.The disclosure on carbon credits required by paragraph 56 (b) shall include, if applicable:

(a)the total amount of carbon credits outside the undertaking’s value chain in metric tonnes of CO2eq that are verified against recognised quality standards and cancelled in the reporting period; and

(b)the total amount of carbon credits outside the undertaking’s value chain in metric tonnes of CO2eq planned to be cancelled in the future and whether they are based on existing contractual agreements or not.

60.In the case where the undertaking discloses a net-zero target in addition to the gross GHG emission reduction targets in accordance with Disclosure Requirement E1-4, paragraph 30, it shall explain the scope, methodologies and frameworks applied and how the residual GHG emissions (after approximately 90-95% of GHG emission reduction with the possibility for justified sectoral variations in line with a recognised sectoral decarbonisation pathway) are intended to be neutralised by, for example, GHG removals in its own operations and upstream and donwstream value chain.

61.In the case where the undertaking may have made public claims of GHG neutrality that involve the use of carbon credits, it shall explain:

(a)whether and how these claims are accompanied by GHG emission reduction targets as required by Disclosure requirement ESRS E1-4;

(b)whether and how these claims and the reliance on carbon credits neither impede nor reduce the achievement of its GHG emission reduction targets 47 , or, if applicable, its net zero target; and

(c)the credibility and integrity of the carbon credits used, including by reference to recognised quality standards.

Disclosure Requirement E1-8 – Internal carbon pricing

62.The undertaking shall disclose whether it applies internal carbon pricing schemes, and if so, how they support its decision making and incentivise the implementation of climate-related policies and targets.

63.The information required in paragraph 62 shall include:

(a)the type of internal carbon pricing scheme, for example, the shadow prices applied for CapEX or research and development (R&D) investment decision making, internal carbon fees or internal carbon funds;

(b)the specific scope of application of the carbon pricing schemes (activities, geographies, entities, etc.);

(c)the carbon prices applied according to the type of scheme and critical assumptions made to determine the prices, including the source of the applied carbon prices and why these are deemed relevant for their chosen application. The undertaking may disclose the calculation methodology of the carbon prices including the extent to which these have been set using scientific guidance and how their future development is related to science-based carbon pricing trajectories; and

(d)the current year approximate gross GHG emission volumes by Scopes 1, 2 and, where applicable, Scope 3 in metric tonnes of CO2eq covered by these schemes, as well as their share of the undertaking’s overall GHG emissions for each respective Scope.

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

64.The undertaking shall disclose its:

(a)anticipated financial effects from material physical risks;

(b)anticipated financial effects from material transition risks; and

(c)potential to benefit from material climate-related opportunities.

65.The information required by paragraph 64 is in addition to the information on current  financial effects required under ESRS 2 SBM-3 para 48 (d). The objective of this Disclosure Requirement related to:

(a)anticipated financial effects due to material physical risks and transition risks is to provide an understanding of how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance and cash flows, over the short-, medium- and long- term.  The results of scenario analysis used to conduct resilience analysis as required under paragraphs AR 10 to AR 13 should inform the assessment of anticipated financial effects from material physical and transition risks.

(b)potential to pursue material climate-related opportunities is to enable an understanding of how the undertaking may financially benefit from material climate- related opportunities. This disclosure is complementary to the key performance indicators to be disclosed in accordance with Commission Delegated Regulation (EU) 2021/2178.

66.The disclosure of anticipated financial effects from material physical risks required by paragraph 64 (a) shall include 48 :

(a)the monetary amount and proportion (percentage) of assets at material physical risk over the short-, medium- and long-term before considering climate change adaptation actions; with the monetary amounts of these assets disaggregated by acute and chronic physical risk 49 ;

(b)the proportion of assets at material physical risk addressed by the climate change adaptation actions;

(c)the location of significant assets at material physical risk 50 ; and

(d)the monetary amount and proportion (percentage) of net revenue from its business activities at material physical risk over the short-, medium- and long-term.

67.The disclosure of anticipated financial effects from material transition risks required by paragraph 64 (b) shall include:

(a)the monetary amount and proportion (percentage) of assets at material transition risk over the short-, medium- and long-term before considering climate mitigation actions;

(b)the proportion of assets at material transition risk addressed by the climate change mitigation actions;

(c)a breakdown of the carrying value of the undertaking’s real estate assets by energy-efficiency classes 51 ;

(d)liabilities that may have to be recognised in financial statements over the short-, medium- and long-term; and

(e)the monetary amount and proportion (percentage) of net revenue from its business activities at material transition risk over the short-, medium- and long-term including, where relevant, the net revenue from the undertaking’s customers operating in coal, oil and gas-related activities.

68.The undertaking shall disclose reconciliations to the relevant line items or notes in the financial statements of the following:

(a)significant amounts of the assets and net revenue at material physical risk (as required by paragraph 66);

(b)significant amounts of the assets, liabilities, and net revenue at material transition risk (as required by paragraph 67).

69.For the disclosure of the potential to pursue climate-related opportunities required by paragraph 64 (c) the undertaking shall consider 52 :

(a)its expected cost savings from climate change mitigation and adaptation actions; and

(b)the potential market size or expected changes to net revenue from low-carbon products and services or adaptation solutions to which the undertaking has or may have access.

70.A quantification of the financial effects that arise from opportunities is not required if such a disclosure does not meet the qualitative characteristics of useful information included under ESRS 1 Appendix B Qualitative characteristics of information.

Appendix A: Application Requirements

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

Strategy

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

AR 1.A transition plan relates to the undertaking’s efforts in climate change mitigation. When disclosing its transition plan, the undertaking is expected to provide a high-level explanation of how it will adjust its strategy and business model to ensure compatibility with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement (or an updated inter   national agreement on climate change) and the objective of achieving climate neutrality by 2050 with no or limited overshoot as established in Regulation (EU) 2021/1119 (European Climate Law), and where applicable, how it will adjust its exposure to coal, and oil and gas-related activities.

AR 2.Sectoral pathways have not yet been defined by the public policies for all sectors. Hence, the disclosure under paragraph 16 (a) on the compatibility of the transition plan with the objective of limiting global warming to 1.5°C should be understood as the disclosure of the undertaking’s GHG emissions reduction target. The disclosure under paragraph 16 (a) shall be benchmarked in relation to a pathway to 1.5°C. This benchmark should be based on either a sectoral decarbonisation pathway if available for the undertaking’s sector or an economy-wide scenario bearing in mind its limitations (i.e., it is a simple translation of emission reduction objectives from the state to undertaking level). This AR should be read also in conjunction with AR 26 and AR 27 and the sectoral decarbonisation pathways they refer to.

AR 3.When disclosing the information required under paragraph 16(d) the undertaking may consider:

(a)the cumulative locked-in GHG emissions associated with key assets from the reporting year until 2030 and 2050 in tCO2eq. This will be assessed as the sum of the estimated Scopes 1 and 2 GHG emissions over the operating lifetime of the active and firmly planned key assets. Key assets are those owned or controlled by the undertaking, and they consist of existing or planned assets (such as stationary or mobile installations, facilities, and equipment) that are sources of either significant direct or energy-indirect GHG emissions. Firmly planned key assets are those that the undertaking will most likely deploy within the next 5 years.

(b)the cumulative locked-in GHG emissions associated with the direct use-phase GHG emissions of sold products in tCO2eq, assessed as the sales volume of products in the reporting year multiplied by the sum of estimated direct use-phase GHG emissions over their expected lifetime. This requirement only applies if the undertaking has identified the Scope 3 category “use of sold products” as significant under Disclosure Requirement E1-6 paragraph 51; and

(c)an explanation of the plans to manage, i.e., to transform, decommission or phase out its GHG-intensive and energy-intensive assets and products.

AR 4.When disclosing the information required under paragraph 16 (e), the undertaking shall explain how the alignment of its economic activities with the provisions of Commission Delegated Regulation (EU) 2021/2139 is expected to evolve over time to support its transition to a sustainable economy. In doing so, the undertaking shall take account of the key performance indicators required to be disclosed under Article 8 of Regulation (EU) 2020/852 (in particular taxonomy-aligned revenue and CapEx and, if applicable, CapEx plans).

AR 5.When disclosing the information required under paragraph 16 (f), the undertaking shall state whether or not it is excluded from the EU Paris-aligned Benchmarks in accordance with the exclusion criteria stated in Articles 12.1 (d) to (g) 53  and 12.2 of Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Standards Regulation) 54 .

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

AR 6.When disclosing the information on the scope of the resilience analysis as required under paragraph 19 (a), the undertaking shall explain which part of its own operations and upstream and downstream value chain as well as which material physical risks and transition risks may have been excluded from the analysis.

AR 7.When disclosing the information on how the resilience analysis has been conducted as required under paragraph 19 (b), the undertaking shall explain:

(a)the critical assumptions about how the transition to a lower-carbon and resilient economy will affect its surrounding macroeconomic trends, energy consumption and mix, and technology deployment assumptions;

(b)the time horizons applied and their alignment with the climate and business scenarios considered for determining material physical and transition risks (paragraphs AR 11to AR 12) and setting GHG emissions reduction targets (reported under Disclosure Requirement E1-4); and

(c)how the estimated anticipated financial effects from material physical and transition risks (as required by Disclosure Requirement E1-9) as well as the mitigation actions and resources (disclosed under Disclosure Requirement E1-3) were considered.

AR 8.When disclosing the information on the results of the resilience analysis as required under paragraph 19 (c), the undertaking shall explain:

(a)the areas of uncertainties of the resilience analysis and to what extent the assets and business activities at risk are considered within the definition of the undertaking’s strategy, investment decisions, and current and planned mitigation actions;

(b)the ability of the undertaking to adjust or adapt its strategy and business model to climate change over the short-, medium- and long-term, including securing ongoing access to finance at an affordable cost of capital, the ability to redeploy, upgrade or decommission existing assets, shifting its products and services portfolio, or reskilling its workforce.

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

AR 9.When disclosing the information on the processes to identify and assess climate impacts as required under paragraph 20 (a), the undertaking shall explain how it has:

(a)screened its activities and plans in order to identify actual and potential future GHG emission sources and, if applicable, drivers for other climate-related impacts (e.g., emissions of black carbon or tropospheric ozone or land-use change) in own operations and along the value chain; and

(b)assessed its actual and potential impacts on climate change (i.e., its total GHG emissions).

AR 10.The undertaking may link the information disclosed under paragraphs 20 (a) and AR 9 to the information disclosed under the following Disclosure Requirements: Disclosure Requirement E1-1, paragraph 16 (d) on locked-in GHG emissions; Disclosure Requirement E1-4 and Disclosure Requirement E1-6.

AR 11.When disclosing the information on the processes to identify and assess physical risks as required under paragraph 20 (b), the undertaking shall explain whether and how:

(a)it has identified climate-related hazards (see table below) over the short-, medium- and long-term and screened whether its assets and business activities may be exposed to these hazards;

(b)it has defined short-, medium- and long-term time horizons and how these definitions are linked to the expected lifetime of its assets, strategic planning horizons and capital allocation plans;

(c)it has assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified climate-related hazards, taking into consideration the likelihood, magnitude and duration of the hazards as well as the geospatial coordinates (such as Nomenclature of Territorial Units of Statistics- NUTS for the EU territory) specific to the undertaking’s locations and supply chains; and

(d)the identification of climate-related hazards and the assessment of exposure and sensitivity are informed by high emissions climate scenarios, which may, for example, be based on IPCC SSP5-8.5, relevant regional climate projections based on these emission scenarios, or NGFS (Network for Greening the Financial System) climate scenarios with high physical risk such as “Hot house world” or “Too little, too late”. For general requirements regarding climate-related scenario analysis see paragraphs 18, 19, AR 13 to AR 15.

Classification of climate-related hazards

(Source: Commission delegated regulation (EU) 2021/2139)

Temperature-related

Wind-related

Water-related

Solid mass-

related

Chronic

Changing temperature (air, freshwater, marine water)

Changing wind patterns

Changing precipitation patterns and types (rain,

hail, snow/ice)

Coastal erosion

Heat stress

Precipitation or hydrological

variability

Soil degradation

 Temperature variability    

 Ocean acidification    

 Soil erosion    

 Permafrost thawing    

 Saline intrusion    

 Solifluction    

 Sea level rise    

 Water stress    

Acute

Heat wave

Cyclones, hurricanes,

typhoons

Drought

Avalanche

Cold wave/frost

Storms (including blizzards, dust, and

sandstorms)

Heavy precipitation (rain, hail, snow/ice)

Landslide

Wildfire

Tornado

Flood (coastal, fluvial,

pluvial, ground water)

Subsidence

 Glacial lake outburst    

AR 12.When disclosing the information on the processes to identify transition risks and opportunities as required under paragraph 20 (c), the undertaking shall explain whether and how it has:

(a)identified transition events (see the table with examples below) over the short-, medium- and long-term and screened whether its assets and business activities may be exposed to these events. In case of transition risks and opportunities, what is considered long-term may cover more than 10 years and may be aligned with climate-related public policy goals;

(b)assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified transition events, taking into consideration the likelihood, magnitude and duration of the transition events;

(c)informed the identification of transition events and the assessment of exposure by climate-related scenario analysis, considering at least a scenario consistent with the Paris Agreement and limiting climate change to 1.5°C, for example, based on scenarios of the International Energy Agency (Net zero Emissions by 2050, Sustainable Development Scenario, etc), or NGFS (Network for Greening the Financial System) climate scenarios. For the general requirements related to climate-related scenario analysis see paragraphs 18, 19, AR 13 to AR 15; and

(d)identified assets and business activities that are incompatible with or need significant efforts to be compatible with a transition to a climate-neutral economy (for example, due to significant locked-in GHG emissions or incompatibility with the requirements for Taxonomy-alignment under Commission Delegated Regulation (EU) 2021/2139).

