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How to describe the Business model in ESRS. Template included

How to use and describe the business model in ESRS.
This article includes information on how to use and disclose business model information in ESRS (including a template to describe the business model and an educational video) and the role of the business model.

The Business Model in ESRS

The ESRS are the standards developed as part of the CSRD, which is the directive that mandates sustainability reporting. ESRS provides the specific reporting requirements under this directive.

The business model(s) shall be disclosed under ESRS 2 SBM-3 42, and information related to the business model is included in approximately 50 other data points to disclose in ESRS.

“Business model” is mentioned in the original English version of ESRS 145 times! The Business model is a fundamental concept in the European Sustainability Reporting Standards (ESRS), particularly outlined in ESRS 1, which encompasses the general requirements for sustainability reporting.

The business model is also fundamental to be able to perform a double materiality assessment and is one of the first thing to describe when using Mentcon model for ESRS.

Video summary

Short educational video of how to use and disclose the Business model in the ESRS sustainabilty statement and an overview of the Business model canvas:

The Definition of Business Model in ESRS

“The undertaking’s system of transforming inputs through its activities into outputs and outcomes that aims to fulfil the undertaking’s strategic purposes and create value over the short-, medium- and long-term. ESRS use the term “business model” in the singular, although it is recognised that undertakings may have more than one business model”.

Thought, how to define the Business model(s) is not described in ESRS.

Role of the Business Model in ESRS, Summary

Integration into Sustainability Reporting

  • Foundational Element. The business model of an undertaking is considered a foundational element that shapes how sustainability impacts, risks, and opportunities are identified, assessed, and managed. It provides context for understanding all sustainability-related activities.
  • Disclosure Requirements: ESRS requires that undertakings disclose how their business model interacts with their sustainability strategy and impacts. This includes explaining how the business model influences, and is influenced by, sustainability matters.

Strategic Alignment

  • Alignment with Sustainability Goals. The business model must be aligned with sustainability goals, ensuring that sustainability considerations are embedded in core business strategies. This alignment helps in identifying areas where the business model can adapt to enhance sustainability outcomes.
  • Informing Strategy and Business Model Adjustments. Sustainability considerations identified through the materiality assessment process (which includes examining the business model) should inform strategic adjustments to optimize sustainability performance.

Utilization of the Business Model in ESRS

Materiality Assessment

  • Identifying Impacts, Risks and Opportunities. The business model helps in identifying which sustainability matters are material based on the business’s activities, resources, and relationships. This is crucial for focusing efforts on the most significant sustainability challenges and opportunities.
  • Driving the Reporting Scope. The scope of sustainability reporting is significantly shaped by the business model, as it defines what the company does, how it creates value, and the resources it relies upon, which in turn determine the sustainability topics to be reported.

Governance and Strategy Development

  • Guidance for Governance Structures. Understanding the business model aids in designing governance structures that are capable of managing sustainability issues effectively. This includes decisions about oversight, responsibilities, and the integration of sustainability into corporate governance.
  • Strategy Formulation and Execution. Insights from the business model are used to craft sustainability strategies that are coherent with the business’s core operations and future objectives.

Risk and Opportunity Management

  • Assessing Sustainability Risks. The business model analysis helps in pinpointing potential risks and vulnerabilities related to sustainability that the business might face, allowing for the development of mitigation strategies.
  • Seizing Opportunities. Similarly, a clear understanding of the business model can reveal opportunities for sustainability innovations and enhancements that align with business operations and market positioning.

Reporting and Disclosure

  • Comprehensive Disclosure. Companies are required to describe their business model within their sustainability statements, providing stakeholders with a clear understanding of how sustainability is integrated into the core business.
  • Enhancing Transparency. Reporting on how the business model interacts with sustainability issues enhances transparency and helps stakeholders understand the business’s sustainability journey and commitments.

 

How to Describe and Disclose all Business Model Related Data Points in ESRS?

All components of the complex reporting process should be designed to align, including the business model, to prevent numerous unpleasant surprises when it’s time to describe hundreds of data points in the Sustainability statement.

How to use and disclose the business model throughout the Sustainability report, is impossible to answer generally. Here is how it is solved efficiently when using Mentcon model.

In the web-app Mentcon model for ESRS, a template (in 10 languages) how to describe and analyse the business model(s) is included. It’s based on Alexander Osterwalder’s Business model canvas.

Explanations of how to disclose relevant information of the business model in all Data points required is solved individually for each disclosure requirement. Some are inserted automatically based on the Company’s description of the business model in Mentcon model App. Others are disclosed with help of templates capturing the specific Data points disclosure requirements of how to disclose, with examples from other companies—to make it easy to understand what to disclose!

Template for Describing the Business Model in ESRS

If your company isn’t using the Mentcon model’s web-app, Osterwalder’s Business Model Canvas is an excellent alternative for outlining your business model for ESRS disclosure purposes. The ESRS disclosure requirements clearly align with the structure and terminology of Osterwalder’s canvas, making it a good choice for ESRS-reporting.

To help you get started, we can send you a free Word template based on Osterwalder’s Business Model Canvas with instructions, including an example of how to disclose the business model in ESRS SBM-1 42. Contact us at Mentcon and mention the preferred language of the template. It’s available in English, Dansk, Deutsch, Espanol, Francais, Italiano, Nederlands, Polsk, Soumi and Swedish and soon in Norsk.

