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Understanding CSRD AND ESRS Reporting

FAQ on CSRD and ESRS reporting

Explore our comprehensive guide on CSRD and ESRS reporting. Whether you’re starting with the basics of what information to include or you need in-depth guidance on how to perform double materiality assessment or disclosing actions, targets, and metrics. This resource has you covered. Delve into detailed examples across various ESRS topics to enhance your reporting process!

General questions about CSRD and ESRS

Click here to get answers on frequently asked questions  about CSRD and ESRS in general.

ESRS is divided in 12 reporting standards: Cross cutting (General), Environmental, Social and Governance.

Select standard to see answers on Frequently asked questions:

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

General questions about CSRD and ESRS

What is ESRS?
ESRS stands for European Sustainability Reporting Standards, developed to standardize sustainability reporting across the EU. They are intended to provide a framework for more consistent and comparable sustainability disclosures.
How does ESRS relate to CSRD (Corporate Sustainability Reporting Directive)?

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.

Which companies need to comply with ESRS?

ESRS applies primarily to large companies and all listed companies in the EU, including banks and insurance companies, irrespective of their size. The directive is aimed at ensuring that large enterprises contribute publicly on sustainability matters.

The schedule for companies to begin reporting under ESRS is as follows:

  • Companies previously under the Non-Financial Reporting Directive (NFRD) — including large listed companies, large banks, large insurance undertakings, and large non-EU listed companies, all having over 500 employees — must start reporting from the financial year 2024. The first sustainability report will be due in 2025.
  • Other large companies, including large non-EU listed companies, are to start from the financial year 2025, with their initial sustainability reports due in 2026.
  • Listed SMEs, including non-EU listed SMEs, are set to begin from the financial year 2026, with the first reports to be published in 2027. However, these SMEs have the option to delay their reporting for up to two additional years. The latest they can start reporting is the financial year 2028, with their first sustainability reports appearing in 2029.

Moreover, non-EU companies that generate more than EUR 150 million annually in the EU and have either a branch with over EUR 40 million in turnover or a subsidiary classified as a large company, or a listed SME within the EU must start reporting on their group-level sustainability impacts starting from the financial year 2028. The initial sustainability report for these cases will be published in 2029, with specific standards set to be introduced for these circumstances.

What are the penalties for non-compliance with ESRS?

Penalties can vary by member state within the EU but generally include fines and potentially other sanctions such as mandatory audits or public disclosures of non-compliance.

What are the deadlines for compliance with ESRS?

The implementation dates vary, with the first reports expected for the fiscal year 2024, to be published in 2025. These timelines are staggered depending on the size and nature of the companies:

  • Companies previously under the Non-Financial Reporting Directive (NFRD) — including large listed companies, large banks, large insurance undertakings, and large non-EU listed companies, all having over 500 employees — must start reporting from the financial year 2024. The first sustainability report will be due in 2025.
  • Other large companies, including large non-EU listed companies, are to start from the financial year 2025, with their initial sustainability reports due in 2026.
  • Listed SMEs, including non-EU listed SMEs, are set to begin from the financial year 2026, with the first reports to be published in 2027. However, these SMEs have the option to delay their reporting for up to two additional years. The latest they can start reporting is the financial year 2028, with their first sustainability reports appearing in 2029.

Moreover, non-EU companies that generate more than EUR 150 million annually in the EU and have either a branch with over EUR 40 million in turnover or a subsidiary classified as a large company or a listed SME within the EU must start reporting on their group-level sustainability impacts starting from the financial year 2028. The initial sustainability report for these cases will be published in 2029, with specific standards set to be introduced for these circumstances.

How will ESRS influence investor decisions?

By providing standardized and comparable sustainability information, ESRS will help investors make more informed decisions about where to allocate their resources, favouring companies with better sustainability practices.

Are there specific sectoral benchmarks in ESRS?

Yes, it will be. The ESRS includes specific benchmarks and metrics for different sectors to address sector-specific sustainability issues comprehensively. They have been delayed and are now announced to be implemented starting from the reporting year 2026.

What is the most difficult part of CSRD and ESRS reporting?

Many companies initially consider collecting quantitative data is the toughest part of ESRS reporting. However, they soon realize that the real challenge lies in the narrative disclosures. Over 70% of the ESRS Data point to disclose on are narrative, demanding detailed explanations that intertwine various aspects of the business such as value chain, business model(s), stakeholder interests, strategy, policies, targets, laws, specific disclosure requirements and more. Each narrative disclosure must consider these elements comprehensively, often requiring information scattered across multiple sections of the ESRS documentation.

To simplify this complex process, the Mentcon model is invaluable. The Mentcon model helps structure the sustainability report, providing prewritten text for nearly half of all narrative disclosures and offering templates of what to disclose with examples for the rest. This not only saves time and money but also ensures compliance with ESRS, making the reporting process significantly easier for companies.

    What are the key components of ESRS?

    The European Sustainability Reporting Standards (ESRS) comprise several key components designed to ensure comprehensive and uniform sustainability reporting across different sectors:

    • General Disclosures: These include fundamental information about the organization, such as its business model, governance, and strategies related to sustainability, setting the context for more detailed disclosures. Included in the General disclosure is the foundation of ESRS, the Double Materiality. ESRS requires companies to report not only on how sustainability issues affect them (financial materiality) but also on how they impact society and the environment (impact materiality). The double materiality assessment defines what to be disclosed in:
    • Environmental Disclosures: These focus on the organization’s impacts on the environment, covering aspects like climate change, resource use, pollution, and biodiversity.
    • Social Disclosures: This component covers the organization’s impacts on social issues, including employee relations, human rights, community relations, and consumer protection.
    • Governance Disclosures: These pertain to the governance structures and practices related to managing environmental, social, and governance (ESG) issues.
    • (Sector-specific Disclosures: Tailored disclosures that address the unique environmental and social issues pertinent to specific sectors, providing detailed insights into industry-specific impacts and practices has been delayed and will be implemented starting from the reporting year 2026).
      How to report and include ESRS, GRI and IFRS S2 in the same Sustainability statement?

      When crafting a Sustainability Statement that aligns with multiple reporting standards like ESRS, GRI, and IFRS S2, companies can benefit significantly from integrated tools and methodologies like the Mentcon model. This simplifies the process and ensures comprehensive disclosure across different sustainability reporting standards:

      1. Using the Mentcon Model for ESRS Reporting: The Mentcon model is structured to assist companies in creating their Sustainability Statements according to the ESRS disclosure requirements. The model provides a solid foundation for reporting, ensuring that all required ESRS data points are thoroughly addressed.
      2. Integrating GRI and IFRS S2: Within the Mentcon model, companies have the complimentary option to include additional notes for GRI and IFRS S2. These notes are integrated into the Sustainability Statement by linking them to relevant sections via the respective GRI and IFRS S2 indexes. This means that for most of the data points required by these standards, corresponding information from the ESRS report can be directly referenced or automatically inserted.
      • IFRS S2 Notes: The integration covers almost all the required disclosures, except for IFRS S2’s requirement under §29a (vi) related to Scope 3 financed emissions, which does not have a direct counterpart in ESRS. The Mentcon model app provides guidance on how and where to include this specific disclosure, ensuring that all necessary information is covered.
      • GRI Notes: For GRI reporting, the integration through the Mentcon model is automatically cover about 90% of the information. For those GRI disclosure requirements that do not have a direct equivalent in ESRS, the Mentcon model app offers detailed instructions on how and where to report these items to ensure full compliance.

      Overall, the Mentcon model facilitates a streamlined and effective way to incorporate ESRS, GRI, and IFRS S2 into a single Sustainability Statement, saving time, reducing errors, and enhancing the quality of reporting.

      Should Disclosures pursuant to Article 8 of Regulation (EU) 2020/852 (Taxonomy Regulation) be included in the Sustainability statement?

      Yes, it should be included in the Sustainability statement as shown in this table:

      Structure of the ESRS sustainability statement

      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
      How should companies prepare for ESRS reporting?

      Companies should start by assessing their current reporting practices, identifying gaps in compliance with ESRS by conducting a Double materiality assessment. If using the Mentcon model for the Double materiality assessment, this will result in exactly which data points to report on, with descriptions of what to report – making it easy to identify gaps.

      Companies might also need to implement new sustainability data management systems like Microsoft Sustainability Manager to capture necessary data if not already in place.

      How to be able to report in the sustainability statement where all the 91 laws that derive from other EU legislation are disclosed?

      In ESRS 2 Data point 56 “Disclosure of list of data points that derive from other EU legislation and information on their location in sustainability statement” shall be disclosed.

      This is certainly very difficult and takes a lot of effort and time. The List of datapoints in cross-cutting and topical standards that derive from other EU legislation in ESRS 2 appendix 2 also have several errors in it which make it even more difficult. Mentcon have reported on all these errors, but these have not been updated yet.

      This is a question we did not have a decent answer to. Therefore, we decided to develop a feature in Mentcon model App creating the list of data points that derive from other EU legislation and information on their location in sustainability statement—automatically in the sustainability statement!

      The list is automatically inserted in ESRS 2 Data point 56 when following the Mentcon model.

      The list created by the app includes:

      • Disclosure Requirement and related paragraph in ESRS
      • EU legislation:
        • SFDR reference
        • Pillar 3 reference
        • Benchmark Regulation reference
        • EU Climate Law reference
      • Exactly where in the Sustainability statement the legislation is disclosed.
      • If it is Material matter or not for the company

      This auto-generated list in Mentcon model for ESRS fulfils this time-consuming disclosure requirement in an instant 😊

      What tools are available to assist with ESRS compliance?

      There are hundreds of software tools and platforms designed to help gather and manage sustainability data especially on GHG emissions. Sadly, almost all are just for collecting and calculating data.

      Tools to collect and calculate climate data is available in the topic with questions on ESRS E1 Climate.

      Specifically designed to aid in the structured preparation of the sustainability statements, the Mentcon model and its web application provide a robust framework for companies.

      Mentcon model help describing the Business model, defining the value chain and the analysis of stakeholders to be able to do the Double materiality assessment. From the result of the materiality assessment of the company, Mentcon model creates the structure of the sustainability statement and which Data points to disclose on!

      Mentcon model’s web application includes templates, tables, and pre-written text for more than over 1200 Data points in ESRS. This model not only helps organize and structure the sustainability report but also provides practical examples that demonstrate how companies addresses and reports on each of the required data points. By using such a specialized tool, companies can ensure that their reporting is comprehensive, aligned with best practices, and resonates with stakeholders.

      Consultants and specialized firms also offer services to support compliance, which many of them using the Mentcon model.

      ESRS 1 General Requirements

      Here are some answers to Frequently Asked Questions about ESRS 1 General requirements.

      ESRS 1 General requirements FAQ
      What is ESRS 1 General requirements?

      The objective of the 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 (Accounting Directive), as amended by the Corporate Sustainability Reporting Directive (EU) 2022/2464 (CSRD).

      What is the general requirement of ESRS 1 summarized?

      The general requirements of the ESRS E1 encompass a comprehensive framework designed to guide entities in disclosing sustainability-related information. These requirements are structured to ensure disclosures align with the overarching directives of the European Union, specifically Directive 2013/34/EU and its amendments.

      1. Objective: ESRS aims to provide detailed disclosure requirements that allow stakeholders to understand an undertaking’s material impacts, risks, and opportunities concerning sustainability matters. These disclosures are essential for assessing the entity’s impact on environmental, social, and governance (ESG) aspects and the effects of these factors on its development and performance.
      2. Structure of ESRS: The standards are divided into:
        • Cross-cutting standards that apply to all sectors,
        • Topical standards focusing on specific ESG topics,
        • Sector-specific standards that address unique industry concerns.
      3. Reporting Areas: Disclosures are categorized into four main areas:
        • Governance: How governance structures manage ESG issues.
        • Strategy: Interaction between the entity’s strategy and its sustainability impacts.
        • Impact, Risk, and Opportunity Management: Processes for identifying and managing ESG matters.
        • Metrics and Targets: Performance measures and progress indicators.
      4. Double Materiality: This principle dictates that reporting should reflect not only the financial impacts of sustainability matters on the entity but also the entity’s impact on the environment and society.
      5. Drafting Conventions: The standards specify terminology and the structure for disclosures, including a detailed explanation of terms like ‘impacts’, ‘risks’, and ‘opportunities’.
      6. Materiality: Entities must conduct a materiality assessment to determine which issues are significant enough to warrant disclosure based on their potential impact on stakeholders and the business itself.
      7. Qualitative Characteristics of Information: Information must be relevant, faithfully represented, comparable, verifiable, and understandable to meet the needs of diverse stakeholders.
      8. Value Chain Reporting: Information must extend to include not only the entity’s direct operations but also its upstream and downstream value chain impacts.
      9. Estimations and Proxies: When direct data collection is challenging, entities are permitted to use reasonable estimates or sector averages to provide the required information.
      10. Transitional Provisions: There are specific provisions for phased implementation, allowing entities time to adapt to the comprehensive reporting requirements.
      What is the definition of double materiality?

      Double materiality has two dimensions: impact materiality and financial materiality. A sustainability matter meets the criterion of double materiality if it is material from the impact perspective or the financial perspective or both.

      What is Impact materiality in ESRS?

      Definition Impact materiality in ESRS: 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- and long-term. A material sustainability matter from an impact perspective includes impacts 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.

      What is Financial materiality in ESRS?

      Definition in Financial materiality in ESRS: A sustainability matter is material from a financial perspective if it generates risks or 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.

      How to perform a double materiality assessment?

      This is a summary of how the double materiality assessment is conducted according to the Mentcon model. Each step is described in more detail in referring questions and is very useful if not having access to the Mentcon model.

      Step 1. Understanding Double Materiality

      See previous questions:

      • What is What is the definition of double materiality?
      • What is Impact materiality in ESRS?
      • What is Financial materiality in ESRS?
      Step 2. Describe Business model(s) as it is.

      Describing the Business model AS-IS represents a significant step towards establishing a shared understanding and comprehension of the organization, which will enable later steps in the process aimed at enhancing and advancing the company’s performance.

      The business model of an undertaking is 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.

      The business model is a part of the Basics for conducting Materiality Assessment:

      • Identifying potential Impacts and Risks and Opportunities: The business model helps in identifying which sustainability matters are potential 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, takes actions and the resources it relies upon, which in turn determine the sustainability topics to be reported.

      To define and analyse the business model, see question:

      • How to define and analyze the Business model and use it throughout the Sustainability report in ESRS?
      Step 3. Describe the Value chain

      The description of the value chain should be focused on key value creation activities in the value chain. (The value chain is accompanied by the Business model and both shall be described and analyzed in to be able to conduct the Double materiality assessment and report on various disclosure requirements in ESRS).

      For each part in the Value chain, Activities, Resources and Relationships shall be described and the position of the company in the value chain.

      To Describe the value chain, see question:

      • How to describe the value chain in ESRS?
       Step 4. Conduct stakeholder analysis

      The purpose of this step is to conduct a stakeholder analysis of stakeholders in the value chain and select stakeholders to include in the double materiality assessment in next steps (Called RIO-analysis in the Mentcon model app). It’s also a part of the due diligence process in Mentcon model.

      Stakeholders are categorized into two main groups:

      1. Affected stakeholders: Individuals or groups impacted by the company’s activities, including those in the value chain.
      2. Users of sustainability statements: Investors, lenders, creditors, business partners, trade unions, NGOs, governments, analysts, and academics.

      Engagement with stakeholders is crucial for identifying impacts and informing the materiality assessment.

      To conduct stakeholder analysis, see question:

      • How to conduct a stakeholder analysis?
       Step 5. Choose Potential Material Matters

      When performing the materiality assessment, Mentcon uses the list of sustainability matters covered suggested in ESRS AR 16. From this list, 24 potential material matters to make the materiality assessment from shall be chosen.