Examples of climate-related transition events (examples based on TCFD classification)

Policy and legal

Technology

Market

Reputation

Increased pricing of GHG emissions

Substitution of existing products and services with lower emissions options

Changing customer behaviour

Shifts in consumer preferences

Enhanced emissions- reporting obligations

Unsuccessful investment in new technologies

Uncertainty in market signals

Stigmatization of sector

Mandates on and regulation of existing products and services

Costs of transition to lower emissions technology

Increased cost of raw materials

Increased stakeholder concern

Mandates on and regulation of existing production processes

Negative stakeholder feedback

Exposure to litigation

Climate-related scenario analysis

AR 13.When disclosing the information required under paragraphs 19, 20, 21, AR 10 and AR 11, the undertaking shall explain how it has used climate-related scenario analysis that is commensurate to its circumstances to inform the identification and assessment of physical and transition risks and opportunities over the short-, medium- and long-term, including:

(a)which scenarios were used, their sources and alignment with state-of-the-art science;

(b)narratives, time horizons, and endpoints used with a discussion of why it believes the range of scenarios used covers its plausible risks and uncertainties;

(c)the key forces and drivers taken into consideration in each scenario and why these are relevant to the undertaking, for example, policy assumptions, macroeconomic trends, energy usage and mix, and technology assumptions; and

(d)key inputs and constraints of the scenarios, including their level of detail (e.g., whether the analysis of physical climate-related risks is based on geospatial coordinates specific to the undertaking’s locations or national- or regional-level broad data).

AR 14.When conducting scenario analysis, the undertaking may consider the following guidance: TCFD Technical Supplement on “The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities” (2017); TCFD “Guidance on Scenario Analysis for Non-Financial Companies” (2020); ISO 14091:2021 “Adaptation to climate change — Guidelines on vulnerability, impacts and risk assessment”; any other recognised industry standards such as NGFS (Network for Greening the Financial System); and EU, national, regional and local regulations.

AR 15.The undertaking shall briefly explain how the climate scenarios used are compatible with the critical climate-related assumptions made in the financial statements.

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

AR 16.Policies related to either climate change mitigation or climate adaptation may be disclosed separately as their objectives, people involved, actions and resources needed to implement them are different.

AR 17.Policies related to climate change mitigation address the management of the undertaking’s GHG emissions, GHG removals and transition risks over different time horizons, in its own operations and/or in the upstream and downstream value chain. The requirement under paragraph 14 may relate to stand-alone climate change mitigation policies as well as relevant policies on other matters that indirectly support climate change mitigation including training policies, procurement or supply chain policies, investment policies or product development policies.

AR 18.Policies related to climate change adaptation address the management of the undertaking’s physical climate risks and of its transition risks related to climate change adaptation. The requirement under paragraphs 22 and 25 may relate to stand-alone climate change adaptation policies as well as relevant policies on other matters that indirectly support climate change adaptation including training policies, and emergency or health and safety policies.

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

AR 19.When disclosing the information on actions as required under paragraphs 29 (a) and 29 (b), the undertaking may:

(a)disclose its key actions taken and/or plans to implement climate change mitigation and adaptation policies in its single or separate actions;

(b)aggregate types of mitigation actions (decarbonisation levers) such as energy efficiency, electrification, fuel switching, use of renewable energy, products change, and supply-chain decarbonisation that fit the undertakings' specific actions;

(c)disclose the list of key mitigation actions alongside the measurable targets (as required by Disclosure Requirement E1-4) with disaggregation by decarbonisation levers; and

(d)disclose the climate change adaptation actions by type of adaptation solution such as nature-based adaptation, engineering, or technological solutions.

AR 20.When disclosing the information on resources as required under paragraph 29 (c), the undertaking shall only disclose the significant OpEx and CapEx amounts required for the implementation of the actions as the purpose of this information is to demonstrate the credibility of its actions rather than to reconcile the disclosed amounts to the financial statements. The disclosed CapEx and OpEx amounts shall be the additions made to both tangible and intangible assets during the current financial year as well as the planned additions for future periods of implementing the actions. The disclosed amounts shall only be the incremental financial investments directly contributing to the achievement of the undertaking’s targets.

AR 21.In line with the requirements of ESRS 2 MDR-A, the undertaking shall explain if and to what extent its ability to implement the actions depends on the availability and allocation of resources. Ongoing access to finance at an affordable cost of capital can be critical for the implementation of the undertaking’s actions, which include its adjustments to supply/demand changes or its related acquisitions and significant research and development (R&D) investments.

AR 22.The amounts of OpEx and CapEx required for the implementation of the actions disclosed under paragraph 29 (c) shall be consistent with the key performance indicators (CapEx and OpEx key performance indicators) and, if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178. The undertaking shall explain any potential differences between the significant OpEx and CapEx amounts disclosed under this Standard and the key performance indicators disclosed under Commission Delegated Regulation (EU) 2021/2178 due to, for instance, the disclosure of non-eligible economic activities as defined in that delegated regulation. The undertaking may structure its actions by economic activity to compare its OpEx and CapEx, and if applicable its OpEx and/or CapEx plans to its Taxonomy-aligned key performance indicators.

Metrics and targets

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

AR 23.Under paragraph 34 (a), the undertaking may disclose GHG emission reduction targets in intensity value. Intensity targets are formulated as ratios of GHG emissions relative to a unit of physical activity or economic output. Relevant units of activity or output are referred to in ESRS sector-specific standards. In cases where the undertaking has only set a GHG intensity reduction target, it shall nevertheless disclose the associated absolute values for the target year and interim target year(s). This may result in a situation where an undertaking is required to disclose an increase of absolute GHG emissions for the target year and interim target year(s), for example because it anticipates organic growth of its business.

AR 24.When disclosing the information required under paragraph 34 (b), the undertaking shall specify the share of the target related to each respective GHG emission Scope (1, 2 or 3). The undertaking shall state the method used to calculate Scope 2 GHG emissions included in the target (i.e., either the location-based or market-based method). If the boundary of the GHG emission reduction target diverges from that of the GHG emissions reported under Disclosure Requirement E1-6, the undertaking shall disclose which gases are covered, the respective percentage of Scope 1, 2, 3 and total GHG emissions covered by the target. For the GHG emission reduction targets of its subsidiaries, the undertaking shall analogously apply these requirements at the level of the subsidiary.

AR 25.When disclosing the information required under paragraph 34(c) on base year and baseline value:

(a)the undertaking shall briefly explain how it has ensured that the baseline value against which the progress towards the target is measured is representative in terms of the activities covered and the influences from external factors (e.g., temperature anomalies in a certain year influencing the amount of energy consumption and related GHG emissions). This can be done by the normalisation of the baseline value, or, by using a baseline value that is derived from a 3-year average if this increases the representativeness and allows a more faithful representation;

(b)the baseline value and base year shall not be changed unless significant changes in either the target or reporting boundary occur. In such a case, the undertaking shall explain how the new baseline value affects the new target, its achievement and presentation of progress over time. To foster comparability, when setting new targets, the undertaking shall select a recent base year that does not precede the first reporting year of the new target period by longer than 3 years. For example, for 2030 as the target year and a target period between 2025 and 2030, the base year shall be selected from the period between 2022 and 2025;

(c)the undertaking shall update its base year from 2030 and after every 5-year period thereafter. This means that before 2030, the base years chosen by undertakings’ may be either the currently applied base year for existing targets or the first year of application of the sustainability reporting requirements as set out in Article 5(2) of Directive (EU) 2022/2464 (2024, 2025 or 2026) and, after 2030, every 5 years (2030, 2035, etc); and

(d)when presenting climate-related targets, the undertaking may disclose the progress in meeting these targets made before its current base year. In doing so, the undertaking shall, to the greatest extent possible, ensure that the information on past progress is consistent with the requirements of this Standard. In the case of methodological differences, for example, regarding target boundaries, the undertaking shall provide a brief explanation for these differences.

AR 26.When disclosing the information required under paragraphs 34 (d) and 34 (e), the undertaking shall present the information over the target period with reference to a sector- specific, if available, or a cross-sector emission pathway compatible with limiting global warming to 1.5°C. For this purpose, the undertaking shall calculate a 1.5°C aligned reference target value for Scope 1 and 2 (and, if applicable, a separate one for Scope 3) against which its own GHG emission reduction targets or interim targets in the respective Scopes can be compared.

AR 27.The reference target value may be calculated by multiplying the GHG emissions in the base year with either a sector-specific (sectoral decarbonisation methodology) or cross-sector (contraction methodology) emission reduction factor. These emission reduction factors can be derived from different sources. The undertaking should ensure that the source used is based on an emission reduction pathway compatible with limiting global warming to 1.5°C.

AR 28.The emission reduction factors are subject to further development. Consequently, undertakings are encouraged to only use updated publicly available information.

2030

2050

Cross-sector (ACA) reductions pathway

based on the year 2020 as the reference year

-42%

-90%

Source: based on Pathways to Net-zero –SBTi Technical Summary (Version 1.0, October 2021)

AR 29.The reference target value is dependent on the base year and baseline emissions of the undertaking’s GHG emission reduction target. As a result, the reference target value for undertakings with a recent base year or from higher baseline emissions may be less challenging to achieve than it will be for undertakings that have already taken ambitious past actions to reduce GHG emissions. Therefore, undertakings that have in the past achieved GHG emissions reductions compatible with either a 1.5°C-aligned cross-sector or sector-specific pathway, may adjust their baseline emissions accordingly to determine the reference target value. Accordingly, if the undertaking is adjusting the baseline emissions to determine the reference target value, it shall not consider GHG emission reductions that precede the year 2020 and it shall provide appropriate evidence of its past achieved GHG emission reduction.

AR 30.When disclosing the information required under paragraph 34 (f), the undertaking shall explain:

(a)by reference to its climate change mitigation actions, the decarbonisation levers and their estimated quantitative contributions to the achievement of its GHG emission reduction targets broken down by each Scope (1, 2 and 3);

(b)whether it plans to adopt new technologies and the role of these to achieve its GHG emission reduction targets; and

(c)whether and how it has considered a diverse range of climate scenarios, at least including a climate scenario compatible with limiting global warming to 1.5°C, to detect relevant environmental-, societal-, technology-, market- and policy-related developments and determine its decarbonisation levers.

AR 31.The undertaking may present its GHG emission reduction targets together with its climate change mitigation actions (see paragraph AR 19) as a table or graphical pathway showing developments over time. The following figure and table provide examples combining targets and decarbonisation levers:

Base year (e.g., 2025)

2030 target

2035 target

Up to 2050 target

GHG emissions (ktCO2eq)

100

60

40

Energy efficiency and consumption reduction

-

-10

-4

Material efficiency and consumption reduction

-

-5

-

Fuel switching

-

-2

-

Electrification

-

-

-10

Use of renewable energy

-

-10

-3

Phase out, substitution or modification of product

-

-8

-

Phase out, substitution or modification of process

-

-5

-3

Other

-

-

Disclosure Requirement E1-5 – Energy consumption and mix

Calculation guidance

AR 32.When preparing the information on energy consumption required under paragraph 35, the undertaking shall:

(a)only report energy consumed from processes owned or controlled by the undertaking applying the same perimeter applied for reporting GHG Scopes 1 and 2 emissions;

(b)exclude feedstocks and fuels that are not combusted for energy purposes. The undertaking that consumes fuel as feedstocks can disclose information on this consumption separately from the required disclosures;

(c)ensure all quantitative energy-related information is reported in either Mega-Watt- hours (MWh) in Lower Heating Value or net calorific value. If raw data of energy- related information is only available in energy units other than MWh (such as Giga-Joules (GJ) or British Thermal Units (Btu)), in volume units (such as cubic feet or gallons) or in mass units (such as kilograms or pounds), they shall be converted to MWh using suitable conversion factors (see for example Annex II of the Fifth Assessment IPCC report). Conversion factors for fuels shall be made transparent and applied in a consistent manner;

(d)ensure all quantitative energy-related information is reported as final energy consumption, referring to the amount of energy the undertaking actually consumes using for example the table in Annex IV of Directive 2012/27 of the European Parliament and of the Council 55  on energy efficiency;

(e)avoid double counting fuel consumption when disclosing self-generated energy consumption. If the undertaking generates electricity from either a non-renewable or renewable fuel source and then consumes the generated electricity, the energy consumption shall be counted only once under fuel consumption;

(f)not offset energy consumption even if onsite generated energy is sold to and used by a third party;

(g)not count energy that is sourced from within the organisational boundary under “purchased or acquired” energy;

(h)account for steam, heat or cooling received as “waste energy” from a third party’s industrial processes under “purchased or acquired” energy;

(i)account for renewable hydrogen 56 as a renewable fuel. Hydrogen that is not completely derived from renewable sources shall be included under “fuel consumption from other non-renewable sources”; and

(j)adopt a conservative approach when splitting the electricity, steam, heat or cooling between renewable and non-renewable sources based on the approach applied to calculate market-based Scope 2 GHG emissions. The undertaking shall only consider these energy consumptions as deriving from renewable sources if the origin of the purchased energy is clearly defined in the contractual arrangements with its suppliers (renewable power purchasing agreement, standardised green electricity tariff, market instruments like Guarantee of Origin from renewable sources in Europe 57  or similar instruments like Renewable Energy Certificates in the US and Canada, etc.).

AR 33.The information required under paragraph 37 (a) is applicable if the undertaking is operating in at least one high climate impact sector. The information required under paragraph 38 (a) to (e). shall also include energy from fossil sources consumed in operations that are not in high climate impact sectors.

AR 34.The information on Energy consumption and mix may be presented using the following tabular format for high climate impact sectors and for all other sector by omitting rows (1) to (5).

Energy consumption and mix

Comparative

Year N

(1) Fuel consumption from coal and coal products (MWh)

(2) Fuel consumption from crude oil and petroleum products (MWh)

(3) Fuel consumption from natural gas (MWh)

(4) Fuel consumption from other fossil sources (MWh)

(5) Consumption of purchased or acquired electricity, heat, steam, and cooling from fossil sources (MWh)

(6) Total fossil energy consumption (MWh) (calculated as the sum of lines 1 to 5)

Share of fossil sources

in total energy consumption (%)

(7) Consumption from nuclear sources (MWh)

Share of consumption from nuclear sources

in total energy consumption (%)

(8) Fuel consumption for renewable sources, including biomass (also comprising industrial and municipal waste of biologic origin, biogas, renewable hydrogen, etc.) (MWh)

(9) Consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources (MWh)

(10) The consumption of self-generated non-fuel renewable energy (MWh)

(11) Total renewable energy consumption (MWh) (calculated as the sum of lines 8 to 10)

Share of renewable sources

in total energy consumption (%)

Total energy consumption (MWh) (calculated as the sum of lines 6, and 11)

AR 35.The total energy consumption with a distinction between fossil, nuclear and renewable energy consumption may be presented graphically in the sustainability statement showing developments over time (e.g., through a pie or bar chart).