Or, simply describe it by using the text template below without the visual canvas by copy the text template below:

Business model template without the canvas

Business model

  1. Customer Segments
  • Who are our most important customers?
  • Define the different groups of people or organizations your business aims to reach and serve.
  • For each segment, understand their needs, behaviors, and how they prefer to be reached to be described in 2, 3 and 4.
  1. Value Propositions
  • What value do we deliver to the customer?
  • Describe the products or services you offer, focusing on the value they bring to customers. Identify the problems you solve or the needs you meet. Be clear about what makes your offer unique or better than competitors.
  1. Channels
  • Through which channels do our customer segments want to be reached?
  • List the ways you will communicate with and reach your customer segments to deliver your value proposition. This can include physical locations, digital platforms, and marketing channels.
  1. Customer Relationships
  • What type of relationship does each of our customer segments expect us to establish and maintain with them?
  • Describe the types of relationships you will establish with customers in each segment, ranging from personal assistance to automated services. Consider the cost of maintaining these relationships and how they are integrated with the rest of your business model.
  1. Revenue Streams
  • For what value are our customers really willing to pay?
  • Identify the sources of revenue for your business. This could be through direct sales, subscription fees, leasing, or other means. Clearly define the pricing mechanism for each revenue stream.
  1. Key Resources
  • What key resources do our value propositions require?
  • List the most important assets required to make your business model work. This could include physical assets, intellectual property, human resources, and financial resources.
  1. Key Partner
  • Who are our key partners?
  • Identify the network of suppliers and partners that make your business model work. Consider which activities are outsourced and what resources are acquired from partners.
  1. Key Activities
  • What key activities do our value propositions require?
  • Outline the crucial actions your company must take to operate successfully. This might involve production, problem-solving, platform management, or other core business activities.
  1. Cost Structure
  • What are the most important costs inherent in our business model?
  • Describe all costs involved in operating your business model. Distinguish between fixed and variable costs and understand how they relate to your revenue streams and key activities.

 

Example of a Business model disclosed under ESRS 2 SBM-1 42

Here is an example of a description of a business model, to be disclosed under ESRS 2 SBM-1 42.

Please note that this example is shortened to not reveal which enterprise has made the description and is approved by the enterprise for use as an example for other companies.

  1. Customer Segments

Residential Consumers: Individuals and families needing reliable and innovative home appliances.

Commercial Clients: Businesses like hotels and serviced apartments that require durable, high-capacity appliances.

  1. Value Propositions

Innovative Products: Offering a range of state-of-the-art home appliances that combine smart technology with energy efficiency.

Customized Solutions: Providing products tailored to varying regional needs based on climate, cultural habits, and space availability.

Sustainability: Commitment to eco-friendly products and practices, appealing to environmentally conscious consumers.

  1. Channels

Retail Partnerships: Collaborating with large retail chains and independent stores to reach diverse consumer bases.

Online Sales: A robust e-commerce platform that facilitates direct sales, customer interaction, and digital marketing.

Distributor Networks: Utilizing established distributors to access various global markets, especially in areas without direct sales presence.

  1. Customer Relationships

Customer Support: Offering extensive after-sales service that includes customer care, maintenance, and warranty services.

Community Engagement: Building customer loyalty through active engagement on social media, providing DIY maintenance tips, user guides, and interactive forums.

  1. Revenue Streams

Product Sales: Revenue generated from the direct sale of home appliances.

Extended Warranties and Service Packages: Offering additional services that provide longer warranty periods and regular maintenance.

Subscription Services: Revenue from subscription-based models for premium customer service and product upgrades.

  1. Key Resources

Manufacturing Facilities: State-of-the-art production plants located strategically around the world.

Human Capital: Skilled workforce from R&D innovators to sales and customer service teams.

Intellectual Property: Patents, trademarks, and copyrights.

Brand Reputation: Established brand known for quality and innovation.

  1. Key Partnerships

Supplier Networks: Long-term relationships with suppliers of high-quality raw materials and components.

Technology Partners: Collaborations with tech companies to integrate advanced technologies into appliances.

Logistics Partners: Partnerships with logistics companies to manage the global distribution network efficiently.

  1. Key Activities

Product Development: Continuous research and development to innovate and improve the product offerings.

Marketing and Sales: Dynamic marketing strategies and effective sales operations to reach and expand customer bases.

Supply Chain Management: Efficient management of the supply chain to ensure timely delivery of raw materials and finished goods.

Resource use: Efficient management of material to minimize waste.

HR development: Continuing employee training to continue innovate and improve the product offerings.

  1. Cost Structure

Production Costs: Costs associated with manufacturing, including raw materials and labor.

Marketing and Sales Costs: Expenses related to marketing campaigns, sales promotions, and distribution channels.

Research and Development: Significant investment in R&D to stay at the forefront of technological advancements.

 

Contact us

If your company wants to make it much easier to report according to ESRS, get the Mentcon model for ESRS.

Did you know? Among all the great features in the Mentcon model for ESRS, all 1,184 data points in ESRS have auto generated texts or templates or instructions for what to report when you follow the steps in the web app. Plus, each data point includes sample texts to make it easy to understand how to disclose!

Contact us at Mentcon or book a free demo

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