      How to choose the potential material matters besides how the previous steps are included are described in Mentcon model and is and a brief summary of things to consider can be read here:

      Start with the list of potentially significant sustainability issues that is built into the Mentcon model app, which utilises the ESRS suggested sustainability aspects:

      1. Consider the following background information to be able to select potentially sustainability matters:
      2. Understand the Context: Before a company begins identifying significant sustainability aspects, ensure to have a clear picture of the company’s operations, identify the value chains stakeholders (carried out in the previous step of the process Conduct stakeholder analysis of stakeholders in the value chain), and the geographical areas in which the company operates.
      3. Use existing information from the value chain:
        1. Customer satisfaction survey: (What do our customers think about various sustainability issues).
        2. Employee satisfaction survey: What can we find out from ours regarding harassment, equality, discrimination, etc.
        3. Supplier evaluations: What deviates in suppliers’ work and products as well as services from a sustainability perspective. It could be, for example, carbon footprint, emissions, child labour, adequate wages, etc.
        4. Other relevant industry and company-specific information.
      4. Consider the company’s strategy: Relate the sustainability risks to the company’s overall business strategy and objectives. A risk that can have a direct impact on the company’s core operations or brand should be given higher priority.
      5. Consider laws and regulations: Local, national, and international laws and regulations related to sustainability that affect [Company]. Some sustainability issues may be more significant due to legal requirements or expected regulatory changes.
      6. Consult experts in the value chain as needed. The Company/Group management determines the 24 significant sustainability aspects that a thorough double materiality analysis will be conducted on in the next step.

       

      When choosing the Potential material matters in Mentcon model App perform these three steps in the image below:

      1. Click on the question mark to read definitions and generic examples to understand each potentially sustainability matter. (The app is available in 10 languages).
      2. If company- or sector-specific circumstances for significant issues emerge that are not included in the list, these significant issues are added to the list of Potential sustainability matters in the Mentcon model web application.
      3. Select 24 potential sustainability matters that will be used to conduct a double materiality assessment in the next step (called RIO-analysis in the Mentcon model app).
      
      

      Add Potential material matters in Mencon model app. ESRS
      Step 6. Set Material Thresholds

      According to ESRS undertakings shall apply the criteria for material impact and financial risk and opportunities, 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.

      To set thresholds for material impacts and financial risks and opportunities, see question:

      • How to set thresholds for material impacts and the financial risks and opportunities?

      To see why the interpretations of material thresholds are so scattered between different consulting and accounting firms, read the following question, (it’s amusing, but important to understand to make it right):

      • Our auditing firm are unable to provide clear guidance of setting material thresholds. Why are material thresholds so confusing?

       

      Step 7. Perform the Materiality Assessment

      Based on the stakeholder analysis and the stakeholder that are invited to perform the Materiality assessment has received information how to conduct their questions to answer.  The stakeholder can choose their preferred language to make the assessment easier to understand.

      In the application each potential material matter is described using definitions from ESRS to make the assessment easier to understand and perform. Click the question mark to see the definitions.

      The assessment is done through the double materiality perspective assessing impact and financial materiality.

      Assessing Impact Materiality

      Negative impact

      The severity is based on the following factors:

      • scale,
      • scope, and
      • reversibility. In the event of potential negative impacts for human rights, the severity of the impact is considered before its likelihood.

      Positive impacts

      For positive impacts, materiality is based on:

      • the scale and extent of the impact for actual impacts, and
      • the scale, extent, and likelihood of the consequence for potential impacts.

       

      Assessing Finacial Materiality

      • The risks and opportunities are assessed based on a combination of the likelihood of occurrence and the potential financial impact.

      The assessment is made through a well-defined scale 1-5 for each part to assess. Click the question mark to see the definitions as illustrated in the image below:

      How to perform Double materiality assessment Mentcon model

      Step 8. Weight And Decide On The Company’s Material Matters

      This is a complex thing to do. There are many things to consider and fragments of this are described in different places in ESRS and key matters as thresholds are merely described at all.

      Here will follow a few things to consider and after that the solution how to do.

      Things to consider:

      • Lack of Clear Criteria: ESRS lacks specific thresholds or detailed criteria for determining materiality. This can lead to inconsistencies in how different companies assess and report on material issues.
      • Qualitative and/or Quantitative thresholds: Materiality assessments must incorporate qualitative judgments and/or quantitative data, but the exact thresholds or criteria for these assessments are not specified in ESRS.
      • Stakeholder Engagement: The assessment must consider stakeholders views of materiality (Conducted in the materiality assessment).
      • Qualitative vs Quantitative thresholds: What are quantitative thresholds? Is it subjective thought form certain stakeholders in the value chain and how should it be weighted in the overall picture? When performing a materiality assessment we got numbers, isn’t that quantitative data? We have some quantitative thresholds in our company, how can we know if they are low or high and how to weight it versus stakeholder views?
      • Impact vs financial materiality: A sustainability matter meets the criterion of doublemateriality if it is material from the impact perspective or the financial perspective or both.
      • Time horizons: This should be taken into account when assessing and determining on the material matters. In addition, sustainability issues are dynamic, and what is considered material can change over time as, customer demands, innovation, societal expectations and regulatory requirements evolve. ESRS does not provide a clear process for continuously updating materiality assessments to reflect these changes.

       

      How to weight and decide on the company’s material matters:

       

      In Mentcon model the process for conducting the double materiality assessment will be inserted into the sustainability statement automatically when following the process in Mentcon model App.

      After doing the double materiality assessment in Mentcon model with stakeholders in the value chain, a result will be presented.

      The result will be displayed in both graphical matrices and list:

      • Negative impact
      • Positive impact
      • Total impact
      • Financial risk
      • Financial opportunities
      • Total financial materiality
      • Total materiality
      • The result is also divided into the result from external respectively internal stakeholder in the value chain.

      The stakeholder assessment in the Mentcon model App is to be weight against predefined quantitative thresholds in the earlier step of this process. (The Quantitative thresholds can be financial material thresholds and/or ecological impact thresholds based on frameworks as for example Science-Based Targets Initiative for Nature (SBTN) or other framework/initiatives).

      The result of the double materiality assessment shall then be reviewed of internal experts as a part of the due diligence process.

      Next step is to present the material matters for the entire senior management. Based on the material matters, the corporate management are responsible to take actions on material mattes, set its targets and report according to ESRS as defined in in later steps of Mentcon model.

      When following the Mentcon model, the Board of the Company finally decides the material matters of the Company.

      Step 9. Generate The Structure of The Sustainability Statement

      When have decided on the material sustainability matters of the company in the Mentcon model App the structure of the sustainability statement and all Data points to report on is automatically generated!

      All descriptions of the of the process to conduct the double materiality assessment, including description of the company’s business model, value chain, due diligence etc. will be automatically inserted into the corresponding Data points of the Sustainability statement.

      Some Data points must be described company specific, and for these Data points templates and when appropriate tables are available. All Data points comes with examples from other companies of how to disclose, making it easy to understand what to disclose and finish the Sustainability statement.

      How to know what to be reported in the Sustainability statement based on the double materiality assessment?

      Determine Disclosure Content

      • Identify required disclosures: Based on the double materiality assessment, identify which disclosures are required under the relevant ESRS standards. This is a real detective job and takes time. Plan for that. Take help of an auditor, if possible, already in this stage, to not get in problem in later stages because of reporting on incorrect Data points.
      • Prepare entity-specific disclosures: If certain material aspects are not covered or insufficiently covered by existing ESRS, prepare entity-specific disclosures to ensure comprehensive reporting on these matters.

      If using Mentcon model App: The disposition of the Sustainability statement and all datapoints to disclose on are generated automatically based on the double materiality assessment. Documentation of the materiality assessment process, criteria used, stakeholder engagement outcomes, and the rationale for determining the materiality of specific issues and more are automatically inserted under corresponding Data point!

      What is Value chain in ESRS and how to use it?

      The concept of the value chain in the European Sustainability Reporting Standards (ESRS) is extensive, capturing the entire spectrum of activities, resources, and relationships essential to the operation and impact of a business.

      Definition of Value Chain in ESRS

      The full range of activities, resources and relationships related to the undertaking’s business model and the external environment in which it operates.

      A value chain encompasses the activities, resources and relationships the undertaking uses and relies on to create its products or services from conception to delivery, consumption and end-of- life. Relevant activities, resources and relationships include:

      1. those in the undertaking’s own operations, such as human resources;
      2. those along its supply, marketing and distribution channels, such as materials and service sourcing and product and service sale and delivery; and

      iii. the financing, geographical, geopolitical and regulatory environments in which the undertaking operates.

      Value chain includes actors upstream and downstream from the undertaking. Actors upstream from the undertaking (e.g., suppliers ) provide products or services that are used in the development of the undertaking’s products or services. Entities downstream from the undertaking (e.g., distributors, customers) receive products or services from the undertaking.

      ESRS use the term “value chain” in the singular, although it is recognised that undertakings may have multiple value chains.

      Brief Description of How to Use the Value Chain in ESRS

      1. Sustainability Assessment and Reporting
      • Identify Material Impacts: Understand and assess how different segments of the value chain contribute to the sustainability impacts, risks, and opportunities. This is crucial for identifying which parts of the value chain might cause sustainability concerns or offer potential for positive sustainability contributions.
      • Due Diligence Processes: Implement due diligence across the value chain to identify, prevent, mitigate, and account for negative sustainability impacts, and enhance positive impacts. This involves engaging with various value chain actors to ensure compliance with sustainability standards and practices.
      1. Disclosure and Transparency
      • Sustainability Statement: Include detailed information about the value chain in the sustainability statement. This should cover how the undertaking manages its relationships with upstream suppliers and downstream customers to mitigate risks and leverage opportunities for sustainability.
      • Extended Reporting: Report on the material impacts, risks, and opportunities associated with the value chain, extending the reporting beyond the immediate operations of the undertaking to include upstream suppliers and downstream customers.
      1. Engagement and Collaboration
      • Stakeholder Engagement: Actively engage with stakeholders across the value chain to gather insights and feedback on sustainability practices, impacts, and improvement areas. This includes suppliers, customers, and other key actors who are part of the business ecosystem.
      • Collaborative Initiatives: Participate in or initiate collaborative efforts with value chain partners to address common sustainability challenges such as reducing emissions, ensuring fair labor practices, and promoting circular economy practices.
      1. Management and Strategy Integration
      • Strategic Decision-Making: Integrate value chain considerations into strategic planning and decision-making processes. This includes selecting suppliers based on sustainability criteria, designing products for lower environmental impact, and choosing distribution methods that minimize carbon footprints.
      • Risk Management: Identify and manage risks that arise from the value chain, such as supply chain disruptions, compliance risks, or reputational risks related to suppliers’ practices.
      1. Enhancing Sustainability Practices
      • Improvement and Innovation: Use insights from value chain analysis to drive sustainability innovations and improvements. This could involve developing new, more sustainable product lines, improving resource efficiency, or implementing more sustainable logistics solutions.
      • Performance Metrics and Targets: Set specific, measurable targets for sustainability performance across the value chain and monitor progress through established metrics.

      In conclusion, the value chain concept in ESRS is used to widen the scope of sustainability reporting and management, ensuring that an undertaking not only looks at its direct operations but also considers the broader network of activities and relationships that influence its sustainability footprint. By doing so, businesses can better manage their sustainability impacts and align more closely with global sustainability goals.

      How to describe the value chain in ESRS?

      The description of the value chain should be focused on key value creation activities in the value chain. (The value chain is accompanied by the Business model (See Business model) and both shall be described and analyzed in to be able to conduct the Double materiality assessment and report on various disclosure requirements in ESRS).

      For each part in the Value chain, Activities, Resources and Relationships shall be described and the position of the company in the value chain.

      Below is how the value chain is described in a summarized style based on the template in Mentcon model App. The template is made based on the definition of Value chain according to CSRD and ESRS and encompassed to be able to answer on various disclosure requirements throughout ESRS. In Mentcon model App the information about the value chain is automatically inserted in the equivalent Data points when generating the structure of the Sustainability statement.

      Fel free to use the Mentcon Value chain template for ESRS even if not using Mentcon model, just make sure to mention the source: Mentcon Value chain template for ESRS © Copyright Mentcon AB.

      (In the next question, an example of a described value chain is available).

       

      Mentcon Value chain template for ESRS

      1 Upstream (Input and Supplier Relationships)

      • Supply Chain Management:
        • Activities: Describe the sourcing of raw materials and services.
        • Resources: Identify key suppliers and the logistics systems.
        • Relationships: Explain the nature of agreements, collaborations, and dependencies with suppliers.
      • Financing:
        • Activities: Describe how the company is financed (e.g., loans, equity funding).
        • Resources: List major financial partners or investors.
        • Relationships: Explain relationships with banks, financial institutions, or investors.

       

      2 Own Operations (Internal Processes)

      • Company’s Position in the Value Chain:
        • Describe the company’s role and strategic importance within the broader industry value chain. This should highlight the company’s role in adding value, its competitive advantage.
      • Human Resources:
        • Activities: Key human resource processes such as recruitment, training, and development.
        • Resources: Describe the human capital and expertise available.
        • Relationships: Explain internal relationships and organizational culture.
      • Research and Development:
        • Activities: Outline the processes for product development, innovation, and improvement.
        • Resources: Specify technology, facilities, and intellectual property used.
        • Relationships: Describe collaborations with educational institutions or technology partners.
      • Production/Services:
        • Activities: Explain the production and/or service processes used to create products or services.
        • Resources: List the key equipment, technology, facilities and human resources involved.
        • Relationships: Detail interactions between different production teams or departments.
      • Other Operational Functions:
        • (Specify other relevant operational areas such as IT, finance, etc divided in Activities, Resources and Relationships.)

       

      3 Downstream 

      • Marketing and Sales:
        • Activities: Outline strategies for market research, advertising, and sales.
        • Resources: Detail the tools and platforms used (e.g., digital marketing tools, CRM systems).
        • Relationships: Describe partnerships with marketing agencies or other external entities.
      • Distribution:
        • Activities: Explain the distribution methods and logistics.
        • Resources: Identify distribution centers and transportation modes.
        • Relationships: Detail relationships with logistics partners and distributors.
      • Customers/End Users:
        • Activities: Describe customer service operations and/or end-user engagement strategies.
        • Resources: Mention tools and technologies used to support customer interactions and services.
        • Relationships: Outline the nature of the relationship with end users and feedback mechanisms to enhance customer satisfaction.

       

      4 Describe Geographical, Geopolitical and Regulatory Environments Affecting the Value Chain 

      • Geographical and Geopolitical Considerations:
        • Activities: Describe how location affects operations, including geopolitical risks.
        • Resources: Mention key regional assets or infrastructures where actors in the value chain operates.
        • Relationships: Explain any regulatory bodies or regional organizations the company interacts with.
      • Regulatory Environment:
        • Activities: Outline compliance processes and regulatory engagements.
        • Resources: Specify departments or tools dedicated to managing compliance throughout the Value chain.
        • Relationships: Describe key interactions with regulatory authorities and industry associations.

      © Copyright Mentcon AB 2024.

      Give an example of a description of a value chain and it’s main features for an ESRS Sustainability Statement?

      Here is an example of a description of a value chain when using Mentcon model:

      Main features of the Value chain

      As a multinational company in the home appliances industry, the analysis of our value chain is crucial for understanding how we manage operations, create value, and interact with various stakeholders across different stages. The main features of upstream and downstream value chain and Company XYZ’s own operations and position in the value chain.

      © Copyright Mentcon AB 2024.