Energy intensity based on net revenue

Calculation guidance

AR 36.When preparing the information on energy intensity required under paragraph 40, the undertaking shall:

(a)calculate the energy intensity ratio using the following formula:

𝑇𝑜𝑡𝑎𝑙 𝑒𝑛𝑒𝑟𝑔𝑦 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 𝑓𝑟𝑜𝑚 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠 𝑖𝑛 ℎ𝑖𝑔ℎ 𝑐𝑙𝑖𝑚𝑎𝑡𝑒 𝑖𝑚𝑝𝑎𝑐𝑡 𝑠𝑒𝑐𝑡𝑜𝑟𝑠 (𝑀𝑊ℎ)

___________________________________________________________________________________________________

;

𝑁𝑒𝑡 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠 𝑖𝑛 ℎ𝑖𝑔ℎ 𝑐𝑙𝑖𝑚𝑎𝑡𝑒 𝑖𝑚𝑝𝑎𝑐𝑡 𝑠𝑒𝑐𝑡𝑜𝑟𝑠 (𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝑢𝑛𝑖𝑡)

(b)express the total energy consumption in MWh and the net revenue in monetary units (e.g., Euros);

(c)the numerator and denominator shall only consist of the proportion of the total final energy consumption (in the numerator) and net revenue (in the denominator) that are attributable to activities in high climate impact sectors. In effect, there should be consistency in the scope of both the numerator and denominator;

(d)calculate the total energy consumption in line with the requirement in paragraph 37;

(e)calculate the net revenue in line with the accounting standards requirements applicable for the financial statements, i.e., IFRS 15 Revenue from Contracts with Customers or local GAAP requirements.

AR 37.The quantitative information may be presented in the following table.

Energy intensity per net revenue

Comparative

N

% N / N-1

Total energy consumption from activities in high climate impact sectors per net revenue from activities in high climate impact sectors (MWh/Monetary unit)

Connectivity of energy intensity based on net revenue with financial reporting information

AR 38.The reconciliation of net revenue from activities in high climate impact sectors to the relevant financial statements line item or disclosure (as required by paragraph 43) may be presented either:

(a)by a cross-reference to the related line item or disclosure in the financial statements; or

(b)If the net revenue cannot be directly cross-referenced to a line item or disclosure in the financial statements, by a quantitative reconciliation using the below tabular format.

Net revenue from activities in high climate impact

sectors used to calculate energy intensity

Net revenue (other)

Total net revenue (Financial statements)

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

Calculation guidance

AR 39.When preparing the information for reporting GHG emissions as required by paragraph 44, the undertaking shall:

(a)consider the principles, requirements and guidance provided by the GHG Protocol Corporate Standard (version 2004). The undertaking may consider Commission Recommendation (EU) 2021/2279 58 or the requirements stipulated by EN ISO 14064-1:2018. If the undertaking already applies the GHG accounting methodology of ISO 14064- 1: 2018, it shall nevertheless comply with the requirements of this standard (e.g., regarding reporting boundaries and the disclosure of market-based Scope 2 GHG emissions);

(b)disclose the methodologies, significant assumptions and emissions factors used to calculate or measure GHG emissions accompanied by the reasons why they were chosen, and provide a reference or link to any calculation tools used;

(c)include emissions of CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3. Additional GHG may be considered when significant; and

(d)use the most recent Global Warming Potential (GWP) values published by the IPCC based on a 100-year time horizon to calculate CO2eq emissions of non-CO2 gases.

AR 40.When preparing the information for reporting GHG emissions from its associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements as required by paragraph 50, the undertaking shall consolidate 100% of the GHG emissions of the entities it operationally controls. In practice, this happens when the undertakings holds the license - or permit - to operate the assets from these associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements. When the undertaking has a contractually defined part-time operational control, it shall consolidate 100% the GHG emitted during the time of its operational control.

AR 41.In line with ESRS 1 chapter 3.7, the undertaking shall disaggregate information on its GHG emissions as appropriate. For example, the undertaking may disaggregate its Scope 1, 2, 3, or total GHG emissions by country, operating segments, economic activity, subsidiary, GHG category (CO2, CH4, N2O, HFCs, PFCs, SF6, NF3, and other GHG considered by the undertaking) or source type (stationary combustion, mobile combustion, process emissions and fugitive emissions).

AR 42.An undertaking might have a different reporting period from some or all of the entities in its value chain. In such circumstances, the undertaking is permitted to measure its GHG emissions in accordance with paragraph 44 using information for reporting periods that are different from its own reporting period if that information is obtained from entities in its value chain with reporting periods that are different from the undertaking’s reporting period, on the condition that:

(a)    the undertaking uses the most recent data available from those entities in its value chain to measure and disclose its greenhouse gas emissions;

(b)    the length of the reporting periods is the same; and

(c)    the undertaking discloses the effects of significant events and changes in circumstances (relevant to its GHG emissions) that occur between the reporting dates of the entities in its value chain and the date of the undertaking’s general purpose financial statements.

AR 43.When preparing the information on gross Scope 1 GHG emissions required under paragraph 48 (a), the undertaking shall:

(a)calculate or measure GHG emissions from stationary combustion, mobile combustion, process emissions and fugitive emissions; and use suitable activity data that include the non-renewable fuel consumption;

(b)use suitable and consistent emission factors;

(c)disclose biogenic emissions of CO2 from the combustion or bio-degradation of biomass separately from the Scope 1 GHG emissions, but include emissions of other types of GHG (in particular CH4 and N2O); 

(d)not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 1 GHG emissions; and

(e)for activities reporting under the EU ETS, report on Scope 1 emissions following the EU ETS methodology. The EU ETS methodology may also be applied to activities in geographies and sectors that are not covered by the EU ETS.

AR 44.When preparing the information on the percentage of Scope 1 GHG emissions from regulated emission trading schemes required under paragraph 48 (b), the undertaking shall:

(a)consider GHG emissions from the installations it operates that are subject to regulated Emission Trading Schemes (ETS), including the EU-ETS, national ETS and non-EU ETS, if applicable;

(b)only include emissions of CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3;

(c)ensure the same accounting period for gross Scope 1 GHG emissions and GHG emissions regulated under the ETS; and

(d)calculate the share by using the following formula:

GHG e GHG Emissions in (t CO2eq) from EU ETS installations + national ETS installations + nonEU ETS installations

Scope 1 GHG emissions (t CO2eq)

AR 45.When preparing the information on gross Scope 2 GHG emissions required under paragraph 49, the undertaking shall:

(a)consider the principles and requirements of the GHG Protocol Scope 2 Guidance (version 2015, in particular the Scope 2 quality criteria in chapter 7.1 relating to contractual instruments); it may also consider Commission Recommendation (EU) 2021/2279 or the relevant requirements for the quantification of indirect GHG emissions from imported energy in EN ISO 14064-1:2018;

(b)include purchased or acquired electricity, steam, heat, and cooling consumed by the undertaking;

(c)avoid double counting of GHG emissions reported under Scope 1 or 3;

(d)apply the location-based and market-based methods to calculate Scope 2 GHG emissions and provide information on the share and types of contractual instruments. Location-based method quantifies Scope 2 GHG emissions based on average energy generation emission factors for defined locations, including local, subnational, or national boundaries (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015). Market-based method quantifies Scope 2 GHG emissions based on GHG emissions emitted by the generators from which the reporting entity contractually purchases electricity bundled with instruments, or unbundled instruments on their own (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015); in this case, the undertaking may disclose the share of market-based scope 2 GHG emissions linked to purchased electricity bundled with instruments such as Guarantee of Origins or Renewable Energy Certificates. The undertaking shall provide information about the share and types of contractual instruments used for the sale and purchase of energy bundled with attributes about the energy generation or for unbundled energy attribute claims. 

(e)disclose biogenic emissions of CO2 carbon from the combustion or biodegradation of biomass separately from the Scope 2 GHG emissions but include emissions of other types of GHG (in particular CH4 and N2O). In case the emission factors applied do not separate the percentage of biomass or biogenic CO2, the undertaking shall disclose this. In case GHG emissions other than CO2 (particularly CH4 and N2O) are not available for, or excluded from, location-based grid average emissions factors or with the market-based method information, the undertaking shall disclose this.

(f)not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 2 GHG emissions.

AR 46.When preparing the information on gross Scope 3 GHG emissions required under paragraph 51, the undertaking shall:

(a)consider the principles and provisions of the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011); and it may consider Commission Recommendation (EU) 2021/2279 or the relevant requirements for the quantification of indirect GHG emissions from EN ISO 14064-1:2018;

(b)if it is a financial institution, consider the GHG Accounting and Reporting Standard for the Financial Industry from the Partnership for Carbon Accounting Financial (PCAF), specifically part A “Financed Emissions” (version December 2022);

(c)screen its total Scope 3 GHG emissions based on the 15 Scope 3 categories identified by the GHG Protocol Corporate Standard and GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011) using appropriate estimates. Alternatively, it may screen its indirect GHG emissions based on the categories provided by EN ISO 14064-1:2018 clause 5.2.4 (excluding indirect GHG emissions from imported energy);

(d)identify and disclose its significant Scope 3 categories based on the magnitude of their estimated GHG emissions and other criteria provided by GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011, p. 61 and 65-68) or EN ISO 14064-1:2018 Annex H.3.2, such as financial spend, influence, related transition risks and opportunities or stakeholder views;

(e)calculate or estimate GHG emissions in significant Scope 3 categories using suitable emissions factors; 

(f)update Scope 3 GHG emissions in each significant category every year on the basis of current activity data; update the full Scope 3 GHG inventory at least every 3 years or on the occurrence of a significant event or a significant change in circumstances (a significant event or significant change in circumstances can, for example, relate to changes in the undertaking’s activities or structure, changes in the activities or structure of its upstream and downstream value chain(s), a change in calculation methodology or in the discovery of errors);”);

(g)disclose the extent to which the undertaking’s Scope 3 GHG emissions are measured using inputs from specific activities within the entity’s upstream and downstream value chain, and disclose the percentage of emissions calculated using primary data obtained from suppliers or other value chain partners.

(h)for each significant Scope 3 GHG category, disclose the reporting boundaries considered, the calculation methods for estimating the GHG emissions as well as if and which calculation tools were applied. The Scope 3 categories should be consistent with the GHGP and include:

I.indirect Scope 3 GHG emissions from the consolidated accounting group (the parent and its subsidiaries),

II.indirect Scope 3 GHG emissions from associates, joint ventures, and unconsolidated subsidiaries for which the undertaking has the ability to control the operational activities and relationships (i.e., operational control),

III.Scope 1, 2 and 3 GHG emissions from associates, joint ventures, unconsolidated subsidiaries (investment entities) and joint arrangements for which the undertaking does not have operational control and when these entities are part of the undertaking’s upstream and dopwnstream value chain.

(i)disclose a list of Scope 3 GHG emissions categories included in and excluded from the inventory with a justification for excluded Scope 3 categories;

(j)disclose biogenic emissions of CO2 from the combustion or biodegradation of biomass that occur in its upstream and downstream value chain separately from the gross Scope 3 GHG emissions, and include emissions of other types of GHG (such as CH4 and N2O), and emissions of CO2 that occur in the life cycle of biomass other than from combustion or biodegradation (such as GHG emissions from processing or transporting biomass) in the calculation of Scope 3 GHG emissions;

(k)not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 3 GHG emissions;

AR 47.When preparing the information on the total GHG emissions required under paragraph 52, the undertaking shall:

(a)apply the following formulas to calculate the total GHG emissions:

Total GHG emissions𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛−𝑏𝑎𝑠𝑒𝑑 (t CO2eq)

= Gross Scope 1 + Gross Scope 2𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛−𝑏𝑎𝑠𝑒𝑑 + Gross Scope 3 Total

GHG emissions𝑚𝑎𝑟𝑘𝑒𝑡−𝑏𝑎𝑠𝑒𝑑 (t CO2eq)

= Gross Scope 1 + Gross Scope 2𝑚𝑎𝑟𝑘𝑒𝑡−𝑏𝑎𝑠𝑒𝑑 + Gross Scope 3

(b)disclose total GHG emissions with a distinction between emissions derived from the location-based and market-based methods applied while measuring the underlying Scope 2 GHG emissions.

AR 48.The undertaking shall disclose its total GHG emissions disaggregated by Scopes 1 and 2 and significant Scope 3 in accordance with the table below.

Retrospective

   Milestones and target years    

Base

year

Compa- rative

N

% N /

N-1

2025

2030

(2050)

Annual

% target

/ Base year

Scope 1 GHG emissions

Gross Scope 1 GHG

emissions (tCO2eq)

Percentage of Scope 1

GHG emissions from regulated emission trading

schemes (%)

Scope 2 GHG emissions

Gross location-based Scope 2 GHG emissions

(tCO2eq)

Gross market-based Scope

2 GHG emissions (tCO2eq)

Significant scope 3 GHG emissions

Total Gross indirect (Scope

3) GHG emissions (tCO2eq)

1 Purchased goods and

services

[Optional sub-category: Cloud computing and data

centre services

2 Capital goods

3 Fuel and energy-related

Activities (not included in Scope1 or Scope 2)

4 Upstream transportation and distribution

5 Waste generated in

operations

6 Business travelng

7 Employee commuting

8 Upstream leased assets

9 Downstream transportation

10 Processing of sold products

11 Use of sold products

12 End-of-life treatment of sold products

13 Downstream leased assets

14 Franchises

15 Investments

Total GHG emissions

Total GHG emissions

(location-based) (tCO2eq)

Total GHG emissions

(market-based) (tCO2eq)

AR 49.To highlight potential transition risks, the undertaking may disclose its total GHG emissions disaggregated by major countries and, if applicable, by operating segments (applying the same segments for the financial statements as required by the accounting standards, i.e., IFRS 8 Operating Segments or local GAAP). Scope 3 GHG emissions may be excluded from these breakdowns by country if the related data is not readily available.

AR 50.The Scope 3 GHG emissions may also be presented by according to the indirect emission categories defined in EN ISO 14064-1:2018.

AR 51.If it is material for the undertaking's Scope 3 emissions, it shall disclose the GHG emissions from purchased cloud computing and data centre services as a subset of the overarching Scope 3 category “upstream purchased goods and services”.

AR 52.The total GHG emissions disaggregated by Scope 1, 2 and 3 GHG emissions may be graphically presented in the sustainability statement (e.g., as a bar or pie chart) showing the split of GHG emissions across the value chain (Upstream, Own operations, Transport, Downstream).

GHG intensity based on net revenue

Calculation guidance

AR 53.When disclosing the information on GHG intensity based on net revenue required under paragraph 53, the undertaking shall:

(a)calculate the GHG intensity ratio by the following formula:

𝑇𝑜𝑡𝑎𝑙 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 (𝑡 𝐶𝑂2𝑒𝑞);

𝑁𝑒𝑡 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 (𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝑢𝑛𝑖𝑡)

(b)express the total GHG emissions in metric tonnes of CO2eq and the net revenue in monetary units (e.g., Euros) and present the results for the market-based and location-based method;

(c)include the total GHG emissions in the numerator and overall net revenue in the denominator;

(d)calculate the total GHG emissions as required by paragraphs 44 (d) and 52; and

(e)calculate the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP.

AR 54.The quantitative information may be presented in the following tabular format.

GHG intensity per net revenue

Comparative

N

% N / N-1

Total GHG emissions (location-based) per net revenue (tCO2eq/Monetary unit)

Total GHG emissions (market-based) per net revenue (tCO2eq/Monetary unit)

Connectivity of GHG intensity based on revenue with financial reporting information

AR 55.The reconciliation of the net revenue used to calculate GHG intensity to the relevant line item or notes in the financial statements (as required by paragraph 55) may be done by either:

(a)a cross-reference to the related line item or disclosure in the financial statements; or

(b)if the net revenue cannot be directly cross-referenced to a line item or disclosure in the financial statements, by a quantitative reconciliation using the below tabular format.

Net revenue used to calculate GHG intensity

Net revenue (other)

Total net revenue (in financial statements)

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

GHG removals and storage in own operations and the upstream and downstream value chain

AR 56.In addition to their GHG emission inventories, undertakings shall provide transparency on how and to what extent they either enhance natural sinks or apply technical solutions to remove GHGs from the atmosphere in their own operations and upstream and downstream value chain. While there are no generally accepted concepts and methodologies for accounting for GHG removals, this Standard aims to increase transparency on the undertaking’s efforts to remove GHGs from the atmosphere (paragraphs 56 (a) and 58). The GHG removals outside the value chain that the undertaking supports through the purchase of carbon credits are to be disclosed separately as required by paragraphs 56 (b) and 59.

AR 57.When disclosing the information on GHG removals and storage from the undertaking’s own operations and its upstream and donwstream value chain required under paragraphs 56 (a) and 58, for each removal and storage activity, the undertaking shall describe:

(a)the GHGs concerned;

(b)whether removal and storage are biogenic or from land-use change (e.g., afforestation, reforestation, forest restoration, urban tree planting, agroforestry, building soil carbon, etc.), technological (e.g., direct air capture), or hybrid (e.g., bioenergy with CO2 capture and storage), and technological details about the removal, the type of storage and, if applicable, the transport of removed GHGs;

(c)if applicable, a brief explanation of whether the activity qualifies as a nature-based solution; and

(d)how the risk of non-permanence is managed, including determining and monitoring leakage and reversal events, as appropriate.

Calculation guidance

AR 58.When preparing the information on GHG removals and storage from the undertaking’s own operations and its upstream and donwstream value chain required under paragraphs 56 (a) and 58, the undertaking shall:

(a)consider, as far as applicable, the GHG Protocol Corporate Standard (version 2004), Product Standard (version 2011), Agriculture Guidance (version 2014), Land use, land-use change, and forestry Guidance for GHG project accounting (version 2006);

(b)apply consensus methods on accounting for GHG removals as soon as they are available, notably the EU regulatory framework for the certification of CO2 removals;

(c)if applicable, explain the role of removals for its climate change mitigation policy;

(d)include removals from operations that it owns, controls, or contributes to and that have not been sold to another party through carbon credits;

(e)if applicable, mark those GHG removal activities in own operations or the value chain that have been converted into carbon credits and sold on to other parties on the voluntary market;

(f)account for the GHG emissions associated with a removal activity, including transport and storage, under Disclosure Requirement E1-6 (Scopes 1, 2 or 3). To increase transparency on the efficiency of a removal activity, including transport and storage, the undertaking may disclose the GHG emissions associated with this activity (e.g., GHG emissions from electricity consumption of direct air capture technologies) alongside, but separately from, the amount of removed GHG emissions;

(g)in case of a reversal, account for the respective GHG emissions as an offset for the removals in the reporting period;

(h)use the most recent GWP values published by the IPCC based on a 100-year time horizon to calculate CO2eq emissions of non-CO2 gases and describe the assumptions made, methodologies and frameworks applied for calculation of the amount of GHG removals; and

(i)consider nature-based solutions.

AR 59.The undertaking shall disaggregate and separately disclose the GHG removals that occur in its own operations and those that occur in its upstream and downstream value chain. GHG removal activities in the upstream and downstream value chain shall include those that the undertaking is actively supporting, for example, through a cooperation project with a supplier. The undertaking is not expected to include any GHG removals that may occur in its upstream and downstream value chain that it is not aware of.

AR 60.The quantitative information on GHG removals may be presented by using the following tabular format.

Removals

Comparative

N

% N / N-1

GHG removal activity 1 (e.g.., forest restoration)

-

GHG removal activity 2 (e.g.., direct air capture)

-

-

Total GHG removals from own operations (tCO2eq)

GHG removal activity 1 (e.g.., forest restoration)

-

GHG removal activity 2 (e.g.., direct air capture)

-

-

Total GHG removals in the upstream and downstream value chain (tCO2eq)

Reversals (tCO2eq)

GHG mitigation projects financed through carbon credits

AR 61.Financing GHG emission reduction projects outside the undertaking’s value chain through purchasing carbon credits that fulfil high-quality standards can be a useful contribution towards mitigating climate change. This Standard requires the undertaking to disclose whether it uses carbon credits separately from the GHG emissions (paragraphs 56 (b) and 59) and GHG emission reduction targets (Disclosure Requirement E1-4). It also requires the undertaking to show the extent of use and which quality criteria it uses for those carbon credits.

AR 62.When disclosing the information on carbon credits required under paragraphs 56 (b)  and 59, the undertaking shall disclose the following disaggregation as applicable:

(a)the share (percentage of volume) of reduction projects and removal projects;

(b)for carbon credits from removal projects, an explanation whether they are from biogenic or technological sinks;

(c)the share (percentage of volume) for each recognised quality standard;

(d)the share (percentage of volume) issued from projects in the EU; and

(e)the share (percentage of volume) that qualifies as a corresponding adjustment under Article. 6 of the Paris Agreement.

Calculation guidance

AR 63.When preparing the information on carbon credits required under paragraphs 56 (b) and 59, the undertaking shall:

(a)Consider recognised quality standards;.

(b)if applicable, explain the role of carbon credits in its climate change mitigation policy;

(c)not include carbon credits issued from GHG emission reduction projects within its value chain as the respective GHG emission reductions shall already be disclosed under Disclosure Requirement E1-6 (Scope 2 or Scope 3) at the time they occur (i.e., double counting is avoided);

(d)not include carbon credits from GHG removal projects within its value chain as the respective GHG removals may already be accounted for under Disclosure Requirement E1-7 at the time they occur (i.e., double counting is avoided);

(e)not disclose carbon credits as an offset for its GHG emissions under Disclosure Requirement E1-6 on GHG emissions;

(f)not disclose carbon credits as a means to reach the GHG emission reduction targets disclosed under Disclosure Requirement E1-4; and

(g)calculate the amount of carbon credits to be cancelled in the future, as the sum of carbon credits in metric tonnes of CO2eq over the duration of existing contractual agreements.

AR 64.The information on carbon credits cancelled in the reporting year and planned to be cancelled in the future may be presented using the following tabular formats.

Carbon credits cancelled in the reporting year

Comparative

N

Total (tCO2eq)

Share from removal projects (%)

Share from reduction projects (%)

Recognised quality standard 1 (%)

Recognised quality standard 2 (%)

Recognised quality standard 3 (%)

Share from projects within the EU (%)

Share of carbon credits that qualify as corresponding adjustments (%)

Carbon credits planned to be cancelled in the future

Amount until [period]

Total (tCO2eq)

Disclosure Requirement E1-8 – Internal carbon pricing

AR 65.When disclosing the information required under paragraphs 62 and 63, if applicable, the undertaking shall briefly explain whether and how the carbon prices used in internal carbon pricing schemes are consistent with those used in financial statements. This shall be done in respect of the internal carbon prices used for,

(a)the assessment of the useful life and residual value of its assets (intangibles, property, plant and equipment);

(b)the impairment of assets; and

(c)the fair value measurement of assets acquired through business acquisitions.

AR 66.The information may be presented by using the following table:

Types of internal carbon

prices

Volume at

stake (tCO2eq)

Prices applied

(€/tCO2eq)

Perimeter

description

CapEx shadow price

Research and Development (R&D)

investment shadow price

Internal carbon fee or fund

Carbon prices for impairment testing

Etc.

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

Anticipated financial effects from material physical and transition risks

AR 67.Material climate-related physical risks and transition risks may affect the undertaking’s financial position (e.g., owned assets, financially-controlled leased assets, and liabilities), performance (e.g., potential future increase/decrease in net revenue and costs due to business interruptions, increased supply prices resulting in potential margin erosions), and cash flows. The low probability, high severity and long-term time horizons of some climate- related physical risk exposures and the uncertainty arising from the transition to a sustainable economy mean that there will be associated material anticipated financial effects that are outside the scope of the requirements of applicable accounting standards.

AR 68.Currently, there is no commonly accepted methodology to assess or measure how material physical risks and transition risks may affect the undertaking’s future financial position, financial, performance and cash flows. Therefore, the disclosure of the financial effects (as required by paragraphs 64, 66 and 67) will depend on the undertaking’s internal methodology and the exercise of significant judgement in determining the inputs, and assumptions needed to quantify their anticipated financial effects.

Calculation guidance - Anticipated financial effects from material physical risks

AR 69.When disclosing the information required under paragraphs 64 (a) and 66, the undertaking shall explain whether and how:

(a)it assessed the anticipated financial effects for assets and business activities at material physical risk, including the scope of application, time horizons, calculation methodology, critical assumptions and parameters and limitations of the assessment; and

(b)the assessment of assets and business activities considered to be at material physical risk relies on or is part of the process to determine material physical risk as required under paragraphs 20 (b) and AR 11 and to determine climate scenarios as required under paragraphs 19 and AR 13 to AR 14. In particular, it shall explain how it has defined medium- and long-term time horizons and how these definitions are linked to the expected lifetime of the undertaking’s assets, strategic planning horizons and capital allocation plans.

AR 70.When preparing the information on assets at material physical risk that is required to be disclosed under paragraph 66 (a), the undertaking shall:

(a)Calculate the assets at material physical risk in terms of monetary amount and as a proportion (percentage) of total assets at the reporting date (i.e., the proportion is an estimate of the carrying value of assets at material physical risk divided by total carrying value as stated in the statement of financial position or balance sheet). The estimate of assets at material physical risk shall be derived starting from the assets recognised in the financial statements. The estimate of monetary amounts and proportion of assets at physical risk may be presented as either a single amount or range.

(b)All types of assets including finance-lease / right-of-use assets shall be considered when determining the assets at material physical risk.

(c)To contextualise this information, the undertaking shall:

I.disclose the location of its significant assets at material physical risk. Significant assets located 59 in the EU territory shall be aggregated by NUTS codes 3 level digits (Nomenclature of Territorial Units for Statistics). For significant assets located outside EU territory, the breakdown by NUTS code will only be provided where applicable.

II.disaggregate the monetary amounts of assets at risk by acute and chronic physical risk 60 .

(d)calculate the share of assets at material physical risk resulting from paragraph 66 (a) that is addressed by the climate change adaptation actions based on the information disclosed under Disclosure Requirement E1-3. This aims at approximating net risks.

AR 71.When preparing the information required under paragraph 64 (a) and 66 (d), the undertaking may assess and disclose the share of net revenue from business activities at physical risk. This disclosure

(a)shall be based on the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP.

(b)may include a breakdown of the undertaking’s business activities with the corresponding details of the associated percentage of total net revenue, the risk factors (hazards, exposure and sensitivity) and, if possible, the magnitude of the anticipated financial effects in terms of margin erosion over the short-, medium- and long-term time horizons. The nature of business activities may also be disaggregated by operating segments if the undertaking has disclosed the contribution of margins by operational segments in its segment reporting in the financial statements.

Calculation guidance - Anticipated financial effects from transition risk

AR 72.When disclosing the information required under paragraphs 64 (b) and 67 (a), the undertaking shall explain whether and how:

(a)it has assessed the potential effects on future financial performance and position for assets and business activities at material transition risk, including the scope of application, calculation methodology, critical assumptions and parameters, and limitations of the assessment; and

(b)the assessment of assets and business activities considered to be at material transition risk relies on or is part of the process to determine material transition risks as described under paragraphs 20 (c) and AR 11 and to determine scenarios as required under paragraphs AR 12 to AR 13. In particular, it shall explain how it has defined medium- and long-term time horizons and how these definitions are linked to the expected lifetime of the undertaking’s assets, strategic planning horizons and capital allocation plans.

AR 73.When disclosing the information on assets at material transition risk as required under paragraphs 67 (a) and (b):

(a)the undertaking shall at the very least include an estimate of the amount of potentially stranded assets (in monetary amounts and as a proportion/percentage) from the reporting year until 2030 and from 2030 to 2050. Stranded assets are understood as the active or firmly planned key assets of the undertaking with significant locked-in GHG emissions over their operating lifetime. Firmly planned key assets are those that the undertaking will most likely deploy within the next 5 years. The amount may be expressed as a range of asset values based on different climate and policy scenarios, including a scenario aligned with limiting climate change to 1.5°C.

(b)the undertaking shall disclose a breakdown of the carrying value of its real estate assets, including rights-of-use assets, by energy efficiency classes. The energy efficiency shall be represented in terms of either the ranges of energy consumption in kWh/m² or the EPC 61  (Energy Performance Certificate) 62  label class. If the undertaking cannot obtain this information on a best-effort basis, it shall disclose the total carrying amount of the real estate assets for which the energy consumption is based on internal estimates.

(c)the undertaking shall calculate the proportion (percentage) of total assets (including finance lease/right-of-use assets) at material transition risk addressed by the climate change mitigation actions based on the information disclosed under Disclosure Requirement E1-3. The total assets amount is the carrying amount on the balance sheet at the reporting date.