      Upstream 

      Supply Chain Management: 

      • Activities: Company XYZ’s sourcing strategy involves the procurement of high-quality raw materials and components necessary for the manufacturing of home appliances. This includes metals like steel and aluminum, plastics, electronic components, and packaging materials. We also source specialized services such as precision engineering and design consultancy to enhance our product offerings. Our sourcing activities are global, with a significant focus on maximizing efficiency, reducing costs, and ensuring sustainability.
      • Resources: Our key suppliers are strategically located across various regions, including Asia, Europe, and North America, to leverage local market advantages and mitigate risks associated with supply chain disruptions. We utilize advanced logistics systems that integrate just-in-time manufacturing and RFID tracking to optimize inventory levels and ensure timely delivery of materials.
      • Relationships: The nature of our agreements with suppliers includes long-term contracts that provide stability and secure supply at negotiated prices. These agreements often include clauses that enforce compliance with our quality and ethical standards. We maintain collaborative relationships through regular supplier engagement sessions, joint development initiatives, and performance incentives that align supplier operations with our strategic objectives.

      Financing: 

      • Activities: Company XYZ is financed through a combination of equity and debt. This includes public equity from our listing on several stock exchanges and debt acquired through corporate bonds and bank loans. These financial activities are designed to support our capital expenditures, primarily in production and R&D, and to ensure liquidity for operational needs.
      • Resources: Our major financial partners include top global banks and investment firms, as well as institutional investors and equity holders. These entities provide the financial backing necessary to sustain and grow our operations.
      • Relationships: We maintain strong relationships with a consortium of banks that provide us with necessary capital facilities, including revolving credit and term loans. Our relationships with financial institutions are characterized by mutual trust and governed by agreements that stipulate the terms of financing, interest rates, and repayment schedules. Regular communications and meetings ensure that these financial partners are well-informed of our financial health and strategic directions.

       

      Own Operations (Internal Processes) 

      Company’s Position in the Value Chain: 

      • Description: Company XYZ is positioned as a key innovator and manufacturer in the home appliance industry. We add value through our commitment to quality, sustainability, and cutting-edge technology. Our competitive advantage lies in our ability to integrate smart technology with eco-friendly features, meeting consumer demands for products that enhance convenience and reduce environmental impact.

      Human Resources: 

      • Activities: Our key HR processes include strategic recruitment aimed at attracting skilled talent in engineering, design, and operations. We focus heavily on training and development programs to continually enhance the skills of our workforce, fostering innovation and leadership across all levels.
      • Resources: Our human capital consists of a diverse, global team of over 65,000 employees, including seasoned industry experts, innovative engineers, and dynamic management professionals.
      • Relationships: Internally, we cultivate a culture of collaboration, integrity, and continuous improvement. Regular team meetings, cross-functional projects, and a transparent communication policy facilitate effective relationships and a cohesive organizational culture.

      Research and Development: 

      • Activities: Our R&D is centered on developing advanced, consumer-centric products. This includes ongoing research into energy efficiency, user interface improvements, and integration of IoT capabilities.
      • Resources: We utilize state-of-the-art R&D facilities located in major technology hubs around the world, equipped with the latest in product testing and prototyping technology. Intellectual property, including patents and trademarks, forms a crucial resource in protecting our innovations.
      • Relationships: We collaborate with leading universities, tech startups, and research institutes to stay at the forefront of technological advancements, often co-developing solutions that push the boundaries of what home appliances can achieve.

      Production/Services: 

      • Activities: Our production processes involve advanced manufacturing techniques including automation and robotics. Quality control is rigorous, ensuring that each product meets our high standards before reaching the consumer.
      • Resources: Production facilities are equipped with high-precision machinery and automation systems, strategically located close to major markets to minimize logistics costs and maximize efficiency.
      • Relationships: Production teams work closely with supply chain managers and R&D personnel to ensure smooth operation and integration of new technologies into product lines.

      Information Technology (IT):

      • Activities: Management of IT infrastructure, data security, and the development of enterprise software solutions to support various business functions.
      • Resources: State-of-the-art data centers and a suite of advanced software applications that facilitate everything from CRM to supply chain management.
      • Relationships: IT department works closely with all business units to ensure they have the technological support needed to operate efficiently.

      Finance:

      • Activities: Financial planning, risk management, and compliance operations, ensuring financial stability and adherence to international financial reporting standards.
      • Resources: A skilled finance team supported by advanced financial analysis tools and systems.
      • Relationships: Regular interaction with external auditors, investors, and regulatory bodies to maintain transparency and investor confidence.

      Downstream Operations 

      Marketing and Sales: 

      • Activities: Our marketing strategy integrates extensive market research to understand consumer preferences and market trends. This research informs our advertising campaigns, which utilize a mix of traditional media and digital marketing to reach a broad audience effectively. Sales strategies are tailored to different markets, with a strong emphasis on both online and in-store promotions to drive sales.
      • Resources: We employ advanced digital marketing tools, including SEO, PPC, and social media platforms, along with sophisticated CRM systems to manage customer relationships and personalize marketing efforts.
      • Relationships: Company XYZ partners with a variety of marketing agencies and consultants globally to enhance our marketing campaigns. These partnerships allow us to leverage local market expertise and innovative advertising techniques.

      Distribution: 

      • Activities: Our distribution network is designed to ensure efficient and timely delivery of products to various markets. This includes managing inventory levels, coordinating with manufacturing plants, and organizing logistics to minimize delays.
      • Resources: We operate several key distribution centers strategically located around the world to optimize our supply chain. These centers are equipped with modern logistics technology to handle and ship products efficiently. Our transportation modes include trucking, rail, sea, and air freight, depending on geographical needs and product requirements.
      • Relationships: We maintain strong relationships with logistics partners and third-party distributors who help us manage the physical movement of goods. These partners are critical in overcoming logistical challenges and ensuring that our products reach retailers and consumers without issues.

      Customers/End Users: 

      • Activities: Customer service is a cornerstone of our end-user engagement strategy. We provide comprehensive support through various channels, including call centers, online chat support, and email. Our engagement strategies are designed to enhance the customer experience, with proactive communication, after-sales support, and loyalty programs.
      • Resources: To support these activities, we utilize state-of-the-art customer service technology platforms that include CRM systems, automated response systems, and customer feedback tools that help us track satisfaction and respond to customer needs effectively.
      • Relationships: The relationship with our end users is built on trust and reliability. We encourage continuous feedback through surveys, product reviews, and direct customer interactions, which help us understand their needs and improve our offerings. Our customer service teams are trained to build positive relationships with customers, addressing their concerns promptly and efficiently.
      1. Geographical, Geopolitical and Regulatory Environments 

      For Company XYZ, operating in the global home appliances market necessitates careful management of the geographical, geopolitical, and regulatory environments that affect our value chain.

      Geographical and Geopolitical Considerations 

      • Activities: Our operations are strategically located to optimize access to key markets and manage costs. Geopolitical risks, such as trade tensions, tariffs, and regional instability, are continually assessed to mitigate potential impacts on our supply chain and sales. For example, our manufacturing facilities in Asia are positioned to benefit from lower labor costs and proximity to raw material sources, while also considering the risks associated with regional geopolitical tensions.
      • Resources: Key regional assets include manufacturing plants in Europe, Asia, and North America, along with R&D centers and regional headquarters that support local operations. These assets are critical in maintaining the flexibility and resilience of our operations.
      • Relationships: We engage with regional organizations and governmental bodies to stay informed and compliant with local regulations and to participate in discussions that may affect our industry. This includes trade associations and chambers of commerce that provide platforms for dialogue and influence on policy-making.

      Regulatory Environment 

      • Activities: Compliance is a cornerstone of our operations. We maintain rigorous processes to ensure our products meet international and local standards related to safety, environmental impact, and consumer rights. Our regulatory engagements include monitoring changes in legislation, participating in industry consultations, and submitting products for certification in new markets.
      • Resources: The compliance function within Company is supported by dedicated departments, including Legal and Compliance teams that work across our value chain. We utilize advanced compliance management systems to track legislation changes, manage risks, and ensure all aspects of our operations meet legal requirements.
      • Relationships: Relationships with regulatory authorities are managed through ongoing engagement and cooperation. We interact regularly with entities such as the U.S. Consumer Product Safety Commission (CPSC), the European Committee for Standardization (CEN), and other regulatory bodies in markets where we operate. Additionally, we are active members of various industry associations that help shape standards and best practices.

      © Copyright Mentcon AB 2024.

      Where comes the business model into the picture in ESRS and how shall it be used?

      “Business model” is mentioned in ESRS 144 times and 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.

      Role of the Business Model in ESRS

      1. 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 factors.
      2. 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

      1. Materiality Assessment:
        • Identifying Impacts and Risks: 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.
      2. 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.
      3. 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.
      4. 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.

      In summary, the business model in ESRS serves as a critical lens through which companies assess and report their sustainability impacts, risks, and opportunities. It guides strategic decisions, shapes governance practices, and informs comprehensive and transparent sustainability disclosures, ensuring that sustainability considerations are an integral part of the business’s core operations and strategic outlook.

      How to define and analyze the Business model and use it throughout the Sustainability report in ESRS?

      How to define the Business model(s) is not described in ESRS. As described in the earlier answer the Business model and its relation to different aspect is occurring over and over again in the disclosure requirements in ESRS.

      To analyze it and use the business model throughout the Sustainability report is impossible to answer generally. Here is how it is solved when using Mentcon model:

      In Mentcon model, how to describe and analyse the business model(s) are included. Explanations of how to disclose relevant information of the business model in the over hundred Data points 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!

      If not using Mentcon model, Osterwalders Business model canvas is suitable to describe the Business model(s) as a base for ESRS disclosure purposes.

      Our auditing firm are unable to provide clear guidance of setting material thresholds. Why are material thresholds so confusing?

      Our auditing firm are unable to provide clear guidance of setting material thresholds. Why is material thresholds so confusing?

      First, it’s important to state. How to set thresholds for what’s material is not well defined in ESRS. Many companies and its consultants have been confused and makes severe mistakes. This is not strange. We shall explain why it is confusing and information to use to understand why it’s confusing to help reason with consultants.

      The Threshold Confusion

      The definition of Material Threshold: Does not exist in ESRS, but is since long time defined in other contexts like GHG-protocol and means something completely different. In GHG-protocol: “A concept employed in the process of verification. It is often used to determine whether an error or omission is a material discrepancy or not. It should not be viewed as a de minimus for defining a complete inventory”.

      The Target Threshold: Target threshold is something different. It can be used to help a company to set a target when they already know what’s material. In ESRS target thresholds are mentioned in ESRS E2-E5 and refers to the Science-Based Targets Initiative for Nature (SBTN) and other framework/initiatives. Many consultancy- and even large auditing firms unfortunately have mixt up target thresholds with material thresholds

      Confusing Text/Errors in ESRS: One example of error written in ESRS 1 § 42: 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.”

      We at Mentcon don’t know of any standard or framework using the term “most significant impacts”!?

      In this case, maybe ESRS refer to “Significance threshold” used in GHG-protocol and ecological frameworks. But the definition of Significance threshold is something entirely different: https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf.

      Qualitative and/or Quantitative thresholds: Materiality assessments must incorporate qualitative judgments and/or quantitative data, but the exact thresholds or criteria for these assessments are not specified at all.

      Lack of Clear Criteria: ESRS lacks specific thresholds or detailed criteria for determining materiality. This can lead to inconsistencies in how different companies assess and report on material issues.

      Broad Scope of Considerations: ESRS requires considering a wide range of potential impacts and stakeholders, which can be overwhelming and open to interpretation. This broad scope makes it difficult to pinpoint which issues should be prioritized.

      Subjective Judgments: The reliance on qualitative judgments means that different companies might reach different conclusions about what is material, even when faced with similar circumstances. This subjectivity can reduce comparability and reliability across reports.

      Double Materiality Complexity: The dual focus on financial and impact materiality requires companies to evaluate issues from multiple perspectives, which can be complex and time-consuming. It also means that an issue might be material from an impact perspective but not from a financial one, or vice versa, adding another layer of complexity.

      Dynamic and Evolving Nature: Sustainability issues are dynamic, and what is considered material can change over time as, customer demands, innovation, societal expectations and regulatory requirements evolve. ESRS does not provide a clear process for continuously updating materiality assessments to reflect these changes.

      How to set thresholds for material impacts and the financial risks and opportunities.

      Setting thresholds for material impacts and financial risks and opportunities under the ESRS E1 General Requirements can be done in different ways depending on the type of potential material impacts, risk and opportunities.

      Here is one more general example summarized, if not having access to the systematic approach of the Mentcon model to determine the thresholds of different sustainability matters for disclosure:

      Step 1: Define the Scope of Assessment

      • Identify all sustainability matters that might affect the entity or be affected by the entity’s operations, across its value chain. This includes environmental, social, and governance (ESG) factors.
      • Determine the boundaries of the assessment, which could include direct operations, suppliers, customers, and broader community interactions.

      Step 2: Prioritization Criteria

      • Develop criteria to prioritize these matters based on their potential impact on the environment and society (impact materiality) and their potential to affect the entity’s financial condition (financial materiality).
      • Consider the scale, scope, and severity of potential impacts, which involve the magnitude and range of the impact, as well as its possible permanence or reversibility.

      Step 3: Stakeholder Engagement

      • Engage with relevant stakeholders to understand their concerns and perspectives on what they consider significant sustainability matters.
      • Incorporate stakeholder feedback to align the materiality thresholds with both stakeholder expectations and business priorities.

      Step 4: Risk and Opportunity Analysis

      • Analyze how identified sustainability matters could pose risks or present opportunities for the entity.
      • Consider both short-term and long-term impacts, taking into account the entity’s strategic direction and operational context.

      Step 5: Quantitative and Qualitative Thresholds

      • Set quantitative thresholds where and if possible, such as percentage changes in revenue or costs, or specific environmental impact measures (e.g., tonnes of CO2 emissions).
      • Define qualitative thresholds based on the nature of the impact or risk, such as changes in regulatory environments, shifts in consumer preferences, or impacts on employee welfare.

      Step 6: Financial Materiality Considerations

      • Assess the potential financial consequences of each sustainability matter, considering how they might influence investment decisions, financing costs, or operational expenses.
      • Include considerations of dependencies on natural, human, and social capital, which could affect the entity’s ability to generate future economic benefits.

      Step 7: Documentation and Review

      • Document the rationale behind each threshold setting, ensuring that it is justifiable and understandable to external parties.
      • Regularly review and update the thresholds as new information becomes available or as business and environmental conditions change.

      Step 8: Integration into Reporting

      • Integrate the results of the materiality assessment, including the set thresholds, into the entity’s sustainability reporting.
      • Ensure clear disclosure of how thresholds were set and how they influence the reporting of material impacts, risks, and opportunities.

      Formulärets överkant

      This is still not easy. The materiality threshold in ESRS is often considered vague and confusing because it lacks the clear, concrete criteria The broad scope of considerations, reliance on subjective judgments, and the complexity introduced by the double materiality concept all contribute to this perception. Clearer guidelines and more specific criteria would help companies more consistently and accurately determine material sustainability issues.

      Therefore, Mentcon have made it easy setting thresholds is an integrated feature of the Mentcon model, reducing subjectivity, addressing stakeholders, and setting clear thresholds for companies’ material matters. And yes of course, with the methodology used and the material thresholds inserted under the right Data points in the Sustainability statement automatically!

      What is Due diligence according to ESRS 1 and how to conduct it?

      Due diligence according to ESRS 1 is a systematic process that entities use to identify, prevent, mitigate, and account for how they address actual and potential negative impacts on the environment and people connected with their business. This process is integral to determining the material impacts, risks, and opportunities that should be disclosed in the sustainability statement.