AR 74.When disclosing the information on potential liabilities from material transition risks required under paragraph 67(d):

(a)undertakings that operate installations regulated under an emission trading scheme may include a range of potential future liabilities originating from these schemes;

(b)undertakings subject to the EU ETS, may disclose the potential future liabilities that relate to their allocation plans for the period before and until 2030. The potential liability may be estimated on the basis of:

I.the number of allowances held by the undertaking at the beginning of the reporting period;

II.the number of allowances to be purchased in the market yearly, i.e., before and until 2030;

III.the gap between estimated future emissions under various transition scenarios and free allocations of allowances that are known for the period until 2030, and

IV.the estimated yearly cost per tonne of CO2 for which an allowance needs to be purchased;

(c)In assessing its potential future liabilities, the undertaking may consider and disclose the number of Scope 1 GHG emission allowances within regulated emission trading schemes and the cumulative number of emission allowances stored (from previous allowances) at the beginning of the reporting period;

(d)undertakings disclosing volumes of carbon credits planned to be cancelled in the near future (Disclosure Requirement E1-7) may disclose the potential future liabilities associated with those based on existing contractual agreements;

(e)the undertaking may also include its monetised gross Scope 1, 2 and total GHG emissions (in monetary units) calculated as follows:

I.monetised Scope 1 and 2 GHG emissions in the reporting year by the following formula:

(a) (𝑔𝑟𝑜𝑠𝑠 𝑆𝑐𝑜𝑝𝑒 1 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 (𝑡 𝐶𝑂2𝑒𝑞) +

𝑔𝑟𝑜𝑠𝑠 𝑆𝑐𝑜𝑝𝑒 2 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛 (𝑡 𝐶𝑂2𝑒𝑞)) ×

𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛 cost rate ( € )

𝑡 𝐶𝑂2𝑒𝑞

II.monetised total GHG emissions in the reporting year by the following formula:

(b)    𝑇𝑜𝑡𝑎𝑙 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 (𝑡 𝐶𝑂2𝑒𝑞) ×

𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛 𝑐𝑜𝑠𝑡 𝑟𝑎𝑡𝑒 ( € )

𝑡 𝐶𝑂2𝑒𝑞

III.by use of a lower, middle and upper cost rate 63  for GHG emissions (e.g., market carbon price and different estimates for the societal costs of carbon) and reasons for selecting them.

AR 75.Other approaches and methodologies may be applied to assess how transition risks may affect the future financial position of the undertaking. In any case, the disclosure of anticipated financial effects shall include a description of the methodologies and definitions used by the undertaking.

AR 76.When preparing the information required under paragraph 67 (e), the undertaking may assess and disclose the share of net revenue from business activities at transition risks. This disclosure:

(a)shall be based on the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP.

(b)may include a breakdown of the undertaking’s business activities with the corresponding details of the associated percentage of current net revenue, risk factors (events and exposure), and when possible, the anticipated financial effects related to margin erosion over the short-, medium- and long-term. The nature of business activities may also be disaggregated by operating segments if the undertaking has disclosed the contribution of margins by operational segments in its segment reporting in the financial statements.

Connectivity with financial reporting information

AR 77.The reconciliation of the significant amount of assets, liabilities, and net revenue (vulnerable to either material physical risks or transition risks) to the relevant line item or disclosure (e.g., in segment reporting) in the financial statements (as required by paragraph 68) may be presented by the undertaking as follows:

(a)as a cross-reference to the related line item or disclosure in the financial statements if these amounts are identifiable in the financial statements; or

(b)If these cannot be directly cross-referenced, as a quantitative reconciliation of each to the relevant line item or disclosure in the financial statement using the below tabular format:

Carrying amount of assets or liabilities or net

revenue vulnerable to either material physical or transition risks

Adjusting items

Assets or liabilities or net revenue in the financial

statements

AR 78.The undertaking shall ensure the consistency of data and assumptions to assess and report the anticipated financial effects from material physical risks and transition risks in the sustainability statement with the corresponding data and assumptions used for the financial statements (e.g., carbon prices used for assessing impairment of assets, the useful life of assets, estimates and provisions). The undertaking shall explain the reasons for any inconsistencies (e.g., if the full financial implications of climate-related risks are still under assessment or are not deemed material in the financial statements).

AR 79.For potential future effects on liabilities (as required by paragraph 67 (d)), if applicable, the undertaking shall cross-reference the description of the emission trading schemes in the financial statements.

Climate-related opportunities

AR 80.When disclosing the information under paragraph 69 (a), the undertaking shall explain the nature of the cost savings (e.g., from reduced energy consumption), the time horizons and the methodology used, including the scope of the assessment, critical assumptions, and limitations, and whether and how scenario analysis was applied.

AR 81.When disclosing the information required under paragraph 69 (b), the undertaking shall explain how it has assessed the market size or any expected changes to net revenue from low-carbon products and services or adaptation solutions including the scope of the assessment, the time horizon, critical assumptions, and limitations and to what extent this market is accessible to the undertaking. The information on the market size may be put in perspective to the current taxonomy-aligned revenue disclosed under the provisions of Regulation (EU) 2020/852. The entity may also explain how it will pursue its climate-related opportunities and, where possible, this should be linked to the disclosures on policies, targets and actions under Disclosure Requirements E1-2, E1-3 and E1-4.

ESRS E2

POLLUTION

Table of contents

Objective    

Interaction with other ESRS    

Disclosure Requirements    

-ESRS 2 General disclosures

Impact, risk and opportunity management

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

oDisclosure Requirement E2-1 – Policies related to pollution    

oDisclosure Requirement E2-2 – Actions and resources related to pollution    

Metrics and targets

oDisclosure Requirement E2-3 – Targets related to pollution    

oDisclosure Requirement E2-4 – Pollution of air, water and soil    

oDisclosure Requirement E2-5 – Substances of concern and substances of very high concern    

oDisclosure Requirement E2-6 – Anticipated financial effects from pollution-related impacts, risks and opportunities    

Appendix A: Application Requirements    

-ESRS 2 General disclosures    

Impact, risk and opportunity management

oDisclosure Requirement E2-1 – Policies related to pollution    

oDisclosure Requirement E2-2 – Actions and resources related to pollution    

Metrics and targets

oDisclosure Requirement E2-3 – Targets related to pollution    

oDisclosure Requirement E2-4 – Pollution of air, water and soil    

oDisclosure Requirement E2-5 – Substances of concern and substances of very high concern    

oDisclosure Requirement E2-6 – Anticipated financial effects from pollution-related, risks and opportunities    

Objective

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

(a)how the undertaking affects pollution of air, water and soil, in terms of material positive and negative actual or potential impacts;

(b)any actions taken, and the result of such actions, to prevent or mitigate actual or potential negative impacts, and to address risks and opportunities;

(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 with the need to prevent, control and eliminate pollution. This is to create a toxic-free environment with zero pollution also in support of the EU Action Plan “Towards  a Zero Pollution for Air, Water and Soil”;

(d)the nature, type and extent of the undertaking’s material risks and opportunities related to the undertaking’s pollution-related impacts and dependencies, as well as the prevention, control, elimination or reduction of pollution, including where this results from the application of regulations, and how the undertaking manages this; and

(e)the financial effects on the undertaking over the short-, medium- and long-term of material risks and opportunities arising from the undertaking’s pollution-related impacts and dependencies.

2.This Standard sets out Disclosure Requirements related to the following sustainability matters: pollution of air, water, soil, substances of concern, including substances of very high concern.

3.“Pollution of air” refers to the undertaking’s emissions into air (both indoor and outdoor), and prevention, control and reduction of such emissions.

4.“Pollution of water” refers to the undertaking’s emissions to water, and prevention, control and reduction of such emissions.

5.“Pollution of soil” refers to the undertaking’s emissions into soil and the prevention, control and reduction of such emissions.

6.With regard to “substances of concern”, this standard covers the undertaking’s production, use and/or distribution and commercialisation of substances of concern, including substances of very high concern. Disclosure Requirements on substances of concern aim at providing users with an understanding of actual or potential impacts related to such substances, also taking account of possible restrictions on their use and/or distribution and commercialisation.

Interaction with other ESRS

7.The topic of pollution is closely connected to other environmental sub-topics such as climate change, water and marine resources, biodiversity and circular economy. Thus, to provide a comprehensive overview of what could be material to pollution, relevant Disclosure Requirements are covered in other environmental Standards as follows:

(a)ESRS E1 Climate change which addresses the following seven greenhouse gases connected to air pollution: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3).

(b)ESRS E3 Water and marine resources which addresses water consumption, in particular in areas at water risk, water recycling and storage. This also includes the responsible management of marine resources, including the nature and quantity of marine resources-related commodities (such as gravels, deep-sea minerals, seafood) used by the undertaking. This Standard covers the negative impacts, in terms of pollution of water and marine resources, including microplastics, generated by such activities.

(c)ESRS E4 Biodiversity and ecosystems which addresses ecosystems and species. Pollution as a direct impact driver of biodiversity loss is addressed by this  Standard.

(d)ESRS E5 Resource use and circular economy which addresses, in particular, the transition away from extraction of non-renewable resources and the implementation of practices that prevent waste generation, including pollution generated by waste.

8.The undertaking’s pollution-related impacts may affect people and communities. Material negative impacts on affected communities from pollution-related impacts attributable to the undertaking are covered in ESRS S3 Affected communities.

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

Disclosure Requirements

ESRS 2 General disclosures

10.The requirements of this section should be read in conjunction with and reported alongside  the disclosures required by ESRS 2 chapter 4 Impact, risk and opportunity management.

Impact, risk and opportunity management

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

11.The undertaking shall describe the process to identify material impacts, risks and opportunities and shall provide information on:

(a) whether the undertaking has screened its site locations and business activities in order to identify its actual and potential pollution-related impacts, risks and opportunities in its own operations and upstream and downstream value chain, and if so, the methodologies, assumptions and tools used in the screening;

(b)whether and how the undertaking has conducted consultations, in particular with affected communities.

Disclosure Requirement E2-1 – Policies related to pollution

12.The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to pollution prevention and control.

13.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 material pollution-related impacts, risks and opportunities.

14.The disclosure required by paragraph 12 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to pollution in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.

15.The undertaking shall indicate, with regard to its own operations and its upstream and donwstream value chain, whether and how its policies address the following areas where material:

(a)mitigating negative impacts related to pollution of air, water and soil including prevention and control;

(b)substituting and minimising the use of substances of concern, and phasing out substances of very high concern, in particular for non-essential societal use and in consumer products; and

(c)avoiding incidents and emergency situations, and if and when they occur, controlling and limiting their impact on people and the environment.

Disclosure Requirement E2-2 – Actions and resources related to pollution

16.The undertaking shall disclose its pollution-related actions and the resources   allocated to their implementation.

17.The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the pollution-related policy objectives and targets.

18.The description of the pollution-related action plans and resources shall contain the information prescribed in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.

19.In addition to ESRS 2 MDR-A, the undertaking may specify to which layer in the following mitigation hierarchy an action and resources can be allocated:

(a)avoid pollution including any phase out of materials or compounds that have a negative impact (prevention of pollution at source);

(b)reduce pollution, including: any phase-out of materials or compounds; meeting enforcement requirements such as Best Available Techniques (BAT) requirements; or meeting the Do No Significant Harm criteria for pollution prevention and control according to the EU Taxonomy Regulation and its Delegated Acts (minimisation of pollution); and

(c)restore, regenerate and transform ecosystems where pollution has occurred (control of the impacts both from regular activities and incidents).

Metrics and targets

Disclosure Requirement E2-3 – Targets related to pollution

20.The undertaking shall disclose the pollution-related targets it has set.

21.The objective of this Disclosure Requirement is to enable an understanding of the targets  the undertaking has set to support its pollution-related policies and to address its material pollution-related impacts, risks and opportunities.

22.The description of targets shall contain the information requirements defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.

23.The disclosure required by paragraph 20 shall indicate whether and how its targets relate  to the prevention and control of:

(a)air pollutants and respective specific loads;

(b)emissions to water and respective specific loads;

(c)pollution to soil and respective specific loads; and

(d)substances of concern and substances of very high concern.

24.In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds (e.g., the biosphere integrity, stratospheric ozone-depletion, atmospheric aerosol loading, soil depletion, ocean acidification) and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:

(a)the ecological thresholds identified, and the methodology used to identify such thresholds;

(b)whether or not the thresholds are entity-specific and if so, how they were determined; and

(c)how responsibility for respecting identified ecological thresholds is allocated in the undertaking.

25.The undertaking shall specify as part of the contextual information, whether the targets that it has set and presented are mandatory (required by legislation) or voluntary.

Disclosure Requirement E2-4 – Pollution of air, water and soil

26.The undertaking shall disclose the pollutants that it emits through its own operations, as well as the microplastics it generates or uses.

27.The objective of this Disclosure Requirement is to provide an understanding of the emissions that the undertaking generates to air, water and soil in its own operations, and of its generation and use of microplastics.

28.The undertaking shall disclose the amounts of:

(a)each pollutant listed in Annex II of Regulation (EC) No 166/2006 of the European Parliament and of the Council 64  (European Pollutant Release and Transfer Register “E-PRTR Regulation”)emitted to air, water and soil, with the exception of emissions of GHGs which are disclosed in accordance with ESRS E1 Climate Change 65 ;

(b)microplastics generated or used by the undertaking.

29.The amounts referred in paragraph 28 shall be consolidated amounts including the emissions from those facilities over which the undertaking has financial control and those over which it has operational control. The consolidation shall include only the emissions from facilities for which the applicable threshold value specified in Annex II of Regulation (EC) No 166/2006 is exceeded.

30.The undertaking shall put its disclosure into context and describe:

(a)the changes over time,

(b)the measurement methodologies; and

(c)the process(es) to collect data for pollution-related accounting and reporting, including the type of data needed and the information sources.

31.When an inferior methodology compared to direct measurement of emissions is chosen to   quantify emissions, the reasons for choosing this inferior methodology shall be outlined by  the undertaking. If the undertaking uses estimates, it shall disclose the standard, sectoral  study or sources which form the basis of its estimates, as well as the possible degree of uncertainty and the range of estimates reflecting the measurement uncertainty.