      Overview how due diligence is defined and should be conducted according to ESRS 1:

      Definition of Due Diligence

      • Due Diligence Process: ESRS defines due diligence as the ongoing practice of assessing and addressing the actual and potential negative impacts associated with an entity’s operations, products, services, and business relationships, including both upstream and downstream in the value chain.
      • Framework Alignment: The process reflects the principles outlined in international frameworks such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

      How to Conduct Due Diligence According to ESRS 1

      Step 1: Embedding Due Diligence in Governance and Strategy

      • Governance Integration: Ensure that sustainability matters are integrated into the governance structures. Information on sustainability matters should be regularly provided to and addressed by the administrative, management, and supervisory bodies.
      • Strategy Inclusion: Incorporate considerations of sustainability risks and impacts into the entity’s strategy and business model planning. This includes how the entity plans to address these risks and impacts.

      Step 2: Engaging with Stakeholders

      • Identify Stakeholders: Determine who can affect or be affected by the entity’s operations — this includes employees, communities, suppliers, consumers, and more.
      • Stakeholder Consultation: Engage with stakeholders to understand their concerns regarding the entity’s impacts on people and the environment. Use these insights to inform the due diligence process.

      Step 3: Identifying and Assessing Impacts

      • Impact Assessment: Identify both actual and potential negative impacts connected with the entity’s own operations and its value chain. Prioritize impacts based on their severity and likelihood.
      • Risk and Opportunity Assessment: Assess how these impacts translate into risks and opportunities for the entity, considering both the short and long term.

      Step 4: Taking Action

      • Mitigate Negative Impacts: Develop and implement actions to prevent or mitigate identified negative impacts. This could include changing operational practices, enhancing worker safety protocols, or modifying supply chain management.
      • Remediation Plans: Establish processes to remediate any harm caused by the entity’s operations or business relationships.

      Step 5: Tracking Effectiveness

      • Monitor and Review: Continuously monitor the effectiveness of the measures taken to address sustainability impacts and adjust strategies as necessary.
      • Reporting and Transparency: Regularly report on the progress and effectiveness of due diligence actions in the sustainability statement.

      Step 6: Public Reporting and Accountability

      • Disclosure: Disclose due diligence processes, findings, and actions in the sustainability statement. This includes detailing how negative impacts are addressed and how stakeholder engagement has informed the due diligence process.

      Incorporating Due Diligence into the Sustainability Statement

      • Comprehensive Reporting: Ensure that the sustainability statement reflects the comprehensive due diligence process. This should include a discussion of governance practices, stakeholder engagement outcomes, impact assessments, actions taken, and the effectiveness of these actions.

      Due diligence is incorporated into Mentcon model and how it has been conducted shall be documented in many Data points in the sustainability statement. When following the Mentcon model this will be described with pre-written text inserted automatically in the corresponding Data points.

      I don’t understand Incorporation by reference described in ESRS 1 section 9.1. Explain with examples.

      In BP-2 – Disclosures in relation to specific circumstances Data point 16, a list of incorporation by references shall be disclosed.

      Since information such as the business model and value chain might already be disclosed elsewhere (for example, in the management report), using references can help avoid redundant reporting.

      Below is an example list of how to disclose such a list with typical information to incorporate by reference:

      List of ESRS Disclosures Incorporated by Reference

      ESRS 2, General Disclosure SBM-1:

      Referenced Source: Management report.

      Specific Datapoints: Description of Business model and Value chain. ESRS 2 SBM-1 Datapoint 42 and 42c.

      ESRS E1, Climate Change ESRS 2 SBM-3 E1:

      Referenced Source: Universal Registration Document, Article on Environmental Strategy.

      Specific Datapoints: Details on resilience planning for climate-related risks: ESRS E1 SBM-3 Datapoint 19b-c.

      ESRS S1:

      Referenced Source: Financial Statements.

      Specific Datapoints: Details on employment figures, within the financial overview: ESRS 2 SBM-1 Data point 40 a iii, ESRS S1 S1-6 50a and 50c.

      ESRS Own Workforce S1-4:

      Referenced Source: Corporate Governance Statement.

      Specific Datapoints: Information on initiatives for employee health and safety, mental health support programs, and workplace ergonomics: ESRS S1 Data point 37, 38 a-d.

      ESRS Business Conduct G1:

      Referenced Source: Remuneration Report required by Directive 2007/36/EC.

      Specific Datapoints: Disclosures on executive remuneration policies linked to ethical business practices and anti-corruption measures: ESRS S1 Data point 97b, ESRS 2 GOV-3 Data point 29 and 29c.

      ESRS E4 Biodiversity and Ecosystems:

      Referenced Source: EMAS Report.

      Specific Datapoints: Information on land-use using guidance provided by the Eco-Management and Audit Scheme (EMAS): ESRS E4 Data point AR 3 a-d.

      ESRS 2 General Disclosures

      Here are some answers to Frequently Asked Questions about ESRS 2.

      ESRS 2 General disclosures FAQ
      What is the objective of ESRS 2 General Disclosures?

      The objective of ESRS 2 General Disclosures, is to provide a framework for all undertakings to disclose sustainability information that is sector-agnostic and applicable across various sustainability topics. This standard is designed to ensure that organizations report on sustainability issues comprehensively, covering the cross-cutting standards and reporting areas defined in ESRS 1 General Requirements.

      ESRS 2 General Disclosures sets out the disclosure requirements that every undertaking must follow when preparing their sustainability statements, regardless of their specific sector or the unique sustainability challenges they face. This includes applying the General disclosure requirements and their associated datapoints from topical ESRS as specified in Appendix C of the standard:

      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)

       

      These requirements are mandatory for descriptions of the processes to identify and assess material impacts, risks, and opportunities (IRO-1) and apply to other requirements only if the related sustainability topic is deemed material according to the undertaking’s materiality assessment, rooted in the principle of double materiality as outlined in ESRS 1.

      Are there any templates and tools or frameworks provided for ESRS 2 General Disclosures?
      As of the latest updates, specific templates or frameworks directly from the regulatory bodies for ESRS 2 General Disclosures have not been detailed. However, there are two drafts of guidelines published by EFRAG (the EU supported organisation that has developed ESRS):

      However, these have been criticised to give more questions than answers but no new versions of them will be published. For now, companies are encouraged to follow the guidelines outlined in the ESRS documents, which provide a structure to what information should be included.

      Businesses may also turn to industry groups, consultants, or sustainability organizations that may offer templates or software tools designed to align with ESRS and other sustainability reporting frameworks to assist in compliance.

      A framework that has interpreted all disclosure requirements to become compliant with ESRS 2 is the Mentcon model. It includes step-by-step process to disclose on ESRS 2 with a supporting web application including:

      • Business model
      • Value chain
      • Stakeholder analysis
        • Resulting in stakeholders in the value chain to include in the double materiality assessment
      • Double materiality assessment
      • Due diligence
      • Risk management and internal control
      • Interest and views of stakeholders
      • Description of the process to identify and Assess Material Impacts, Risks, and Opportunities
      • Generation of the Sustainability statement and the data points to disclose on based on the materiality assessment
      • Pre-written disclosures of how the company has conducted steps in the process for Data points requiring such disclosures in ESRS (when following the Mentcon model process)
      • Templates, tables with examples to how and what to disclose on all Data points the company must disclose on, including the voluntary Data points
      What are the disclosure requirements under ESRS 2 General disclosures?

      Here is a table of content of Disclosure requirements under ESRS 2 General disclosures.

      All these disclosures are explained in a straightforward manner, each addressed separately in the following questions.

      Basis for preparation          

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

      BP-2 – Disclosures in relation to specific circumstances

      Governance 

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

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

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

      GOV-4 – Statement on due diligence     

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

      Strategy        

      SBM–1 Strategy, business model and value chain        

      SBM-2 – Interests and views of stakeholders                  

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

      Impact, risk and opportunity management                  

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

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

      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         

      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

      Basis for Preparation

      The “Basis of Preparation” in ESRS 2 pertains to the fundamental requirements and guidelines for how companies should prepare their sustainability statements, ensuring clarity, consistency, and comprehensibility for all stakeholders. Key aspects in Basis for preparation in ESRS includes BP-1 and BP-2.

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

      Preparation Scope

      Companies must state whether the sustainability statement is prepared on a consolidated basis or for an individual entity.

      Scope of Consolidation

      For consolidated statements, it must be confirmed whether this scope matches that of the financial statements or explain any deviations.

      Value Chain Coverage

      The extent of the sustainability statement’s coverage over the company’s upstream and downstream value chain should be detailed.

      Omission of Sensitive Information

      Companies may omit sensitive information related to intellectual property or innovations, and must declare if any exemption has been used for non-disclosure of pending developments or negotiations.

      BP-2 – Disclosures in relation to specific circumstances

      This involves disclosing any unique or specific conditions affecting the preparation of the sustainability statement, aiming to elucidate the impact of these circumstances on the presented sustainability information.

      Time Horizons

      Companies must describe their own definitions of medium or long-term time horizons, especially if they deviate from the standard definitions provided by ESRS, and explain the reasons for these definitions.

      Value Chain Estimation

      When sustainability metrics involve estimated data from the value chain using proxies like sector averages, companies should explain the basis of these estimates, the accuracy levels, and future steps to improve this accuracy.

      Sources of Estimation and Outcome Uncertainty

      Companies need to identify which parts of their disclosed information involve significant estimation uncertainty and explain the sources and assumptions behind these estimates.

      Changes in Preparation or Presentation of Sustainability Information

      Companies are required to explain any changes made to the preparation and presentation methods of sustainability information compared to prior periods. This includes providing reasons for these changes, presenting revised comparative figures where possible, or explaining why such adjustments were impracticable.

      Reporting Errors in Prior Periods

      If material errors from previous periods are identified, companies must disclose the nature of these errors, corrections made for each prior period as feasible, and explain any impracticability in making corrections.

      Disclosures Stemming from Other Legislation or Generally Accepted Sustainability Reporting Pronouncements:

      When a sustainability statement includes information required by other legislation or generally accepted sustainability standards and frameworks, companies must disclose this fact. If only parts of other standards are applied, the specific paragraphs applied must be referenced.

      Incorporation by Reference

      Companies can incorporate certain information by reference, indicating which parts of the ESRS or specific datapoints are included in this manner. This approach is intended to avoid duplication and enhance clarity by referring to information provided elsewhere.

      Use of Phase-In Provisions in Accordance with Appendix C of ESRS 1:

      Smaller entities or groups, specifically those with fewer than 750 employees, can opt to omit information required by other specific ESRS standards but must still disclose if the sustainability topics covered by these omissions have been assessed as material. For each material topic, companies must disclose a variety of details including the relevant issues assessed, the targets set, policies, actions taken, and relevant metrics.

      Governance

      In ESRS 2, governance is detailed to ensure organizations disclose the structures, processes, and strategies employed to oversee and manage sustainability-related matters effectively. These are disclosed in GOV-1 – GOV 5.

      GOV-1 - The Role of the Administrative, Management, and Supervisory Bodies

      Disclosure Requirement GOV-1 – The Role of the Administrative, Management, and Supervisory Bodies outlines the necessity for organizations to provide detailed information on the structure, roles, responsibilities, and capabilities of their governing bodies in relation to sustainability oversight. This disclosure requirement aims to give stakeholders a clear understanding of how sustainability matters are governed within the organization.

      Summary of key requirements of ESRS GOV-1:

      Composition and Diversity

      Organizations must disclose the makeup of their administrative, management, and supervisory bodies, including the number of executive and non-executive members, representation of employees, and diversity aspects such as gender and independence. This includes detailing the percentage of independent members, which varies depending on the structure of the board (unitary or dual).

      Roles and Responsibilities

      The disclosure should clearly outline the specific roles and responsibilities of the administrative, management, and supervisory bodies in managing sustainability-related impacts, risks, and opportunities. This includes information on how these responsibilities are incorporated into the organization’s governance frameworks, such as terms of reference and board mandates.

      It should also describe the processes and controls these bodies use to oversee these sustainability matters, including how management roles are defined, the delegation of responsibilities to specific positions or committees, and the reporting lines to higher governance bodies.

      Expertise and Skills

      The requirement emphasizes the need for these bodies to possess or have access to the necessary expertise and skills related to sustainability. Organizations must describe the sustainability-related competencies of their governing bodies and how these are applied or developed, including the use of training programs or external experts.

      Monitoring and Target Setting

      Organizations must explain how their governance bodies participate in setting and monitoring targets related to significant sustainability impacts, risks, and opportunities. This includes an overview of the mechanisms and processes in place to track progress and make adjustments as necessary.

      GOV-2 - Information Provided to and Addressed by the Governance Bodies

      Disclosure Requirement GOV-2 – Information Provided to and Addressed by the Governance Bodies focuses on the communication and decision-making processes related to sustainability within an organization’s governing bodies. This requirement aims to ensure transparency in how these bodies are kept informed about sustainability issues and how they address them. It also assesses the adequacy and effectiveness of this information flow in enabling these bodies to perform their oversight responsibilities effectively.

      Summary of key requirements of ESRS GOV-2:

      Information Flow

      Organizations must disclose the mechanisms through which their administrative, management, and supervisory bodies are informed about sustainability-related matters. This includes detailing who provides the information, how often it is provided, and the nature of the information related to material impacts, risks, and opportunities.

      The disclosure should also cover the processes of implementing due diligence and the effectiveness of policies, actions, metrics, and targets set for addressing sustainability matters.

      Decision-Making Processes

      The requirement highlights the need to disclose how the governance bodies use the information received to make decisions regarding the organization’s strategy, major transactions, and risk management. This includes how these bodies assess and weigh the trade-offs associated with various sustainability impacts, risks, and opportunities.

      Addressing Material Impacts, Risks, and Opportunities

      Organizations must list the specific material impacts, risks, and opportunities that were addressed by the governance bodies during the reporting period. This should include a discussion on how these matters were handled, providing insight into the effectiveness of the governance structure in managing sustainability issues.

      Importance of ESRS GOV-2

      This disclosure helps stakeholders understand the role and effectiveness of an organization’s governance bodies in managing sustainability. It ensures that the governance structures are not only informed but are actively engaging with and addressing sustainability challenges. By showcasing how information is used to guide strategic decisions and risk management, GOV-2 reinforces the accountability and responsiveness of governance bodies to sustainability issues, enhancing stakeholder confidence in the organization’s sustainability governance.

      GOV-3 - Integration of Sustainability-Related Performance in Incentive Schemes

      Disclosure Requirement GOV-3 – Integration of Sustainability-Related Performance in Incentive Schemes, focuses on the ways in which sustainability performance influences compensation within an organization. This requirement compels an undertaking to disclose if and how its incentive schemes for the administrative, management, and supervisory bodies incorporate sustainability-related criteria.

      Key Characteristics of Incentive Schemes

      The company must describe the main features of the incentive schemes that are applicable to the governance bodies. This includes the general structure and basis of the incentives, emphasizing the integration of sustainability goals.

      Assessment Against Sustainability Targets/Impacts

      It should be disclosed whether the performance evaluations for incentive schemes consider specific sustainability-related targets or impacts. If so, the details of these targets or impacts must be specified, explaining how they are measured and evaluated.

      Use of Sustainability Metrics in Remuneration Policies

      The disclosure should state whether sustainability-related performance metrics are used as benchmarks in the remuneration policies of the company. This includes how these metrics are incorporated into the overall evaluation process for determining compensation.

      Proportion of Variable Remuneration Linked to Sustainability

      The undertaking needs to specify the proportion of variable compensation (bonuses, stock options, etc.) that is tied directly to achieving sustainability-related targets or managing sustainability impacts.

      Approval and Update of Incentive Terms

      Information must be provided about the organizational level at which the terms of these incentive schemes are approved and the frequency with which they are reviewed or updated. This helps in understanding the governance structures in place for overseeing the alignment of incentives with sustainability performance.