Disclosure Requirement E2-5 – Substances of concern and substances of very high concern

32.The undertaking shall disclose information on the production, use, distribution, commercialisation and import/export of substances of concern and substances of very high concern, on their own, in mixtures or in articles.

33.The objective of this Disclosure Requirement is to enable an understanding of the impact of the undertaking on health and the environment through substances of concern and through substances of very high concern on their own. It is also to enable an understanding of the undertaking’s material risks and opportunities, including exposure to those substances and risks arising from changes in regulations.

34.The disclosure required by paragraph 32 shall include the total amounts of substances of concern that are generated or used during the production or that are procured, and the total amounts of substances of concern that leave its facilities as emissions, as products, or as part of products or services split into main hazard classes of substances of concern.

35.The undertaking shall present separately the information for substances of very high concern.

Disclosure Requirement E2-6 – Anticipated financial effects from material pollution-related risks and opportunities

36.The undertaking shall disclose the anticipated financial effects of material pollution-related risks and opportunities.

37.The information required by paragraph 36 is in addition to the information on current financial effects on the undertaking’s, financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d).

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

(a)anticipated financial effects due to material risks arising from pollution-related impacts and dependencies and how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s , financial position financial performance and cash flows, over the short-, medium- and long-term.

(b)anticipated financial effects due to material opportunities related to pollution prevention and control.

39.The disclosure shall include:

(a)a quantification of the anticipated financial effects in monetary terms before considering pollution-related actions, or where not possible without undue cost or effort, qualitative information. For financial effects arising from opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);

(b)a description of the effects considered, the related impacts and the time horizons in which they are likely to materialise; and

(c)the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.

40.The information provided under paragraph 38(a) shall include:

(a)the share of net revenue made with products and services that are or that contain substances of concern, and the share of net revenue made with products and services that are or that contain substances of very high concern;

(b)the operating and capital expenditures incurred in the reporting period in conjunction with major incidents and deposits;

(c)the provisions for environmental protection and remediation costs, e.g., for rehabilitating contaminated sites, recultivating landfills, removal of environmental contamination at existing production or storage sites and similar measures.

41.The undertaking shall disclose any relevant contextual information including a description of material incidents and deposits whereby pollution had negative impacts on the environment and/or is expected to have negative effects on the undertaking’s financial cash flows, financial position and financial performance with short-, medium- and long-term time horizons.

Appendix A: Application Requirements

This Appendix is an integral part of ESRS E2. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

ESRS 2 General disclosures

Impact, risk and opportunity management

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

AR 1.When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of pollution in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

(a)Phase 1: locate where in its own operations and its upstream and downstream value chain the interface with nature takes place;

(b)Phase 2: evaluate the pollution-related dependencies and impacts;

(c)Phase 3: assess the material risks and opportunities; and

(d)Phase 4: prepare and report the results of the materiality assessment.

AR 2.The materiality assessment for ESRS E2 corresponds to the first three phases of this LEAP approach. The fourth phase addresses the outcome of the process.

AR 3.The process to assess the materiality of impacts, dependencies, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities, and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

AR 4.The sub-topics covered by the materiality assessment under ESRS E2 include:

(a)pollution of air, water and soil (excluding GHG emissions and waste), microplastics, and substances of concern;

(b)dependencies on ecosystem services that help to mitigate pollution-related impacts.

AR 5.In Phase 1, to locate where in its own operations and its upstream and downstream value chain the interface with nature takes place, the undertaking may consider:

(a)the site locations of direct assets and operations and related upstream and downstream activities across the value chain;

(b)the site locations where emissions of water, soil and air pollutants occur; and

(c)the sectors or business units related to those emissions or to the production, use, distribution, commercialisation and import/export of microplastics, substances of concern, and substances of very high concern, on their own, in mixtures or in articles.

AR 6.Phase 2 relates to the evaluation of the undertaking’s impacts and dependencies for each material site or sector/business unit including by assessing the severity and likelihood of impacts on the environment and human health.

AR 7.In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may :

(a)identify transition risks and opportunities in its own operations and its upstream and downstream value chain by the categories of:

I.policy and legal: e.g., introduction of regulation, exposure to sanctions and litigation (e.g., negligence towards ecosystems), enhanced reporting    obligations;

II.technology: e.g., substitution of products or services by products or services with a lower impact, transition away from substances of concern;

III.market: e.g., shifting supply, demand and financing, volatility or increased costs of some substances; and

IV.reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s role in pollution prevention and control;

(b)identify physical risks, e.g., sudden interruption of access to clean water, acid rain, or other pollution incidents that are likely to lead to or that have led to pollution with subsequent effects on the environment and society;

(c)identify opportunities related to pollution prevention and control categorised by:

I.resource efficiency: decrease quantities of substances used or improve efficiency of production process to minimise impacts;

II.markets: e.g., diversification of business activities;

III.financing: e.g., access to green funds, bonds or loans;

IV.resilience: e.g., diversification of substances used and control of emissions through innovation or technology; and

V.reputation: positive stakeholder relations as a result of a proactive stance on managing risks.

AR 8.In order to assess materiality, the undertaking may consider Commission Recommendation (EU) 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organisations.

AR 9.When providing information on the outcome of its materiality assessment, the undertaking shall consider:

(a)a list of site locations where pollution is a material issue for the undertaking’s own operations and its upstream and downstream value chain; and

(b)a list of business activities associated with pollution material impacts, risks and opportunities.

Disclosure Requirement E2-1 – Policies related to pollution

AR 10.The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 11.The description of the policies shall include information on the pollutant(s) or substance(s) covered.

AR 12.When disclosing information under paragraph 11, the undertaking may include contextual information on the relations between its policies implemented and how they may contribute to the EU Action Plan “Towards a Zero Pollution for Air, Water and Soil” with for instance elements on:

(a)how it is or may be affected by the targets and measures of the EU Action Plan  and the revision of existing directives (e.g., the Industrial Emissions Directive);

(b)how it intends to reduce its pollution footprint to contribute to these targets.

Disclosure Requirement E2-2 – Actions and resources related to pollution

AR 13.Where actions extend to upstream or downstream value chain engagements, the undertaking shall provide information on the types of actions reflecting these engagements.

AR 14.When considering resources, examples of operational expenditures could be investments in research and development to innovate and develop safe and sustainable alternatives to the use of substances of concern or to decrease emissions in a production   process.

AR 15.Where relevant to achieve its pollution-related policy objectives and targets, the undertaking may provide information on site-level action plans.

Metrics and targets

Disclosure Requirement E2-3 – Targets related to pollution

AR 16.If the undertaking refers to ecological thresholds when setting targets, it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020), or any other guidance with a scientifically acknowledged methodology that allows setting of science-based targets by identifying ecological thresholds and, if applicable, entity-specific allocations. Ecological thresholds can be local, national and/or global.

AR 17.The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Pollution Prevention and Control as defined in delegated acts adopted pursuant to Article 14(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Pollution Prevention and Control as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 13(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH critera.

AR 18.Where relevant to support the policies it has adopted, the undertaking may provide information on the targets set at site level.

AR 19.The targets may cover the undertaking’s own operations and/or the value chain.

Disclosure Requirement E2-4 – Pollution of air, water and soil

AR 20.The information to be provided on microplastics under paragraph 28(b) shall include microplastics that have been generated or used during production processes or that are procured, and that leave the undertaking’s facilities as emissions, as products, or as part of products or services. Microplastics may be unintentionally produced when larger pieces of plastics like car tires or synthetic textiles wear and tear or may be deliberately manufactured and  added to products for specific purposes (e.g., exfoliating beads in facial or body scrubs).

AR 21.The volume of pollutants shall be presented in appropriate mass units, for example tonnes or kilogrammes.

AR 22.The information required under this Disclosure Requirement shall be provided at the level of the reporting undertaking. However, the undertaking may disclose additional breakdown including information at site level or a breakdown of its emissions by type of source, by sector or by geographical area.

AR 23.When providing contextual information on the emissions, the undertaking may consider:

(a)the local air quality indices (AQI) for the area where the undertaking’s air pollution occurs;

(b)the degree of urbanisation (DEGURBA) 66  for the area where air pollution occurs; and

(c)the undertaking’s percentage of the total emissions of pollutants to water and soil occurring in areas at water risk, including areas of high-water stress. 

AR 24.The information provided under this Disclosure Requirement may refer to information the undertaking is already required to report under other existing legislation (i.e., IED, E- PRTR, etc.).

AR 25.Where the undertaking’s activities are subject to Directive 2010/75/EU of the European Parliament and of the Council on industrial emissions (IED) 67  and relevant Best Available Techniques Reference Documents (BREFs), irrespective of whether the activity takes place within the European Union or not, the undertaking may disclose the following additional information:

(a)a list of installations operated by the undertaking that fall under the IED and EU- BAT Conclusions;

(b)a list of any non-compliance incidents or enforcement actions necessary to ensure compliance in case of breaches of permit conditions;

(c)the actual performance, as specified in the EU-BAT conclusions for industrial installations, and comparison of the undertaking’s environmental performance against “emission levels associated with the best available techniques” the (BAT-AEL) as described in EU-BAT conclusions;

(d)the actual performance of the undertaking against “environmental performance levels associated with the best available techniques” (BAT-AEPLs) provided that they are applicable to the sector and installation; and

(e)a list of any compliance schedules or derogations granted by competent authorities according to Art. 15(4) Directive 2010/75/EU that are associated with the implementation of BAT-AELs.

Methodologies

AR 26.When providing information on pollutants, the undertaking shall consider approaches for quantification in the following order of priority:

(a)direct measurement of emissions, effluents or other pollution through the use of recognised continuous monitoring systems (e.g., AMS Automated Measuring Systems);

(b)periodic measurements;

(c)calculation based on site-specific data;

(d)calculation based on published pollution factors; and

(e)estimation.

AR 27.Regarding the disclosure of methodologies required by paragraph 30, the undertaking shall consider:

(a)whether its monitoring is carried out in accordance with EU BREF Standards or another relevant reference benchmark; and

(b)whether and how the calibration tests of the AMS were undertaken and the verification of periodic measurement by independent labs were ensured.

Disclosure Requirement E2-5 – Substances of concern and substances of very high concern

List of substances to be considered

AR 28.In order for the information to be complete, substances in the undertaking’s own operations and those procured shall be included (e.g., embedded in ingredients, semi- finished products, or the final product).

AR 29.The volume of pollutants shall be presented in mass units, for example tonnes or kilogrammes or other mass units appropriate for the volumes and type of pollutants being released.

Contextual information

AR 30.The information provided under this Disclosure Requirement may refer to information the undertaking is already required to report under other existing legislation (i.e., Directive 2010/75/EU, Regulation (EC) No 166/2006 “E-PRTR”, etc.).

Disclosure Requirement E2-6 – Anticipated financial effects from material pollution-related risks and opportunities

AR 31.The operating and capital expenditures related to incidents and deposits may include for instance:

(a)cost for eliminating and remediating the respective pollution of air, water and soil including environmental protection;

(b)damage compensation costs including payment of fines and penalties imposed by regulators or government authorities.

AR 32.Incidents may include for instance interruptions of production, whether arising from the supply chain and/or from own operations, which resulted in pollution.

AR 33.The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 34.The quantification of the anticipated financial effects in monetary terms under paragraph 38(a) may be a single amount or a range.

ESRS E3

WATER AND MARINE RESOURCES

Table of contents

Objective    

Interaction with other ESRS    

Disclosure requirements    

-ESRS 2 General disclosures    

Impact, risk and opportunity management

oDisclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material water and marine resources-related impacts, risks and opportunities    

oDisclosure Requirement E3-1 – Policies related to water and marine resources    

oDisclosure Requirement E3-2 – Actions and resources related to water and marine resources    

Metrics and targets

oDisclosure Requirement E3-3 – Targets related to water and marine resources    

oDisclosure Requirement E3-4 – Water consumption    

oDisclosure Requirement E3-5 – Anticipated financial effects from water and marine resources-related impacts, risks and opportunities    

Appendix A: Application Requirements    

-ESRS 2 General disclosures

Impact, risk and opportunity management

oDisclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material water and marine resources-related impacts, risks and opportunities    

oDisclosure Requirement E3-1 – Policies related to water and marine resources

oDisclosure Requirement E3-2 – Actions and resources related to water and marine resources policies

Metrics and targets

oDisclosure Requirement E3-3 – Targets related to water and marine resources    

oDisclosure Requirement E3-4 – Water consumption    

oDisclosure Requirement E3-5 – Anticipated financial effects from water and marine resources-related risks and opportunities

Objective

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

(a)how the undertaking affects water and marine resources, in terms of material positive and negative actual or potential impacts;

(b)any actions taken, and the result of such actions to prevent or mitigate material actual or potential negative impacts, to protect water and marine resources, also with reference to reduction of water consumption, and to address risks and opportunities;

(c)whether, how and to what extent the undertaking contributes to the European Green Deal’s ambitions for fresh air, clean water, healthy soil and biodiversity, as well as to the sustainability of the blue economy and fisheries sectors, taking account of the following: Directive 2000/60/EC of the European Parliament and of the Council 68 (EU Water Framework Directive), Directive 2008/56/EC of the European Parliament and of the Council 69 (EU Marine Strategy Framework Directive), Directive 2014/89/EU of the European Parliament and of the Council 70 (EU Maritime Spatial Planning Directive), the Sustainable Development Goals (in particular SDG 6 Clean water and sanitation and 14 Life below water), and respect of global environmental limits (e.g. biosphere integrity, ocean acidification, freshwater use, and biogeochemical flows planetary boundaries);

(d)the plans and capacity of the undertaking to adapt its strategy and business model in line with the promotion of sustainable water use based on long-term protection of available water resources; protection of aquatic ecosystems and restoration of freshwater and marine habitats;

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

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

2.This Standard sets out Disclosure Requirements related to water and marine resources. With regard to “water”, this standard covers surface water and groundwater. It includes disclosure requirements on water consumption in the undertaking’s activities, products and services, as well as related information on water withdrawals and water discharges.

3.With regard to “marine resources”, this standard covers the extraction and use of such resources, and associated economic activities. 

Interaction with other ESRS    

4.The topic of water and marine resources is closely connected to other environmental sub- topics such as climate change, pollution, biodiversity and circular economy. Thus, to provide a comprehensive overview of what could be material to water and marine resources, relevant Disclosure Requirements are covered in other environmental ESRS as follows:

(a)ESRS E1 Climate change, which addresses, in particular, acute and chronic physical risks which arise from water and ocean-related hazards caused or exacerbated by climate change, including increasing water temperature, changing precipitation patterns and types (rain, hail, snow/ice), precipitation or hydrological variability, ocean acidification, saline intrusion, sea level rise, drought, high water stress, heavy precipitation, flood and glacial lake outbursts;

(b)ESRS E2 Pollution, which addresses, in particular, the emissions to water, which includes emissions to oceans, and the use and generation of microplastics;

(c)ESRS E4 Biodiversity and ecosystems, which addresses, in particular, the conservation and sustainable use of and impact on freshwater aquatic ecosystems as well as the oceans and seas; and

(d)ESRS E5 Resource use and circular economy which addresses in particular waste management including plastic, and the transition towards the extraction of non-renewable resources of wastewater; reduced use of plastic; and the recycling of wastewater.

5.The undertaking’s impacts on water and marine resources affect people and communities. Material negative impacts on affected communities from water and marine resources-related impacts attributable to the undertaking are covered in ESRS S3 Affected communities.

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

Disclosure requirements

   

ESRS 2 General disclosures

7.The requirements of this section should be read in conjunction with and reported alongside  the disclosures required by ESRS 2 chapter 4 Impact, risk and opportunity management.

Impact, risk and opportunity management

Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material water and marine resources-related impacts, risks and opportunities

8.The undertaking shall describe the process to identify material impacts, risks and opportunities and shall provide information on:

(a) whether and how the undertaking it has screened its assets and activities in order to identify its actual and potential water and marine resources-related impacts, risks and opportunities in its own operations and its upstream and downstream value chain, and if so the methodologies, assumptions and tools used in the screening;

(b)whether and how it has conducted consultations, in particular, with affected communities 71 .

Disclosure Requirement E3-1 – Policies related to water and marine resources

9.The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to water and marine resources 72 .

10.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 water and marine resources-related impacts, risks and opportunities.

11.The disclosure required by paragraph 9 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to water and marine resources in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.

12.The undertaking shall indicate whether and how its policies address the following matters where material:

(a)water management including:

I.the use and sourcing of water and marine resources  in its own operations;

II.water treatment as a step towards more sustainable sourcing of water; and

III.the prevention and abatement of water pollution resulting from its activities.

(b)product and service design in view of addressing water-related issues and the preservation of marine resources; and

(c)commitment to reduce material water consumption in areas at water risk in its own operations and along the upstream and downstream value chain.

13.If at least one of the sites of the undertaking is located in an area of high-water stress and it is not covered by a policy, the undertaking shall state this to be the case and provide reasons for not having adopted such a policy. The undertaking may disclose a timeframe in which it aims to adopt such a policy. 73

14.The undertaking shall specify whether it has adopted policies or practices related to sustainable oceans and seas 74 .

Disclosure Requirement E3-2 – Actions and resources related to water and marine resources

15.The undertaking shall disclose its water and marine resources-related actions and the resources allocated to their implementation.

16.The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the water and marine resources-related policy objectives and targets.

17.The description of the actions and resources shall follow the principles defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters. In addition to ESRS 2 MDR-A, the undertaking may specify to which layer in the mitigation hierarchy an action and 

18.Resources can be allocated to:

(a)avoid the use of water and marine resources;

(b)reduce the use of water and marine resources such as through efficiency measures;

(c)reclaiming and reuse of water; or 

(d)restoration and regeneration of aquatic ecosystem and water bodies.

19.The undertaking shall specify actions and resources in relation to areas at water risk, including areas of high-water stress.

Metrics and targets

Disclosure Requirement E3-3 – Targets related to water and marine resources

20.The undertaking shall disclose the water and marine resources-related targets it has set.

21.The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has adopted to support its water and marine resources-related policies and address its material water and marine resources-related impacts, risks and opportunities.

22.The description of the targets shall contain the information requirements defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.

23.The disclosure required by paragraph 20 shall indicate whether and how its targets relate to:

(a)the management of material impacts, risks and opportunities related to areas at water risk, including improvement of the water quality;

(b)the responsible management of marine resources impacts, risks and opportunities including the nature and quantity of marine resources-related commodities (such as gravels, deep-sea minerals, seafood) used by the undertaking; and

(c)the reduction of water consumption, including an explanation of how those targets relate to areas at water risk, including areas of high water-stress.

24.In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:

(a)the ecological thresholds identified, and the methodology used to identify such thresholds;

(b)whether or not the thresholds are entity-specific and if so, how they were determined; and

(c)how responsibility for respecting identified ecological thresholds is allocated in the undertaking.

25.The undertaking shall specify as part of the contextual information, whether the targets it has set and presented are mandatory (required by legislation) or voluntary.

Disclosure Requirement E3-4 – Water consumption

26.The undertaking shall disclose information on its water consumption performance related to its material impacts, risks and opportunities.

27.The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s water consumption and any progress by the undertaking in relation to its targets.

28.The disclosure required by paragraph 26 relates to own operations and shall include:

(a)total water consumption in m3;

(b)total water consumption in m3 in areas at water risk, including areas of high-water stress;

(c)total water recycled and reused in m3; 75

(d)total water stored and changes in storage in m3; and

(e)any contextual information necessary regarding points (a) to (d), including the water basins’ water quality and  quantity, how the data have been compiled, such as any standards, methodologies, and assumptions used, including whether the information is calculated, estimated, modelled, or sourced from direct measurements, and the approach taken for this, such as the use of any sector-specific factors.

29.The undertaking shall provide information on its water intensity: total water consumption in its own operations in m3 per million EUR net revenue 76 .

Disclosure Requirement E3-5 – Anticipated financial effects from material water and marine resources-related risks and opportunities

30.The undertaking shall disclose the anticipated financial effects of material water and marine resources-related risks and opportunities.

31.The information required by paragraph 30 is in addition to the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d).   

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

(a)anticipated financial effects due to material risks arising from water and marine resources-related impacts and dependencies and how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance and cash flows, over the short-, medium- and long-term; and

(b)anticipated financial effects due to material opportunities related to water and marine resources.

33.The disclosure shall include:

(a)a quantification of the anticipated financial effects in monetary terms before considering water and marine resources-related actions or where not possible without undue cost or effort, qualitative information. For financial effects arising from opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);

(b)a description of the effects considered, the impacts and dependencies to which they relate, and the time horizons in which they are likely to materialise; and

(c)the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.

Appendix A: Application Requirements

This appendix is an integral part of the ESRS E3. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

ESRS 2 General disclosures

Impact, risk and opportunity management

Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material water and marine resources-related impacts, risks and opportunities

AR 1.When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of water and marine resources in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

(a)Phase 1: locate where in its own operations and along the value chain the interface with nature takes place;

(b)Phase 2: evaluate the dependencies and impacts;

(c)Phase 3: assess the material risks and opportunities; and

(d)Phase 4: prepare and report the results of the materiality assessment.

AR 2.The materiality assessment for ESRS E3 corresponds to the first three phases of this LEAP approach, the fourth phase addresses the outcome of the process.

AR 3.The processes to assess the materiality of impacts, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities, and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

AR 4.The sub-topics related to water and marine resources covered by the materiality assessment include:

(a)water, which encompasses the consumption of surface water, groundwater, as well as withdrawals and discharges of water; and

(b)marine resources, which encompasses the extraction and use of such resources and associated economic activities.

AR 5.In phase 1, to locate where there are areas at water risk, and areas where there is an interface with marine resources that could lead to material impacts and dependencies in its own operations and along its upstream and downstream  value chain, the undertaking may consider:

(a)the locations of direct assets and operations and related upstream and downstream activities across the value chain;

(b)the sites located in areas at water risk, including areas of high-water stress;   and

(c)the sectors or business units that are interfacing with water or marine resources in these priority locations.

AR 6.The undertaking shall consider river basins as the relevant level for assessment of locations and combine that approach with an operational risk assessment of its facilities  and the facilities of suppliers with material impacts and risks.

AR 7.The undertaking shall consider the criteria for defining the status of water bodies according to the relevant Annexes of Directive 2000/60/EC (Water Framework Directive) as well as the guidance documents provided for implementation of the Water Framework Directive. The list of guidance documents can be accessed under the European Commission’s Environment home page.

AR 8.In phase 2, to evaluate its impacts and dependencies for each priority location identified under AR 5, the undertaking may:

(a)identify business processes and activities that lead to impacts and dependencies on environmental assets and ecosystem services;

(b)identify water and marine resources-related impacts and dependencies across the undertaking’s value chain; and

(c)assess the severity and likelihood of the positive and negative impacts on water and marine resources.

AR 9.For the identification of water and marine resources-related dependencies, the undertaking may rely on international classifications such as the Common International Classification of Ecosystem Services (CICES).

AR 10.When identifying its marine resources-related dependencies, the undertaking shall consider if it depends upon key marine resources-related commodities, including but not limited to gravels and seafood products.

AR 11.Marine resources are defined according to their use by human societies and must be considered in relation to the pressure they are subject to. Some of the pressure indicators  are presented in other ESRS, namely microplastics and emissions to water in ESRS E2 and plastic waste in ESRS E5.

AR 12.Examples of marine resources dependencies which may be considered by the undertaking are:

(a)dependencies on commercially exploited fish and shellfish in its own operations and its upstream and downstream value chain; and

(b)fishing activity that involves mobile bottom trawling, which can also have negative impacts on the seabed.

AR 13.In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may :

(a)identify transition risks and opportunities in its own operations and its value chain by the categories of:

I.policy and legal: e.g., introduction of regulation or policy (e.g., changes such as increased water protection, increased quality of water regulations, regulation of flows of water supply), ineffective governance of water bodies or marine resources, in particular across boundaries (e.g., transboundary governance and cooperation) resulting in water or oceans degradation, exposure to sanctions and litigation (e.g., non-respect of permits or allocations; negligence towards or killing of threatened marine species), enhanced reporting obligations on marine ecosystems and related services;

II.technology: e.g., substitution of products or services by products or services with a lower impact on water and marine resources, transition to more efficient and cleaner technologies (i.e., with lower impacts on oceans and water), new monitoring technologies (e.g., satellite), water purification, flood protection;

III.market: e.g., shifting supply, demand and financing, volatility or increased costs of water or marine resources;

IV.reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s impact on water and marine resources; and

V.contribution to systemic risks via its own operations and its upstream and downstream value chain, including the risks that a marine ecosystem collapses or the risks that a critical natural system no longer functions (e.g., tipping points are reached, summing physical risks);

(b)identify physical risk including water quantity (water scarcity, water stress), water quality, infrastructure decay or unavailability of some marine resources-related commodities (e.g. the rarefaction of some species of fish or other underwater marine living organisms sold as products by the undertaking) leading for instance to the impossibility of  running operations in certain geographical areas;

(c)identify opportunities categorised by:

I.resource efficiency: e.g., transition to more efficient services and processes requiring less water and marine resources;

II.markets: e.g., development of less resource-intense products and services, diversification of business activities;

III.financing: e.g., access to green funds, bonds or loans;

IV.resilience: e.g., diversification of marine or water resources and business  activities (e.g., starting a new business unit on ecosystem restoration), investing in green infrastructures, nature-based solutions, adopting recycling and circularity mechanisms that reduce the dependencies on water or marine resources; and

V.reputation: positive stakeholder engagement as a result of a proactive stance on managing nature-related risks (e.g., leading to preferred partner status).

AR 14.The undertaking may rely on primary, secondary or modelled data collection or other relevant approaches to assess material impacts, dependencies, risks and opportunities, including Commission Recommendation 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organisations (Annex I – Product Environmental Footprint; Annex III – Organisation Environmental Footprint).

AR 15.When providing information on the outcome of the materiality assessment, the undertaking shall consider:

(a)a list of geographical areas where water is a material issue for the undertaking’s own operations and its upstream and downstream value chain;

(b)a list of marine resources-related commodities used by the undertaking which are material to the good environmental status of marine waters as well as for the protection of marine resources; and

(c)a list of sectors or segments associated with water and marine resources material impacts, risks and opportunities.

Disclosure Requirement E3-1 – Policies related to water and marine resources

AR 16.The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 17.When disclosing information under paragraph 9, the undertaking may disclose whether its policies :

(a)prevent further deterioration and protect and enhance the status of water bodies and aquatic ecosystems;

(b)promote sustainable water use based on a long-term protection of available water resources;

(c)aim at enhanced protection and improvement of the aquatic environment;

(d)promote a good environmental status of marine water; and

(e)promote reduction of water withdrawals and water discharges. 

AR 18.The undertaking may also disclose information about policies which:

(a)contribute  to good ecological and chemical quality of surface water bodies and good chemical quality and quantity of groundwater bodies, in order to protect  human health, water supply, natural ecosystems and biodiversity, the good environmental status of marine waters and the protection of the resource base upon which marine related activities depend;

(b)minimise material impacts and risks and implement mitigation measures that aim to maintain the value and functionality of priority services and to increase resource efficiency on own operations; and

(c)avoid impacts on affected communities.

Disclosure Requirement E3-2 – Actions and resources related to water and marine resources policies

AR 19.When disclosing information required under paragraph 15, the undertaking shall consider  the actions, or action plans, contributing to address the material impacts, risks and opportunities identified. Useful guidance is provided by the Alliance for Water Stewardship (AWS).

AR 20.Considering that water and marine resources are shared resources which may require collective actions, or action plans, involving other stakeholders, the undertaking may provide information on those specific collective actions, including information on other parties (competitors, suppliers, retailers, customers, other business partners, local communities and authorities, government agencies…) and specific information on the project, its specific contribution, its sponsors and other participants.

AR 21.When providing information on capital expenditures, the undertaking may consider expenditures related, for example, to stormwater drain rehabilitation, pipelines, or machinery used to manufacture new low water-use products.

Metrics and targets

Disclosure Requirement E3-3 – Targets related to water and marine resources

AR 22.If the undertaking refers to ecological thresholds when setting targets, it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020). It may also refer to any other guidance with a scientifically acknowledged methodology that enables the setting of science-based targets by identifying ecological thresholds and, if applicable, organisation-specific allocations. Ecological thresholds can be local, national and/or global.

AR 23.The undertaking may provide targets relating to:

(a)the reduction of water withdrawals; and

(b)the reduction of water discharges.

AR 24.If the undertaking provides targets on withdrawals, it may include water withdrawal from polluted soils and aquifers, and water withdrawn and treated for remediation purposes.