      GOV-4 - Statement on Due Diligence

      Disclosure Requirement GOV-4, “Statement on Due Diligence,” concerns the transparency of an organization’s due diligence processes related to sustainability matters. This requirement emphasizes how these processes are integrated and depicted within the organization’s sustainability statement. Overviev of what should be disclosed under GOV-4:

      Mapping the Due Diligence Process

      The organization must provide a detailed mapping that demonstrates how and where each aspect and step of its due diligence process is reported within the sustainability statement. This mapping should clearly show the linkage between the reported information and the specific due diligence practices implemented by the organization.

      Objective of the Disclosure

      The main goal of this disclosure requirement is to enhance the understanding of the organization’s due diligence processes concerning sustainability matters. It aims to ensure that stakeholders can clearly see how the organization identifies, assesses, and manages the sustainability-related impacts, risks, and opportunities.

      Detailed Explanation of Due Diligence Practices

      The undertaking should detail the main aspects and steps involved in its due diligence process as defined under ESRS 1, Chapter 4 (“Due Diligence”). This should include how these practices are applied across various domains of the organization and how they relate to both cross-cutting and specific topical disclosure requirements under the ESRS framework.

      Non-Prescriptive Nature of the Requirement

      It is important to note that GOV-4 does not impose specific behavioral actions regarding due diligence, nor does it modify the existing roles of the administrative, management, and supervisory bodies as prescribed by other legislations or regulations. Instead, it focuses on reporting and transparency of existing processes.

      Illustration of Actual Practices

      The disclosure should effectively illustrate the actual due diligence practices being followed by the organization, providing stakeholders with a realistic view of how sustainability matters are handled within organizational processes and decision-making frameworks.

      Summarized, GOV-4 is designed to ensure that there is clear and transparent reporting on how an organization’s due diligence processes related to sustainability are implemented, thereby fostering greater accountability and stakeholder confidence in the organization’s sustainability initiatives.

      GOV-5 - Risk Management and Internal Controls Over Sustainability Reporting

      Disclosure Requirement GOV–5 – Risk management and internal controls over sustainability reporting specifies that organizations must comprehensively disclose how they manage and control risks specifically related to their sustainability reporting. This requirement aims to enhance the transparency and reliability of sustainability disclosures by detailing the systems and processes that ensure accurate and consistent reporting of sustainability data.

      Summary of key requirements of ESRS GOV–5

      Scope and Features of Risk Management and Internal Controls

      Organizations are required to disclose the scope, main features, and components of their risk management and internal control systems that are dedicated to sustainability reporting. This includes outlining the frameworks, tools, and mechanisms in place that ensure the integrity and accuracy of the sustainability data reported.

      Risk Assessment Approach

      The disclosure must detail the risk assessment methodologies used by the organization to identify and prioritize risks associated with sustainability reporting. This should include the criteria and processes used to evaluate the likelihood and impact of potential risks to the sustainability data and reporting processes.

      Identification and Mitigation of Risks

      Organizations need to specify the main risks identified through their risk assessment processes and describe the strategies and controls implemented to mitigate these risks. This ensures stakeholders understand the steps taken to prevent or reduce the impact of identified risks on the sustainability reporting.

      Integration of Risk Assessment Findings

      There should be a detailed description of how the findings from the risk assessments and the functioning of internal controls are integrated into the organization’s broader management processes. This part of the disclosure demonstrates how risk management is woven into the daily operations and decision-making processes related to sustainability reporting.

      Periodic Reporting to Governance Bodies

      Lastly, organizations must describe how the outcomes and findings from the risk management and internal control assessments are periodically reported to administrative, management, and supervisory bodies. This ensures ongoing oversight and accountability by the organization’s leadership regarding the effectiveness of the risk management strategies and internal controls for sustainability reporting.

      When following the Mentcon model all this information is inserted of GOV 5 in the equivalent Data point and can be adjusted company specific where needed.

      Strategy

      In ESRS 2, the strategy section is critical for elucidating how an organization integrates sustainability into its strategic planning, business model, and value chain. This section comprises several disclosure requirements, each aiming to provide a deep understanding of the interconnections between the organization’s operations and its sustainability commitments and impacts.

      SBM-1 – Strategy, Business Model, and Value Chain

      The Disclosure Requirement SBM-1 – Strategy, Business Model, and Value Chain is integral to ESRS 2, aiming to provide stakeholders with a comprehensive understanding of how a company’s strategy, business model, and value chain are aligned with sustainability matters. This requirement ensures transparency about the company’s strategic objectives related to sustainability and how these objectives are integrated throughout its operations and external relationships.

      Key Aspects of ESRS SBM-1

      Strategy Related to Sustainability Matters

      • Product and Service Offerings: Companies must describe their significant product groups and services, noting any changes such as new offerings or discontinued items during the reporting period. This includes detailing how these offerings are linked to sustainability objectives.
      • Market and Customer Segmentation: Information on significant market segments and customer groups, including any shifts in market focus or customer demographics, is crucial for understanding the company’s strategic direction in sustainability.
      • Geographical Employee Distribution: Disclosing where employees are based geographically helps stakeholders understand the company’s operational footprint and associated sustainability impacts.
      • Regulated or Banned Products/Services: Where relevant, companies should disclose products or services that are restricted or banned in certain markets due to regulatory issues or sustainability concerns.

      Financial Breakdown by Sustainability Sectors

      • Companies are required to provide a breakdown of total revenue by significant ESRS sectors, integrating this data with standard financial segment reporting where possible. This allows stakeholders to assess financial exposure to various sustainability-related sectors.
      • Additional significant sectors should be identified that may not be directly reflected in traditional financial statements but are relevant due to their sustainability impacts.

      Industry-Specific Activities

      • Disclosure of involvement in sectors like fossil fuels, chemicals, controversial weapons, and tobacco, including specific financial details related to these sectors, is crucial for evaluating the sustainability challenges and risks the company faces.

      Sustainability Goals and Performance Assessment

      • Companies need to articulate their sustainability-related goals concerning products, services, customer groups, and geographic areas.
      • An assessment of how current products and services align with these sustainability goals is required to demonstrate progress and pinpoint areas needing improvement.

      Business Model and Value Chain

      • Inputs: Description of the resources and processes involved in acquiring and managing inputs essential for the business operations.
      • Outputs and Outcomes: Insight into the products or services produced and their broader impacts on customers, stakeholders, and the environment, highlighting the benefits and potential sustainability implications.
      • Value Chain Features: Detailed explanation of the upstream and downstream activities, including key business relationships with suppliers, customers, and other business partners. This also covers the company’s role within its value chain and how it manages these relationships to foster sustainability.

      Multi-Value Chain Disclosure

      • For companies with diverse operations, a comprehensive overview of all significant value chains is necessary. This should include how each value chain is managed in terms of sustainability and the specific sustainability challenges and opportunities within these chains.

      Compliance and Flexibility:

      • Companies must comply with local regulations regarding financial disclosures, and where exemptions apply (such as in some EU member states), these should be noted, but a detailed listing of significant ESRS sectors involved must still be provided.

      Overall, SBM-1 seeks to ensure that companies not only disclose the economic aspects of their operations but also how these operations are interwoven with social and environmental responsibilities, thereby offering a holistic view of their strategic approach to sustainability. This disclosure helps stakeholders understand the extent to which sustainability is embedded within the core strategy and operations of the company.

      SBM-2 – Interests and Views of Stakeholders

      The Disclosure Requirement SBM-2 – Interests and Views of Stakeholders is designed to ensure that an undertaking transparently communicates how it incorporates the perspectives and needs of its stakeholders into its strategic and business model frameworks. This requirement is fundamental in demonstrating a company’s commitment to stakeholder inclusivity in sustainability discussions, which can significantly influence corporate governance and strategic direction.

      Key Components of SBM-2

      Stakeholder Engagement Description

      • Identification of Key Stakeholders: The company must identify who its key stakeholders are, which can include shareholders, employees, customers, suppliers, local communities, governments, and NGOs, among others.
      • Engagement Practices: The company should describe how it engages with these stakeholders, detailing the frequency and form of these engagements (e.g., surveys, focus groups, public consultations).
      • Organizational Structure of Engagement: Information on how stakeholder engagement is organized internally, whether through dedicated teams, cross-departmental efforts, or through external facilitators.
      • Purpose of Engagement: The company needs to clarify the objectives behind engaging with stakeholders, such as gathering feedback on sustainability practices, informing corporate strategy, or addressing community concerns.
      • Outcome Utilization: How the outcomes of stakeholder engagements are integrated into the company’s operational and strategic decisions, demonstrating the tangible impacts of stakeholder input on the business.

      Understanding and Integrating Stakeholder Interests

      • Analysis of Stakeholder Interests: The company must explain how it analyzes and understands the interests and views of its stakeholders, particularly how these perspectives relate to the company’s strategy and business model.
      • Influence on Strategy and Business Model: Details on how stakeholder feedback has shaped the company’s strategic decisions and business practices, including any significant shifts in approach or focus resulting from stakeholder input.

      Adaptation and Amendments

      • Adjustments to Strategy/Business Model: The undertaking should disclose specific changes made to its strategy or business model in response to stakeholder feedback, outlining the nature of these amendments.
      • Planned Changes: Future plans for strategy or business model adjustments based on ongoing or anticipated stakeholder feedback, including the expected timeline for these changes.
      • Impact on Stakeholder Relationships: An evaluation of whether these changes are expected to alter the relationship with stakeholders, potentially affecting how stakeholders view the company.

      Reporting to Governance Bodies

      • Informing Leadership: How information regarding stakeholder views and interests is reported to the company’s administrative, management, and supervisory bodies.
      • Role of Governance in Stakeholder Engagement: The extent to which governance bodies are involved in reviewing and acting on stakeholder feedback, and how they ensure that stakeholder interests are considered in corporate governance and sustainability strategies.

      Importance of SBM-2:

      This disclosure requirement serves multiple strategic purposes:

      • Enhances Transparency: It builds trust with external parties by showing that the company values and acts upon the input of its diverse stakeholders.
      • Improves Decision-Making: By incorporating a wide range of perspectives, companies can make more informed and holistic decisions that consider the potential impacts on all stakeholders.
      • Strengthens Stakeholder Relations: Demonstrating responsiveness to stakeholder concerns can strengthen relationships and enhance corporate reputation.
      • Mitigates Risks: Understanding stakeholder perspectives can help anticipate and mitigate risks related to social and environmental issues.

      Overall, SBM-2 ensures that stakeholders have a meaningful influence on the strategic direction of the company, reinforcing the importance of sustainable and inclusive business practices.

      SBM-3 – Material Impacts, Risks, and Opportunities and Their Interaction with Strategy and Business Model

      The Disclosure Requirement SBM-3 – Material Impacts, Risks and Opportunities and Their Interaction with Strategy and Business Model is a crucial aspect of ESRS reporting. It focuses on detailing how material sustainability issues influence, and are influenced by, the business’s strategic and operational frameworks. This disclosure ensures stakeholders understand the interdependencies between the organization’s sustainability issues and its broader strategy, decision-making processes, and financial planning.

      Summary of Components of SBM-3:

      Materiality Assessment Results

      • Description of Material Issues: The organization must provide a summary of the material impacts, risks, and opportunities identified through its materiality assessment process. This includes specifying where within its operations, business model, or value chain these issues are most pronounced.
      • Concentration Areas: Detailing the specific parts of the business model, operations, or value chain where these material issues have the most significant impact.

      Impact on Strategy and Business Model

      • Current and Anticipated Effects: Disclosure of how material sustainability issues currently affect, and are expected to affect, the organization’s business model, strategy, and decision-making processes. This should include any adjustments made or planned in response to these issues.
      • Response Strategies: Description of strategic changes or adaptations made to mitigate risks, capitalize on opportunities, or manage the impacts.

      Nature and Origin of Impact

      • Effect on People and Environment: Explanation of how the material impacts (both negative and positive) affect individuals and the environment, considering potential future impacts.
      • Connection to Business Strategy: Analysis of how these impacts are linked to or arise from the company’s strategy and business model.
      • Involvement via Business Activities: Detailing whether the organization is involved in these impacts through its direct activities or through its business relationships, with a description of the nature of these relationships.

      Financial Implications

      • Current Financial Effects: An account of how material risks and opportunities are impacting the organization’s financial position, performance, and cash flows currently.
      • Anticipated Financial Effects: Projections on how these impacts are expected to affect the organization’s finances in the short, medium, and long term. This includes details on investment plans, funding strategies, and potential financial adjustments due to these risks and opportunities.

      Resilience of Strategy and Business Model

      • Assessment of Resilience: The company should provide a qualitative (and quantitative, where applicable) analysis of its strategic and business model resilience in the face of identified material impacts, risks, and opportunities. This analysis should outline the applied time horizons and methodologies.
      • Capacity to Manage Impacts: Information on the organization’s ability to address its material impacts and risks effectively and to seize related opportunities.

      Changes and Trends:

      • Comparison with Previous Reporting: Outline of any changes to the material impacts, risks, and opportunities since the last reporting period, providing a dynamic view of how material issues evolve over time.
      • Coverage of Impacts: A clear distinction between the impacts covered under ESRS requirements and those addressed through additional, entity-specific disclosures.

      Importance of SBM-3

      This disclosure requirement is pivotal as it:

      • Ensures comprehensive transparency about how sustainability is integrated into the core strategy and operations.
      • Helps stakeholders assess the robustness of the organization’s responses to material sustainability challenges.
      • Provides a basis for stakeholders to evaluate the financial and operational resilience of the organization in the context of sustainability risks and opportunities.

      By fulfilling the SBM-3 disclosure, organizations not only comply with regulatory expectations but also demonstrate a proactive approach to integrating sustainability deeply into their strategic planning and risk management frameworks.

      Impact, Risk, and Opportunity Management

      Impact, Risk, and Opportunity Management in ESRS 2 focuses on ensuring organizations comprehensively evaluate their sustainability-related impacts, risks, and opportunities. This involves a detailed materiality assessment process that influences what is included in the sustainability statement. The related disclosures are outlined in two primary sections: IRO-1 and IRO-2, aiming to provide transparency and clarity on how these assessments are conducted and their results are integrated into organizational reporting.

      IRO-1- Description of the Process to Identify and Assess Material Impacts, Risks, and Opportunities

      IRO-1 – Description of the Process to Identify and Assess Material Impacts, Risks, and Opportunities is a critical component of ESRS 2, aimed at ensuring transparency and thoroughness in how an organization evaluates its sustainability impacts. This disclosure requirement is designed to give stakeholders a clear understanding of how an organization identifies, evaluates, and prioritizes its sustainability-related impacts, risks, and opportunities.

      Key elements ESRS IRO-1:

      Methodologies and Assumptions

      • Organizations must describe the methodologies and assumptions used in the materiality assessment process. This includes detailing the specific approaches and frameworks employed to identify and assess impacts, such as lifecycle analysis, risk matrices, or stakeholder surveys.
        • When using Mentcon model App this is generated automatically and can be adjusted with company specific assumptions and industry specific frameworks used.

      Process Overview

      • The organization is required to provide a comprehensive overview of the process used to identify, assess, prioritize, and monitor potential and actual impacts on people and the environment.
        • When using Mentcon model App this is generated automatically.
      • This process must incorporate the organization’s due diligence activities, demonstrating how it addresses specific activities, business relationships, geographical locations, or other factors that contribute to heightened risks.

       

      Focus Areas of the Process

      • The process must focus on:
        1. Specific Activities and Relationships: Highlighting how particular operations or business relationships contribute to sustainability impacts.
        2. Stakeholder and Expert Consultation: Involving affected stakeholders and external experts to ensure diverse perspectives are considered and the impacts are well-understood.
        3. Impact Prioritization: Determining the severity and likelihood of negative impacts and the scale, scope, and likelihood of positive impacts, using established materiality thresholds.