AR 25.If the undertaking provides targets on discharges, it may include water discharges to groundwater such as reinjection to aquifers, or water returning to a groundwater source via a soakaway or a swale.

AR 26.The targets may cover its own operations and/or its upstream and downstream value chain.

AR 27.The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Water and Marine Resources as defined in the Commission delegated acts adopted pursuant to Article 12(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Water and Marine Resources as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 13(2), Article 14(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

Disclosure Requirement E3-4 – Water consumption

AR 28.The undertaking may operate in various areas at water risk. When disclosing information under paragraph 28 (b), the undertaking shall include such information only for those areas that have been identified as material in accordance with ESRS2 IRO-1 and ESRS2 SBM-3.

AR 29.When disclosing contextual information on water consumption performance required by paragraph 26, the undertaking shall explain the calculation methodologies and more specifically the share of the measure obtained from direct measurement, from sampling and extrapolation, or from best estimates.

AR 30.The undertaking may provide information on other breakdowns (i.e., per sector or segments).

AR 31.When disclosing information required by paragraph 29 the undertaking may provide additional intensity ratios based on other denominators.

AR 32.The undertaking may also provide information on its water withdrawals and water discharges.

Disclosure Requirement E3-5 – Anticipated financial effects from material water and marine resources-related risks and opportunities

AR 33.The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 34.The quantification of the anticipated financial effects in monetary terms under paragraph 39(a) may be a single amount or a range.

ESRS E4

BIODIVERSITY AND ECOSYSTEMS

Table of contents

Objective    

Interaction with other ESRS    

Disclosure Requirements    

-ESRS 2 General disclosures

Strategy

oDisclosure Requirement E4-1 – Transition plan and consideration of biodiversity and ecosystems in strategy and business model    

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 processes to identify and assess material biodiversity and ecosystem-related impacts, risks and opportunities

oDisclosure Requirement E4-2 – Policies related to biodiversity and ecosystems

oDisclosure Requirement E4-3 – Actions and resources related to biodiversity and ecosystems    

Metrics and targets

oDisclosure Requirement E4-4 – Targets related to biodiversity and ecosystems

oDisclosure Requirement E4-5 – Impact metrics related to biodiversity and ecosystems change    

oDisclosure Requirement E4-6 – Anticipated financial effects from biodiversity and ecosystem-related risks and opportunities    

Appendix A: Application Requirements    

-ESRS 2 General disclosures

Impact, risk and opportunity management

oDisclosure Requirement E4-1 – Transition plan and consideration of biodiversity and ecosystems in strategy and business model    

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

oDisclosure Requirement E4-2 – Policies related to biodiversity and ecosystems

oDisclosure Requirement E4-3 – Actions and resources related to biodiversity and ecosystems    

Metrics and targets

oDisclosure Requirement E4-4 – Targets related to biodiversity and ecosystems

oDisclosure Requirement E4-5 – Impact metrics related to biodiversity and ecosystems change    

oDisclosure Requirement E4-6 – Anticipated financial effects from biodiversity and ecosystem-related risks and opportunities    

Objective    

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

(a)how the undertaking affects biodiversity and ecosystems, in terms of material positive and negative, actual and potential impacts, including the extent to which it contributes to the drivers of biodiversity and ecosystem loss and degradation;

(b)any actions taken, and the result of such actions, to prevent or mitigate material negative actual or potential impacts and to protect and restore biodiversity and ecosystems, and to address risks and opportunities; and

(c)the plans and capacity of the undertaking to adapt its strategy and business model in line with:

I.respecting planetary boundaries related to biosphere integrity and land-system change;

II.the vision of the Kunming-Montreal Global Biodiversity Framework and its relevant goals and targets;

III.relevant aspects of the EU Biodiversity Strategy for 2030 77 ;

IV.Directive 2009/147/EC of the European Parliament and of the Council and Council Directive 92/43/EEC (EU Birds and Habitats Directives) 78 ; and

V.Directive 2008/56/EC of the European Parliament and of the Council (Marine Strategy Framework Directive 79  ;

(d)the nature, type and extent of the undertaking’s material risks, dependencies and opportunities related to biodiversity and ecosystems, and how the undertaking manages them; and

(e)the financial effects on the undertaking over the short-, medium- and long-term of material risks and opportunities arising from the undertaking’s impacts and dependencies on biodiversity and ecosystems.

2.This Standard sets out Disclosure Requirements related to the undertaking’s relationship to terrestrial, freshwater and marine habitats, ecosystems and populations of related fauna and flora species, including diversity within species, between species and of ecosystems and their interrelation with indigenous peoples and other affected communities.

3.The terms “biodiversity” and “biological diversity” refer to the variability among living organisms from all sources including, inter alia, terrestrial, freshwater, marine and other aquatic ecosystems and the ecological complexes of which they are part.

Interaction with other ESRS

4.‘Biodiversity and ecosystems’ are closely connected to other environmental matters. The main direct drivers of biodiversity and ecosystems change are climate change, pollution, land-use change, freshwater-use change and sea-use change, direct exploitation of organisms and invasive alien species. These drivers are covered in this standard, except for climate change (covered by ESRS E1) and pollution (covered by ESRS E2).

5.To obtain a comprehensive understanding of material impacts and dependencies on biodiversity and ecosystems, the Disclosure Requirements of other environmental ESRS should be read and interpreted in conjunction with the specific disclosure requirements of this Standard. The relevant disclosure requirements covered in other environmental ESRS are:

(a)ESRS E1 Climate change, which addresses in particular GHG emissions and energy resources (energy consumption);

(b)ESRS E2 Pollution, which addresses pollution to air, water and soil;

(c)ESRS E3 Water and marine resources which addresses in particular water resources (water consumption) and marine resources;

(d)ESRS E5 Resource use and circular economy addresses in particular the transition away from extraction of non-renewable resources and the implementation of practices that prevent waste generation, including pollution generated by waste.

6.The undertaking’s impacts on biodiversity and ecosystems affect people and communities. When reporting on material negative impacts on affected communities from biodiversity and ecosystem change under ESRS E4, the undertaking shall consider the requirements of ESRS S3 Affected communities.

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

Disclosure Requirements

ESRS 2 General disclosures

8.The requirements of this section shall be read in conjunction with the disclosures required  by ESRS 2 Chapter 2 Governance, Chapter 3 Strategy and Chapter 4 Impact, risk and opportunity management.

9.The resulting disclosures shall be presented alongside the disclosures required by ESRS 2, except for ESRS 2 SBM-3, for which the undertaking has an option to present the disclosures alongside the topical disclosures.

10.In addition to the requirements in ESRS 2, this Standard also includes the topic specific Disclosure Requirement E4-1 Transition plan and consideration of biodiversity and ecosystems in strategy and business model.

Strategy

Disclosure Requirement E4-1 – Transition plan and consideration of biodiversity and ecosystems in strategy and business model

11.The undertaking shall disclose how its biodiversity and ecosystem impacts, dependencies, risks and opportunities originate from and trigger adaptation of its strategy and business model.

12.The objective of this Disclosure Requirement is to enable an understanding of the resilience of the undertaking’s strategy and business model in relation to biodiversity and ecosystems, and of the compatibility of the undertaking’s strategy and business model with regard to relevant local, national and global public policy targets related to biodiversity and ecosystems.

13.The undertaking shall describe the resilience of its strategy and business model in relation to biodiversity and ecosystems. The description shall include:

(a)an assessment of the resilience of the current business model and strategy to biodiversity and ecosystems-related physical, transition and systemic risks;

(b)the scope of the resilience analysis in relation to the undertaking’s own operations and its upstream and downstream value chain and in relation to the risks considered in that analysis;

(c)the key assumptions made;

(d)the time horizons used;

(e)the results of the resilience analysis; and

(f)the involvement of stakeholders, including, where appropriate, holders of indigenous and local knowledge.

14.If information specified in this disclosure requirement is disclosed by the undertaking as part of the information required under ESRS 2 SBM-3, the undertaking may refer to the information it has disclosed under ESRS 2 SBM-3.

15.The undertaking may disclose its transition plan to improve and, ultimately, achieve alignment of its business model and strategy with the vision of the Kunming-Montreal Global Biodiversity Framework and its relevant goals and targets, the EU Biodiversity Strategy for 2030, and with respecting planetary boundaries related to biosphere integrity and land-system change.

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

16.The undertaking shall disclose:

(a)a list of material sites in its own operations, including sites under its operational control, based on the results of paragraph 17(a). The undertaking shall disclose these locations by:

I.specifying the activities negatively affecting biodiversity sensitive areas 80 ;

II.providing a breakdown of sites according to the impacts and dependencies identified, and to the ecological status of the areas (with reference to the specific ecosystem baseline level) where they are located; and

III.specifying the biodiversity-sensitive areas impacted, for users to be able to determine the location and the responsible competent authority with regards to the activities specified in paragraph 16(a) i.

(b)whether it has identified material negative impacts with regards to land degradation, desertification or soil sealing 81 ; and

(c)whether it has operations that affect threatened species 82 .

Impact, risk and opportunity management

Disclosure Requirement related to ESRS 2 IRO-1 Description of processes to identify and assess material biodiversity and ecosystem-related impacts, risks, dependencies and opportunities

17.The undertaking shall describe its process to identify material impacts, risks, dependencies and opportunities. The description of the process shall include whether and how the undertaking:

(a)identified and assessed actual and potential impacts on biodiversity and ecosystems at own site locations and in the upstream and downstream value chain, including assessment criteria applied;

(b)identified and assessed dependencies on biodiversity and ecosystems and their services at own site locations and in the upstream and downstream value chain, including assessment criteria applied, and, if this assessment includes ecosystem services that are disrupted or likely to be;

(c)identified and assessed transition and physical risks and opportunities related to biodiversity and ecosystems, including assessment criteria applied based on its impacts and dependencies;

(d)considered systemic risks;

(e)conducted consultations with affected communities on sustainability assessments of shared biological resources and ecosystems and, in particular:

I.when a site, a raw material production or sourcing is likely to negatively impact biodiversity and ecosystems, the identification of the specific sites, raw materials production or sourcing with negative or potentially negative impacts on affected communities;

II.when affected communities are likely to be impacted, the undertaking, shall disclose how these communities were involved in the materiality assessment; and

III.with respect to impacts on ecosystem services of relevance to affected communities in its own operations, the undertaking shall indicate how negative impacts may be avoided. If these impacts are unavoidable, the undertaking may indicate its plans to minimise them and implement mitigation measures that aim to maintain the value and functionality of priority services.

18.The undertaking may disclose whether and how it has used biodiversity and ecosystems scenario analysis to inform the identification and assessment of material risks and opportunities over short-, medium- and long-term time horizons. If the undertaking has used such scenario analysis, it may disclose the following information:

(a)why the considered scenarios were selected;

(b)how the considered scenarios are updated according to evolving conditions and emerging trends; and

(c)whether the scenarios are informed by expectations published by authoritative intergovernmental bodies, such as the Convention for Biological Diversity and, where relevant, by scientific consensus, such as that expressed by the Intergovernmental Science-policy Platform on Biodiversity and Ecosystem Services (IPBES).

19.The undertaking shall specifically disclose:

(a)whether or not it has sites located in or near biodiversity-sensitive areas and whether activities related to these sites negatively affect these areas by leading to the deterioration of natural habitats and the habitats of species and to the disturbance of the species for which a protected area has been designated; and

(b)whether it has been concluded that it is necessary to implement biodiversity mitigation measures, such as those identified in: Directive 2009/147/EC of the European Parliament and of the Council on the conservation of wild birds; Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora; an Environmental Impact Assessment (EIA) as defined in Article 1(2), point (g), of Directive 2011/92/EU of the European Parliament and of the Council 83 on the assessment of the effects of certain public and private projects on the environment; and for activities located in third countries, in accordance with equivalent national provisions or international standards, such as the International Finance Corporation (IFC) Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources.

Disclosure Requirement E4-2 – Policies related to biodiversity and ecosystems

20.The undertaking shall describe its adopted policies to manage its material impacts, risks, dependencies, and opportunities related to biodiversity and ecosystems.

21.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 biodiversity and ecosystem- related impacts, dependencies, risks and opportunities.

22.The disclosure required by paragraph 20 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks, dependencies and opportunities related to biodiversity and ecosystems in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters).  

23.In addition to the provisions of ESRS 2 MDR-P the undertaking shall describe whether and how its biodiversity and ecosystems-related policies:

(a)relate to the matters specified in ESRS E4 AR 4;

(b)relate to its material biodiversity and ecosystems-related impacts;

(c)relate to material dependencies and material physical and transition risks and opportunities;

(d)support traceability of products, components and raw materials with material actual or potential impacts on biodiversity and ecosystems along the value chain;

(e)address production, sourcing or consumption from ecosystems that are managed to maintain or enhance conditions for biodiversity, as demonstrated by regular monitoring and reporting of biodiversity status and gains or losses; and

(f)address social consequences of biodiversity and ecosystems-related impacts.

24.The undertaking shall specifically disclose whether it has adopted:

(a)biodiversity and ecosystem protection policy covering operational sites owned, leased, or managed in or near a biodiversity sensitive area;

(b)sustainable land / agriculture practices or policies 84 ;

(c)sustainable oceans / seas practices or policies 85 ; and

(d)policies to address deforestation 86 .

Disclosure Requirement E4-3 – Actions and resources related to biodiversity and ecosystems

25.The undertaking shall disclose its biodiversity and ecosystems-related actions and the resources allocated to their implementation.

26.The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned that significantly contribute to the achievement of biodiversity and ecosystems-related policy objectives and targets.

27.The description of key actions and resources shall follow the mandatory content defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.

28.In addition, the undertaking :

(a)may disclose how it has applied the mitigation hierarchy with regard to its actions (avoidance, minimisation, restoration/rehabilitation, and compensation or offsets);

(b)shall disclose whether it used biodiversity offsets in its action plans. If the actions contain biodiversity offsets, the undertaking shall include the following information:

I.the aim of the offset and key performance indicators used;

II.the financing effects (direct and indirect costs) of biodiversity offsets in monetary terms; and;

III.a description of offsets including area, type, the quality criteria applied and the standards that the biodiversity offsets comply with;

(c)shall describe whether and how it has incorporated local and indigenous knowledge and nature- based solutions into biodiversity and ecosystems-related actions.

Metrics and targets

Disclosure Requirement E4-4 – Targets related to biodiversity and ecosystem