      Financial Implications

      • The process also includes assessing the financial implications of identified risks and opportunities. This involves:
        1. Evaluating how the organization’s impacts and dependencies might give rise to financial risks and opportunities.
        2. Using qualitative or quantitative thresholds to assess the magnitude and nature of these risks and opportunities.
        3. Prioritizing sustainability-related risks in comparison to other risks using specialized assessment tools.

      Decision-making and Integration

      • Details on how the findings from this assessment process are integrated into the organization’s decision-making and risk management frameworks. This includes:
        1. Describing how the process is aligned with the organization’s overall risk management and governance frameworks.
        2. Explaining how opportunities are integrated into strategic planning and management processes.

      Input Parameters

      • Organizations need to disclose the input parameters used in the assessment process, such as the scope of operations covered, the data sources utilized, and the level of detail in the assumptions made.

      Process Evolution

      • A description of any changes to the process since the last reporting period, including when the process was last modified and the anticipated future revisions. This helps stakeholders understand how the process is evolving in response to changing conditions or new insights.
      IRO-2 - Disclosure Requirements in ESRS Covered by the Undertaking’s Sustainability Statement

      Disclosure Requirement IRO-2 – Disclosure Requirements in ESRS Covered by the Undertaking’s Sustainability Statement is designed to ensure transparency and accountability in how organizations report compliance with the European Sustainability Reporting Standards (ESRS). This requirement plays a crucial role in aligning sustainability reporting with recognized standards, ensuring consistency and comparability across reports.

      Key elements of ESRS IRO-2:

      Reporting on Compliance

      Organizations are required to explicitly report which ESRS Disclosure Requirements they have complied with in their sustainability statements. This includes clearly stating the extent of their compliance and detailing how these requirements are addressed within the sustainability statement.

      In Mentcon model App this is generated automatically when following Mentcon model.

      Content Index

      A content index or a similar tool must be included in the sustainability statement. This index should list all the Disclosure Requirements addressed in the report, providing specific page numbers or paragraphs where these disclosures can be found. This helps stakeholders quickly locate and review compliance details.

      In Mentcon model App this is generated automatically based on the materiality assessment.

      Table of EU Legislation Data Points

      Organizations must include a table listing all datapoints that are derived from other EU legislation, as outlined in Appendix B of the standard. This table should indicate where each datapoint is addressed within the sustainability statement. For datapoints deemed not material, organizations must mark these as “Not material” in the table, adhering to guidelines set forth in ESRS 1, paragraph 35.

      When using Mentcon model App this table is generated automatically with reference to where all datapoints derived from other EU legislation is addressed within the sustainability statement.  

      Materiality of Climate Change

      If an organization determines that climate change is not material to its operations and therefore excludes related disclosures required under ESRS E1 Climate Change, it must provide a detailed explanation of this decision. This explanation should include an assessment of why climate change was not deemed material and a forward-looking analysis that might influence future materiality assessments regarding climate change.

      Materiality of Other Topic

      Similarly, if an organization concludes that other topics are not material and omits related disclosures, it must provide a rationale for these exclusions. This includes a brief explanation based on the materiality assessment that led to the conclusion that these topics do not warrant inclusion in the sustainability statement.

      Explanation of Material Information Determination

      Organizations must also explain how they determined which information to disclose concerning material impacts, risks, and opportunities. This includes describing the use of thresholds and criteria for materiality, as set out in ESRS 1, section 3.2 on Material Matters and Materiality of Information. This part of the disclosure ensures that stakeholders understand the basis on which materiality decisions were made, providing transparency into the assessment process and criteria used.

      When using Mentcon model the explanation of material information determination is automatically inserted into the sustainability statement as performed in the Mentcon model process.

      MDR-P – Policies adopted to manage material sustainability matters Purpose and Scope

      ESRS MDR-P mandates disclosures about the policies an undertaking has established to manage identified material sustainability matters. These policies aim to prevent, mitigate, and remediate impacts, and to manage risks and opportunities related to sustainability.

      The policies should be applicable across various sustainability aspects covered by both sector-specific and topical ESRS, and can also extend to entity-specific disclosures.

      Disclosure Content

      1. Policy Details: Description of the policy, including its general objectives and the specific material impacts, risks, or opportunities it addresses, alongside the monitoring mechanisms in place.
      2. Scope: Clarification of the policy’s applicability concerning different activities, parts of the value chain, geographic areas, and relevant stakeholder groups.
      3. Accountability: Identification of the highest level within the organization responsible for the policy’s implementation.
      4. Standards and Initiatives: Reference to any external standards or sustainability initiatives that the policy aligns with.
      5. Stakeholder Consideration: Details on how the interests of key stakeholders have influenced the policy settings.
      6. Accessibility: Information on the availability of the policy to stakeholders who are impacted by or involved in its execution.
      MDR-A – Actions and resources in relation to material sustainability matters

      Purpose and Scope

      ESRS MDR-A focuses on the actions and resources dedicated to implementing the policies under MDR-P. It encompasses actions intended to address the risks, impacts, and opportunities identified as material.

      Disclosure Content

      1. Actions Taken and Planned: Comprehensive list of actions implemented during the reporting period and those planned for the future, including their expected outcomes and contributions to policy objectives.
      2. Scope of Actions: Coverage of these actions across activities, value chains, geographies, and affected stakeholder groups.
      3. Timeframes: Expected timelines for completing the actions.
      4. Remediation Efforts: Specific actions taken to remedy the adverse effects caused by the organization’s activities.
      5. Progress Reporting: Both qualitative and quantitative updates on the progress of ongoing actions or those from previous periods.

      Resource Allocation

      Operational and Capital Expenditures: Details about the financial and other resources allocated to action plans, including terms of sustainable finance instruments like green bonds or social loans, and the dependencies of these plans on external factors like financial support or policy developments.

       

      Metrics and targets

      Purpose and Scope

      This section outlines the requirements for disclosing metrics and targets that enterprises must adhere to, under the guidance of ESRS. These requirements help evaluate the effectiveness of strategies deployed to handle material sustainability impacts and financial risks and opportunities.

      Integration with Other Requirements

      The disclosures on metrics and targets must be integrated with other relevant ESRS disclosures and are typically positioned alongside them. These metrics and targets are crucial for both compliance with sector-specific standards and for supporting entity-specific disclosures.

      Disclosure of Targets

      If an enterprise has not established targets regarding a particular sustainability matter deemed significant, it must openly declare this absence and explain why these targets have not been set. Additionally, it should provide a timeline or rationale for potentially setting these targets in the future.

      Metrics and targets

      Purpose and Scope

      This section outlines the requirements for disclosing metrics and targets that enterprises must adhere to, under the guidance of ESRS. These requirements help evaluate the effectiveness of strategies deployed to handle material sustainability impacts and financial risks and opportunities.

      Integration with Other Requirements

      The disclosures on metrics and targets must be integrated with other relevant ESRS disclosures and are typically positioned alongside them. These metrics and targets are crucial for both compliance with sector-specific standards and for supporting entity-specific disclosures.

      Disclosure of Targets

      If an enterprise has not established targets regarding a particular sustainability matter deemed significant, it must openly declare this absence and explain why these targets have not been set. Additionally, it should provide a timeline or rationale for potentially setting these targets in the future.

      MDR-M – Metrics in relation to material sustainability matters

      Application: Enterprises must detail the metrics they use to assess the efficacy of their actions towards managing identified material sustainability matters.

      Objective: The primary goal is to elucidate the metrics used by the enterprise to monitor the outcomes of its sustainability initiatives and policies.

      Content of Disclosure:

      • Description of Metrics: This includes a thorough explanation of the metrics, outlining the methodologies and assumptions used, and addressing any limitations these methodologies might have.
      • Validation: Information on whether these metrics have undergone validation by external bodies apart from the assurance providers, enhancing credibility.
      • Definition and Clarity: Metrics should be clearly defined, labeled, and described so they are understandable and meaningful to external stakeholders.
      • Measurement Standards: If metrics involve monetary values, the presentation currency of the financial statements should be used.
      MDR-T – Tracking effectiveness of policies and actions through targets

      MDR-T – Tracking Effectiveness of Policies and Actions Through Targets

      Purpose and Scope

      MDR-T specifies how organizations should disclose the targets they set concerning each material sustainability issue. This disclosure requirement aims to illustrate how enterprises track the effectiveness of their initiatives addressing material impacts, risks, and opportunities.

      Detailed Disclosure Objectives

      The primary goal of MDR-T is to provide a clear picture of the enterprise’s commitment and progress in managing material sustainability concerns through target-setting and tracking:

      Tracking Effectiveness: It details how the enterprise monitors the efficacy of its actions against the set targets using various metrics.

      Setting Measurable Targets: Enterprises must set clear, measurable, time-bound, and outcome-oriented targets that align with their policy objectives.

      Monitoring Progress: It includes how progress towards these targets is measured over time.

      Non-Existence of Targets: If no measurable targets have been set, the requirement outlines how the enterprise still tracks its performance and manages progress.

      Disclosure Requirements

      For each declared target, enterprises must disclose:

      1. Relationship to Policy Objectives: The connection between the targets and the broader policy aims of the sustainability efforts.
      2. Target Details: This includes the precise level of achievement envisioned, whether absolute or relative, and the units of measure.
      3. Scope and Boundaries: The extent of the target’s application within the organization’s operations, including any geographical limitations and its impact along the value chain.
      4. Baseline and Period: Starting points for measurement and the time period over which the target applies, including any intermediate milestones.
      5. Methodological Framework: The methodologies and assumptions used to define the targets, considering various scenarios, data sources, and alignment with broader policy goals.
      6. Stakeholder Involvement: How stakeholders are involved in setting these targets and the degree to which their input influences the sustainability strategies.
      7. Changes and Updates: Any adjustments to the targets or the methodologies used for their measurement, and the rationale behind these changes.

      Review and Adaptation

      The enterprise must regularly review and report on the attainment of these targets, providing insights into whether the progress aligns with the initial plans. This includes detailed trend analysis and significant changes in performance metrics.

      If Targets Are Unset

      If no specific targets have been established, the disclosure must explain why, and if applicable, outline the processes the enterprise uses to track policy effectiveness through other means.

      Conclusion

      MDR-T is fundamental in ensuring that enterprises maintain a clear, accountable approach to managing their sustainability impacts through well-defined, strategic targets. 

      ESRS E1 Climate change

      Here are some answers to Frequently Asked Questions about ESRS 2.

      A and Q ESRS E1_Climate change
      What is ESRS E1 Climate Change and its main objective?

      The objective of ESRS E1 Climate Change is to provide comprehensive disclosure requirements that enable stakeholders to understand the full spectrum of an undertaking’s influence on, and response to, climate change. This includes:

      1. Impact Analysis: Detailing how the undertaking contributes to climate change through both positive and negative impacts, addressing both actual and potential effects.
      2. Mitigation Efforts: Outlining the actions taken by the undertaking to mitigate its contributions to global warming, ensuring these efforts align with international agreements like the Paris Agreement, aiming to limit global warming to 1.5°C.
      3. Adaptation Strategies: Describing the undertaking’s strategies and capacities for adapting its business model to support a sustainable economy and contribute effectively to climate change mitigation.
      4. Comprehensive Action Review: Reporting on additional actions taken to prevent, mitigate, or remediate negative climate impacts, along with how the undertaking manages related risks and opportunities.
      5. Risk and Opportunity Management: Providing insights into the material risks and opportunities related to climate change that affect the undertaking, detailing how these are managed.
      6. Financial Impact: Discussing the short-, medium-, and long-term financial implications of climate-related risks and opportunities on the undertaking.
      How does ESRS E1 Climate Change interact with other standards within ESRS?

      ESRS E1 Climate Change is designed to work in conjunction with other European Sustainability Reporting Standards (ESRS) to provide a comprehensive framework for reporting on sustainability issues, including the specific challenges and implications of climate change.

      1. Integration with Other Environmental Standards: ESRS E1 closely interacts with other environmental standards such as ESRS E2, which covers emissions like ozone-depleting substances (ODS), nitrogen oxides (NOX), and sulphur oxides (SOX). While E1 focuses on greenhouse gases and climate-related impacts, E2 addresses broader air emissions that also contribute to climate change.
      2. Connection with Social Standards: The impacts of climate change mitigation and adaptation efforts on the workforce and communities are considered under social standards like ESRS S1, S2, S3, and S4. These standards cover how transitions to a climate-neutral economy affect various stakeholders, including workers in the company’s own workforce, those in the value chain, affected communities, and consumers and end-users.
      3. Linkages to Water and Biodiversity Standards: ESRS E1 is also closely related to ESRS E3 (Water and Marine Resources) and ESRS E4 (Biodiversity and Ecosystems). E1 addresses the acute and chronic physical risks arising from water and ocean-related hazards as part of climate change adaptation strategies. Meanwhile, E4 focuses on the impacts of climate change on biodiversity and ecosystems, illustrating the interconnectedness of climate actions and ecological health.
      4. Alignment with General Disclosure Requirements: As per ESRS 2 General disclosures, the disclosures under ESRS E1 should be presented alongside or integrated with general sustainability disclosures. This includes governance, strategy, and impact, risk, and opportunity management, ensuring that climate change considerations are woven into the broader strategic and operational framework of the undertaking.
      5. Complementary Disclosure: The specific disclosures related to climate change under ESRS E1 are designed to complement the disclosures under ESRS 2, particularly concerning material impacts, financial risks and opportunities and their interaction with the company’s strategy and business model. Companies may opt to present these disclosures alongside other relevant disclosures within the same topical standard to provide a cohesive understanding of how climate-related factors are integrated into their overall sustainability strategy.
      What are the disclosure requirements under ESRS E1 Climate Change summarized?

      ESRS E1 Climate Change focuses on detailing the required disclosures for organizations to report their impacts and strategies concerning climate change. The requirements are integrated and expansive, aiming to provide a comprehensive picture of an organization’s climate-related activities and effects. Here’s a summary of the main disclosure requirements under ESRS E1 Climate Change:

      1. Governance: Disclose how climate-related considerations are integrated into remuneration policies, specifically if performance assessments include GHG emission reduction targets and how much remuneration is linked to climate considerations.
      2. Strategy:
        • Transition Plan for Climate Change Mitigation: Describe the organization’s efforts, past, current, and future, to align with limiting global warming to 1.5°C, including specific targets, actions, investments, and strategies. This also covers the management of GHG-intensive and energy-intensive assets and future CapEx plans.
        • Material Impacts, Risks, and Opportunities: Explain the resilience of the organization’s strategy and business model in relation to identified climate-related risks, using climate scenario analysis.
      3. Impact, Risk, and Opportunity Management:
        • Describe processes to identify and assess climate-related impacts, risks, and opportunities, focusing on both physical and transition risks.
      4. Policies Related to Climate Change Mitigation and Adaptation: Outline the policies in place that address climate change mitigation and adaptation, energy efficiency, and renewable energy use.
      5. Actions and Resources:
        • Disclose specific climate change mitigation and adaptation actions taken and resources allocated, linking significant financial amounts to their impact on the organization’s GHG emission targets.
      6. Metrics and Targets:
        • Report specific climate-related targets set, their alignment with science-based targets, and detail the decarbonization levers planned to achieve these targets.
        • Provide detailed emissions data for Scope 1, 2, and 3, alongside energy consumption metrics, distinguishing between types of energy sources.
      7. GHG Removals and Mitigation Projects: If applicable, disclose GHG removals achieved through projects and the amount of carbon credits purchased, ensuring transparency about their quality and relevance to net-zero claims.
      8. Internal Carbon Pricing: Describe any internal carbon pricing mechanisms used, their scope, and their role in decision-making and policy implementation.
      9. Anticipated Financial Effects from Material Risks and Opportunities: Forecast the financial impacts from material physical and transition risks, and the potential benefits from climate-related opportunities.
      What types of actions, targets and metrics can companies use for ESRS E1 Climate Change?

      Under ESRS E1 Climate Change, companies are encouraged to engage in a variety of actions, set clear targets, and use specific metrics to manage and report on their climate-related impacts, risks, and opportunities. Here’s a breakdown of the types of actions, targets, and metrics that can be utilized:

      Actions

      1. Transition Plan for Climate Change Mitigation: Developing and implementing a detailed transition plan to reduce GHG emissions in line with international agreements like the Paris Agreement. This may include:
        • Decarbonizing energy sources (e.g., switching to renewable energy).
        • Improving energy efficiency across operations.
        • Changing product and service portfolios to lower-emission alternatives.
        • Investing in new technologies and infrastructure to support low-carbon operations.
      2. Climate Change Adaptation Actions: Implementing strategies to adapt business operations to the impacts of climate change, such as:
        • Modifying facilities and infrastructure to withstand extreme weather events.
        • Altering operational practices to cope with new climate realities (e.g., water scarcity management).
        • Enhancing resilience against climate-related hazards across the value chain.
      3. GHG Mitigation Projects: Participating in or developing projects that reduce or remove GHG emissions from the atmosphere, which may include reforestation or carbon capture and storage technologies.

      Targets

      1. GHG Emission Reduction Targets: Setting specific, quantifiable goals for reducing GHG emissions across Scopes 1, 2, and 3. These targets should be:
        • Time-bound with clear deadlines (e.g., 2030, 2050).
        • Aligned with science-based pathways to limit global warming to 1.5°C, possibly certified by initiatives like the Science Based Targets initiative (SBTi).
        • Regularly updated and reviewed to reflect progress and technological developments.
      2. Energy Efficiency Targets: Establishing goals to reduce energy consumption per unit of output, which can contribute to lower overall GHG emissions.
      3. Renewable Energy Targets: Setting targets for increasing the proportion of renewable energy in the overall energy mix, such as aiming for a certain percentage of energy consumption from renewable sources by a specified year.

      Metrics

      1. GHG Emissions Intensity: Reporting GHG emissions relative to economic output, which helps in assessing the efficiency of mitigation efforts.
      2. Total Energy Consumption: Measuring total energy use, disaggregated by source (fossil, renewable, nuclear), to monitor progress towards energy efficiency and renewable energy targets.
      3. Carbon Pricing: Implementing internal carbon pricing mechanisms and reporting on how these financial measures affect investment decisions and emissions reductions.
      4. Scenario Analysis: Using climate-related scenario analysis to forecast future GHG emissions under different potential climate futures, helping to inform strategic planning and resilience building.
      Give examples of actions, targets and metrics companies can use for ESRS E1 Climate Change?

      Note! Consider the short-term, medium-term and long-term time horizons when taking company specific actions and setting targets.

      Actions

      1. Development of a Low-Carbon Product Line: A manufacturing company commits to redesigning its product lines to reduce GHG emissions during use, such as creating energy-efficient appliances or vehicles.
      2. Enhanced Water Recycling Systems: A beverage company implements advanced water recycling technologies in its factories to minimize water usage and reduce the energy needed for water treatment, contributing to lower indirect GHG emissions.
      3. Climate Resilience Infrastructure Upgrades: An insurance company invests in upgrading its coastal branches to withstand increased flooding and storm surges, reducing potential disruptions and physical climate risks.

      Targets

      1. GHG Emission Reduction Goal: A logistics company sets a target to reduce its total GHG emissions by 40% by 2030 from a 2020 baseline, focusing on Scope 1 and Scope 2 emissions, through fleet electrification and energy efficiency improvements in warehouses.
      2. Renewable Energy Usage: A tech company targets 100% of its electricity to come from renewable sources by 2025 by investing in onsite solar installations and purchasing renewable energy credits.
      3. Zero Waste to Landfill: A retail chain commits to achieving zero waste to landfill by 2035, aiming to minimize waste generation and increase recycling rates across all its stores, thus reducing indirect GHG emissions associated with waste management.

      Metrics

      1. Scope 1, 2, and 3 Emissions Reporting: An oil and gas company annually reports its direct and indirect GHG emissions, including those from its value chain, to monitor progress towards its emission reduction targets.
      2. Energy Efficiency Metric: A data center measures and reports its energy use effectiveness (PUE), aiming for continuous improvement to decrease its PUE from 1.8 to 1.2 over five years, thereby reducing its energy-related GHG emissions.
      3. Carbon Pricing Impact: A multinational corporation implements a carbon fee of $50 per tonne of CO2e, applying it internally to all capital projects to drive lower carbon choices. The company tracks and reports the financial savings achieved through reduced GHG emissions as a result of this policy.
      How does ESRS E1 Climate Change align with global climate reporting frameworks like TCFD?

      The disclosure requirements under ESRS E1 Climate Change align closely with global climate reporting frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD). The alignment is evident in several key areas that both ESRS E1 and TCFD emphasize, aiming to enhance transparency, accountability, and the integration of climate risks into corporate strategy and financial reporting. Below is a comparison:

      1. Governance:
        • TCFD: Recommends disclosing the organization’s governance around climate-related risks and opportunities.
        • ESRS E1: Requires disclosures on how climate considerations are integrated into remuneration and performance assessments of management, reflecting governance practices aligned with TCFD’s emphasis on accountability at the highest levels.
      2. Strategy:
        • TCFD: Focuses on the actual and potential impacts of climate-related risks and opportunities on business, strategy, and financial planning over the short, medium, and long term.
        • ESRS E1: Mandates detailed disclosures on transition plans for climate mitigation, including how the strategy is resilient against climate-related risks, supported by scenario analysis. This is in line with TCFD’s recommendation for resilience testing of business strategies.
      3. Risk Management:
        • TCFD: Suggests describing how the organization identifies, assesses, and manages climate-related risks.
        • ESRS E1: Requires a description of processes to identify and assess material climate-related impacts, risks, and opportunities, explicitly aligning with TCFD’s approach to risk management processes.
      4. Metrics and Targets:
        • TCFD: Recommends disclosing the metrics and targets used to assess and manage relevant climate-related risks and opportunities.
        • ESRS E1: Extensively covers the need to disclose specific climate-related targets, the metrics used for managing climate risks, GHG emissions across all scopes, and the effectiveness of actions taken, which complements TCFD’s requirements.
      5. Scenario Analysis:
        • TCFD: Encourages the use of climate-related scenario analysis to assess potential business impacts under different plausible future climates.
        • ESRS E1: Integrates scenario analysis into the resilience assessment of business strategies, aligning with TCFD by expecting firms to consider various climate scenarios, including those aiming to limit global warming to 1.5°C.
      6. Financial Impact Disclosures:
        • TCFD: Calls for the disclosure of the financial impacts of climate risks and opportunities on the organization’s financial condition and operating results.
        • ESRS E1: Requires a forecast of anticipated financial effects from material physical and transition risks and opportunities, closely following TCFD’s emphasis on financial implications.
      What types of greenhouse gas emissions must be reported under ESRS E1?

      Under ESRS E1 Climate Change, companies are required to report several types of greenhouse gas (GHG) emissions, which encompass direct and indirect emissions across different scopes as outlined in the standard. The following categories of GHG emissions must be reported:

      1. Scope 1 GHG Emissions:
        • These are direct emissions from owned or controlled sources by the reporting company. This includes emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc., as well as emissions from chemical production in owned or controlled process equipment.
      2. Scope 2 GHG Emissions:
        • These are indirect GHG emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company. Scope 2 emissions are reported in two approaches:
          • Location-based: This method reflects the average emissions intensity of grids on which energy consumption occurs (using regional or national grid averages).
          • Market-based: This method reflects the emissions intensity of the electricity that a company has purposefully chosen (or contracted) and can be affected by the company’s specific purchasing choices and contractual agreements.
      3. Scope 3 GHG Emissions:
        • These are indirect emissions not covered in Scope 2 that occur in the value chain of the reporting company, including both upstream and downstream emissions. Scope 3 includes categories such as the extraction and production of purchased materials and fuels, transportation of purchased fuels, and the use of sold products and services.

      Total GHG Emissions:

      • Companies are also required to report their total GHG emissions, which is the sum of Scope 1, Scope 2, and significant Scope 3 emissions. This comprehensive total helps stakeholders understand the full spectrum of a company’s climate impact.
      Please, summarize how companies should calculate and report their carbon footprint for ESRS E1 compliance?

      Under ESRS E1 Climate Change, companies are required to calculate and report their carbon footprint, specifically covering Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions.

      Scope 1 Emissions (Direct Emissions)

      • Definition: Direct GHG emissions from sources that are owned or controlled by the company, such as emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.
      • Calculation Method: Measure actual fuel consumption and apply emission factors specific to the type of fuel and technology used.
      • Reporting Requirement: Report gross Scope 1 GHG emissions in metric tonnes of CO2 equivalent, including a breakdown by type of GHG and source if significant.

      Scope 2 Emissions (Indirect Emissions from Purchased Electricity, Heat, or Steam)

      • Definition: Indirect GHG emissions from the generation of purchased electricity, heat, or steam consumed by the company.
      • Calculation Method:
        • Location-Based Method: Use emission factors provided by local or national regulators that reflect the average emissions intensity of the grid.
        • Market-Based Method: Use emission factors that reflect the GHG emissions of the specific electricity supply contracts, including specific renewable energy purchases or certificates.
      • Reporting Requirement: Report both location-based and market-based Scope 2 GHG emissions in metric tonnes of CO2 equivalent.

      Scope 3 Emissions (Other Indirect Emissions)

      • Definition: Indirect emissions not covered in Scope 2 that occur in the company’s value chain, including upstream and downstream emissions.
      • Calculation Method: Identify relevant Scope 3 categories (e.g., purchased goods and services, business travel, employee commuting, waste disposal, use of sold products, etc.). Collect data on these activities, apply suitable emission factors, and calculate emissions accordingly.
      • Reporting Requirement: Report GHG emissions from significant Scope 3 categories in metric tonnes of CO2 equivalent, detailing the methodology, assumptions, and sources of emission factors used.

      General Reporting Principles

      • Consistency: Ensure that the GHG inventory boundaries and calculation methodologies are consistent year over year, or disclose and justify any changes.
      • Transparency: Provide detailed explanations of the calculation methodologies, emission factors, data sources, and any estimations or assumptions used.
      • Verification: Consider third-party verification of the GHG emissions data to enhance credibility and reliability of the reporting.
      • Alignment: Ensure that reporting aligns with international standards such as the GHG Protocol and integrates with other regulatory frameworks and guidelines to which the company adheres.

      Complementary Disclosures

      • Energy Consumption and Mix: Besides GHG emissions, companies should also report on their total energy consumption, disaggregated by source (fossil, renewable, nuclear), and related metrics, which can help in understanding the broader context of the company’s energy use and efficiency.
      • Carbon Removals: If applicable, companies should disclose GHG removals achieved through initiatives like reforestation or carbon capture and storage technologies, including the amount of CO2eq removed.
      How does ESRS E1 Climate Change address adaptation and resilience?

      ESRS E1 Climate Change addresses adaptation and resilience through specific disclosure requirements that focus on how companies assess, plan for, and manage the physical risks and opportunities related to climate change.

      Adaptation

      • Definition and Scope: Adaptation in the context of ESRS E1 involves adjusting processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change.
      • Disclosure Requirements:
        • Companies are required to describe their strategies and actions to adapt to climate-related hazards that could lead to physical risks. This includes detailing the processes for identifying and assessing these risks along with the specific adaptation solutions implemented to mitigate these risks.
        • The disclosures must cover the company’s approach to enhancing its resilience against acute (e.g., extreme weather events) and chronic (e.g., rising sea levels, temperature changes) physical risks.

      Resilience

      • Definition and Scope: Resilience refers to the ability of the company to withstand, respond to, and recover quickly from disruptions caused by climate-related risks.
      • Disclosure Requirements:
        • Companies must describe the resilience of their business models in the context of climate change. This includes conducting and reporting on resilience analyses that assess how their strategies and operations would perform under various climate-related scenarios.
        • These scenarios should be based on different degrees of global warming, aligning with international climate targets such as limiting global warming to 1.5°C, to evaluate the effectiveness of the company’s adaptation measures.
        • Companies should use climate scenario analysis to inform their resilience strategies, providing insights into how potential future climate conditions could impact their operations, supply chains, and market positions.

      Integration with Strategy and Business Model

      • Operational and Strategic Alignment: Companies are required to integrate climate change adaptation into their overall business strategy and operational planning. This includes aligning their transition and adaptation plans with long-term climate objectives, such as those outlined in the Paris Agreement.
      • Disclosure of Adaptation Actions:
        • Detailed descriptions of actions taken to manage climate-related risks and to adapt business practices and processes. This includes investments in infrastructure to withstand climate impacts, modifications to operational processes to reduce vulnerabilities, and strategic shifts in business models to address emerging risks and opportunities.
        • Quantitative and qualitative assessments of the potential financial impacts of these risks and opportunities on the company.

      Financial Implications

      • Assessment of Financial Effects: Companies are expected to disclose the financial effects of climate-related risks and opportunities on their operations over the short, medium, and long term. This includes the potential impact on their assets, investments, and revenue streams, providing stakeholders with a clear understanding of how well-prepared the company is to face climate challenges.
      What tools or resources are available to help companies comply with ESRS E1 Climate Change?

      To effectively comply with the ESRS E1 Climate Change disclosure requirements, companies can utilize a variety of tools and resources designed to aid in the assessment, reporting, and management of climate-related impacts, risks, and opportunities. These resources include:

      1. Climate Scenario Analysis Tools:
        • Integrated Assessment Models (IAMs): Tools like the IMAGE or GCAM models help simulate the impacts of different policy scenarios on climate outcomes, providing insights that can guide strategic planning.
        • Sector-specific Scenario Tools: Tools tailored to specific industries, such as the Energy Transition Toolkit for the energy sector, which can help companies align with climate change mitigation and adaptation scenarios.
      2. GHG Inventory Management Software:
        • Software platforms like SimaPro, GaBi, or OpenLCA allow companies to accurately calculate and manage their greenhouse gas emissions across all scopes. These tools are critical for creating comprehensive GHG inventories as required by ESRS E1.
      3. Risk Management Frameworks:
        • The Task Force on Climate-related Financial Disclosures (TCFD) provides guidelines and frameworks for assessing and disclosing financial risks associated with climate change, which align well with ESRS requirements.
        • Adaptation planning and risk management frameworks that help businesses identify vulnerabilities and develop strategies to address physical and transitional climate risks.
      4. Carbon Accounting and Reporting Tools:
        • Tools such as the Greenhouse Gas Protocol offer comprehensive standards and guidance for quantifying and reporting GHG emissions. These standards are crucial for ensuring compliance with ESRS E1’s reporting requirements.
        • There is a scattered market with hundreds of tools designed to collect and calculate GHF emissions. Microsoft sustainability manager is one tool and can also be used to collect other sustainability data to import to Mentcon model for ESRS, the Sustainability statements software.  
        • List of tools used to collect and calculate GHF emissions, see the next question.
      5. Benchmarking and Performance Tracking Software:
        • Platforms that enable tracking of environmental performance, comparison with peers, and assessment against targets. Examples include CDP (Carbon Disclosure Project) and SBTi (Science Based Targets initiative) tools, which also assist in setting science-based emissions reduction targets.
      6. Regulatory Compliance and Update Services:
        • Subscription-based services that keep companies updated on regulatory changes, international standards, and best practices in climate reporting and sustainability. These services ensure that businesses remain compliant as regulations evolve.
      7. Consulting and Advisory Services:
        • Specialized consulting firms offer services ranging from sustainability reporting to climate strategy development and implementation. These experts can provide tailored advice and support to meet specific ESRS E1 requirements.
      8. Training and Capacity Building Programs:
        • Workshops, webinars, and training sessions designed to educate staff on climate change issues, reporting frameworks, and sustainability strategies. Organizations like the Global Reporting Initiative (GRI) and local sustainability organizations often host such programs.
      9. Collaborative Platforms and Initiatives:
        • Joining industry groups or multi-stakeholder initiatives such as the We Mean Business coalition can provide support, shared resources, and collective action opportunities that facilitate ESRS E1 compliance.
      What are the of leading tools to collect and calculate GHF emissions?

      It’s a scattered market and new companies and tools are popping up. Most of them are just available in one or two languages. The list is based on the most common tools used by Mentcon customers to import GHG data to the Mentcon model App. The list is not a ranking of features and quality of these tools. The descriptions are summarized by AI based on descriptions from their websites.

      Summary of tools to collect and calculate GHF emissions:

      Plan A: A SaaS platform for corporate decarbonization and ESG optimization. It combines technology, scientific standards, and methodologies to help organizations align with sustainability goals. Businesses can manage their entire net-zero journey—from data collection and processing to emissions reporting and reduction—within this platform, to export to Mentcon model app.

      Web: https://plana.earth/

       

      SmartTrackers: A multifunctional sustainability platform that assists businesses in measuring and assessing sustainability, safety, and CO2. It provides organizations with insights into their environmental impact, streamlines accountability, and ensures compliance with best practices, standards, and regulations. The tool prioritizes customizability and manual data entry for maximum flexibility.

      www.smarttrackers.nl/

       

      Normative: A solution for industrial businesses to precisely measure their emissions. Similar to traditional accounting, Normative’s carbon accounting combines hard data and rigorous calculations, ensuring reliable results. Normative’s Climate Strategists identify emissions reduction opportunities, mitigate climate risk, and explore growth possibilities in a net-zero economy. The company’s focus is on making carbon emissions visible, empowering businesses to plan reductions and achieve net zero.

      www.normative.io/

       

      SINAI: A decarbonization platform empowering companies to move beyond carbon accounting. Their enterprise software enables cost-effective carbon reduction strategies, leveraging science-based targets. Key functionalities include calculating scope 1-3 emissions, forecasting future emissions, identifying reduction opportunities, and implementing carbon pricing.

      www.sinai.com/

       

      Greenly: A carbon accounting platform simplifying carbon assessment and management. It allows companies to measure, monitor, reduce, and offset their carbon footprints according to international standards like the GHG Protocol. Additionally, it facilitates engagement with their ecosystem, from employees to suppliers, on their climate journey.

      www.greenly.earth/

       

      Salesforce’s Net Zero Cloud: Aids businesses in achieving carbon neutrality. It offers tools for tracking and analysing carbon emissions across all scopes, enabling the creation of climate action plans. The focus is on helping businesses become carbon-neutral faster by providing practical steps for emission reduction.

      www.salesforce.com/eu/products/net-zero-cloud

       

      Watershed: An enterprise climate platform that assists large companies in measuring, reporting, and reducing carbon emissions. It enables businesses to map their carbon footprint, create compliant reports, set reduction targets, and track progress. Additionally, Watershed ensures auditable emissions data for business value creation, regulatory compliance, and global climate impact.

      www.watershed.com/

       

      Sweep: A French carbon and ESG data platform for large enterprises. It facilitates tracking, disclosure, and action on carbon emissions. The data-driven platform simplifies emissions measurement, supports carbon footprint reduction, and fosters collaboration with supply chain partners to drive measurable change.

      www.sweep.net/

       

      Microsoft Sustainability Manager Premium: A range of powerful features to enhance sustainability efforts and promote responsible business practices. It includes carbon sustainability management capabilities with prebuilt calculation models covering Scope 1, Scope 2, and all 15 categories of Scope 3 emissions. Additionally, it provides tools for efficient water and waste management, supporting sustainable practices across the entire value chain. Users can leverage data-driven insights for informed decision-making and benefit from efficient querying and report creation through Microsoft Copilot. With the ability to process up to 25,000 credits (approximately 50 pages), this platform empowers organizations to make meaningful strides towards their sustainability goals.

      https://www.microsoft.com/en-us/sustainability/microsoft-sustainability-manager

       

      Sustain Life: Offers sustainability software for businesses to measure, manage, and report carbon emissions. It collaborates with consulting and accounting partners to serve global customers. From actionable insights to reduction plans and streamlined reporting, it supports businesses on their path to net-zero.

      www.sustain.life/

       

      Emitwise: Offers a carbon management platform for enterprises. It assists in measuring, tracking, reporting, and reducing carbon footprints, with a focus on complex Scope 3 emissions. Emitwise leverages machine learning for automated data processing and provides actionable data for smarter procurement decisions. Their mission is to empower manufacturers to drive their own carbon agenda in response to the climate emergency.

      www.emitwise.com/

       

      Persefoni: An AI-powered carbon measurement and reporting platform assisting businesses in measuring, reporting, and decarbonizing. Ideal for large enterprises and financial institutions, it provides assurance-grade emissions reporting aligned with major climate disclosure regulations. Additionally, it supports net-zero target setting and offers advanced decarbonization tools.

      www.persefoni.com/

       ESRS E2 Pollution

      Here are some answers to Frequently Asked Questions about ESRS E2 Pollution.

      ESRS E2 Pollution
      What is ESRS E2 and its main objective?

      The objective of ESRS E2 Pollution is to establish specific disclosure requirements that enable stakeholders to fully comprehend how a company’s operations impact environmental pollution and manage those effects. This standard focuses on the pollution of air, water, and soil, and encompasses the management of substances of concern, including those of very high concern. Here’s a detailed breakdown of the standard’s goals:

      1. Understanding Environmental Impacts:
        • ESRS E2 aims to provide clarity on how a company affects the environment, particularly regarding the pollution of air, water, and soil. This includes both the positive and negative actual or potential impacts, helping stakeholders understand the full scope of a company’s environmental footprint.
      2. Actions and Outcomes:
        • The standard requires companies to disclose any actions they have taken to prevent or mitigate negative environmental impacts. This includes detailing the results of such actions and how they contribute to pollution control and the elimination of toxic substances, aligning with initiatives such as the EU Action Plan for Zero Pollution.
      3. Strategic Adaptation:
        • Companies must explain how they are adapting their business models and strategies in response to the need for a sustainable, pollution-free economy. This includes plans to align with environmental regulations and transition towards practices that significantly reduce or eliminate pollution.
      4. Risk and Opportunity Management:
        • Disclosure must also cover the nature, type, and extent of material risks and opportunities related to the company’s pollution-related impacts and dependencies. This includes how these risks and opportunities are managed, particularly those arising from regulatory compliance and innovations in pollution control technologies.
      5. Financial Implications:
        • ESRS E2 requires companies to discuss the financial effects of their pollution-related activities over the short, medium, and long term. This helps stakeholders assess the economic consequences of environmental risks and opportunities on the company’s financial health.
      6. Substances of Concern:
        • The standard extends to the management of substances of concern, requiring disclosures on how these substances are handled, the impacts of their use, and compliance with regulations restricting their use. This ensures that stakeholders are informed about potential health and environmental risks associated with hazardous substances.

      By fulfilling these objectives, ESRS E2 Pollution ensures that companies provide transparent, comprehensive information about their environmental performance, particularly in relation to pollution. This helps stakeholders make informed decisions based on the company’s commitment to environmental stewardship and sustainability.

      How does ESRS E2 Pollution interact with other standards within ESRS?

      ESRS E2 Pollution interacts extensively with other governance and environmental standards within the European Sustainability Reporting Standards (ESRS) framework to provide a comprehensive overview of environmental impacts and their interconnections. This interaction ensures a holistic approach to sustainability reporting, covering various aspects of environmental management and governance. Here’s how ESRS E2 Pollution integrates with other standards:

      Interaction with Other Environmental Standards

      1. ESRS E1 Climate Change:
        • Pollution and climate change are interconnected, particularly through the emissions of greenhouse gases such as CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3, which contribute to both air pollution and climate warming. ESRS E2 and ESRS E1 are read together to provide a full picture of how a company’s activities impact air quality and climate, ensuring that measures to reduce greenhouse gas emissions are also considered within the broader context of pollution control.
      2. ESRS E3 Water and Marine Resources:
        • This standard complements ESRS E2 by addressing how water consumption, water recycling, and the management of marine resources relate to pollution. For instance, the impact of activities on water pollution, including contaminants like microplastics, is crucial for understanding the overall environmental performance of a company, especially in sectors where water risk is significant.
      3. ESRS E4 Biodiversity and Ecosystems:
        • Pollution is a direct driver of biodiversity loss, affecting ecosystems and species. ESRS E2 works in conjunction with ESRS E4 to disclose how pollution impacts biodiversity and what measures are in place to mitigate this impact. This relationship underscores the importance of pollution control in preserving ecological health and diversity.
      4. ESRS E5 Resource Use and Circular Economy:
        • The principles of circular economy include minimizing waste and, by extension, reducing pollution. ESRS E2 and ESRS E5 are interconnected, highlighting how strategies to reduce resource extraction and increase recycling contribute to decreased pollution levels. This standard emphasizes the transition towards sustainable practices that not only conserve resources but also prevent environmental pollution.

      Integration with Social Standards

      • ESRS S3 Affected Communities:
        • Pollution-related impacts often extend to human communities, particularly those located near industrial activities. ESRS E2 is linked with ESRS S3 to ensure that the social dimensions of pollution, such as health impacts and community well-being, are adequately addressed. This shows the importance of managing pollution not only for environmental reasons but also to protect and improve quality of life for affected communities.

      General Disclosure and Risk Management

      • ESRS 1 General Requirements and ESRS 2 General Disclosures:
        • ESRS E2 should be understood and implemented in light of the general principles and requirements outlined in ESRS 1 and ESRS 2. This includes integrating pollution-related disclosures with general governance, strategy, and risk management practices as described in ESRS 2, particularly the chapter on Impact, Risk, and Opportunity Management.

      By reading ESRS E2 in conjunction with these related standards, companies can ensure a comprehensive, integrated approach to reporting that covers all relevant aspects of pollution and its broader environmental and social impacts.

      What are the disclosure requirements under ESRS E2 Pollution?

      The disclosure requirements of ESRS E2 Pollution are designed to enable a comprehensive understanding of how a company’s activities influence pollution and manage related impacts, risks, and opportunities.

      General and Impact Management

      • Identification and Assessment: Companies must describe the processes used to identify and assess material pollution-related impacts, risks, and opportunities across their operations and value chain. This includes methodologies, tools used for screening, and any consultations conducted, particularly with affected communities.

      Policies and Strategic Management

      • Policies on Pollution: Companies are required to disclose their policies for managing material impacts related to pollution, including air, water, and soil pollution. This encompasses policies aimed at preventing, mitigating, and controlling pollution, substituting and minimizing the use of hazardous substances, and managing emergency situations to limit their environmental and human impact.

      Actions and Resources

      • Implementation of Policies: Disclosure of actions taken and resources allocated to achieve pollution-related objectives. Companies should detail their action plans, the resources committed, and align their actions with a mitigation hierarchy that prioritizes pollution prevention, reduction, and ecosystem restoration.

      Targets and Metrics

      • Pollution-Related Targets: Companies must disclose specific targets set to manage pollution, including targets related to air pollutants, water emissions, soil pollution, and hazardous substances. The disclosure should also indicate whether these targets are influenced by regulatory requirements or voluntary commitments and consider ecological thresholds.

      Detailed Pollution Information

      • Specific Pollution Disclosures: Companies are required to disclose the types and amounts of pollutants emitted, focusing on regulated pollutants listed under relevant laws like the E-PRTR Regulation. This includes emissions to air, water, and soil, and the generation or use of microplastics.

      Substances of Concern

      • Management of Hazardous Substances: Disclosure of information on the handling of substances of concern and very high concern, including their production, use, distribution, and the impacts on health and the environment. Companies should also report the amounts of these substances generated or used, and how these substances are managed across their lifecycle.

      Financial Implications

      • Anticipated Financial Effects: Companies should disclose the anticipated financial effects of material pollution-related risks and opportunities, providing both quantitative and qualitative data. This includes the impact of pollution on the company’s financial position, performance, and cash flows over different time horizons, and the critical assumptions used to estimate these effects.

      Contextual Information

      • Background and Context: Additional contextual information should be provided to give stakeholders a better understanding of the pollution data, including changes over time, measurement methodologies, and data collection processes. Companies should explain any limitations or uncertainties in the methodologies used.

      These disclosure requirements ensure that stakeholders can assess the effectiveness and comprehensiveness of a company’s approach to managing its pollution impact, contributing to informed decision-making and enhanced accountability in environmental stewardship.

      What types of actions, targets and metrics can companies use for ESRS E2 Pollution?

      Under ESRS E2 Pollution, companies are expected to take specific actions, set clear targets, and use precise metrics to manage and report on pollution. This holistic approach ensures that companies not only comply with regulations but also actively contribute to pollution reduction and environmental protection.

      A breakdown of the types of actions, targets, and metrics companies can utilize for ESRS E2 Pollution compliance:

      Actions for Pollution Management

      1. Pollution Prevention and Control Measures:
        • Implementing advanced pollution control technologies to minimize emissions and discharges into air, water, and soil.
        • Adopting cleaner production techniques to reduce the generation of pollutants at the source.
        • Enhancing waste management practices to prevent pollution from waste byproducts.
      2. Substitution and Minimization:
        • Substituting hazardous substances with safer alternatives, especially those classified as substances of very high concern.
        • Minimizing the use of non-essential harmful substances in products and processes.
      3. Incident and Emergency Management:
        • Developing and implementing emergency response plans to handle accidental releases or spills efficiently, minimizing environmental and human health impacts.
        • Regular training and drills to prepare staff for handling pollution incidents effectively.

      Targets for Pollution Reduction

      1. Emission Reduction Targets:
        • Setting quantifiable goals for reducing emissions of key pollutants to air, water, and soil, aligned with national and international standards.
        • Targets for reducing the use and release of hazardous substances, particularly those identified as substances of very high concern.
      2. Resource Efficiency Targets:
        • Goals for improving resource efficiency in production processes to reduce waste and associated pollution.
        • Targets for increasing recycling rates and decreasing reliance on primary raw materials that contribute to pollution when extracted or processed.
      3. Compliance and Performance Targets:
        • Targets aimed at achieving or maintaining compliance with environmental regulations and standards.
        • Performance targets based on industry benchmarks or best available technologies.

      Metrics for Monitoring Pollution

      1. Emission and Discharge Metrics:
        • Volume and concentration of pollutants released into air, water, and soil, often required to be reported under national pollutant inventories or similar regulations (e.g., European Pollutant Release and Transfer Register – E-PRTR).
        • Metrics related to the efficiency of pollution control equipment and systems.
      2. Resource Use and Waste Metrics:
        • Amounts of raw materials used and the proportion that is recycled or sustainably sourced.
        • Quantities of waste generated, recycled, reused, and disposed, including specific metrics for hazardous waste.
      3. Impact and Effectiveness Metrics:
        • Indicators measuring the effectiveness of pollution prevention and reduction measures, such as reduction percentages over time or improvements in environmental quality.
        • Health and ecological impact metrics, potentially including data on the reduction of adverse health outcomes linked to pollution.
      4. Compliance Metrics:
        • Incidents of non-compliance with environmental regulations, including the number of fines, penalties, or enforcement actions.
        • Metrics tracking adherence to set pollution targets and the effectiveness of management actions.

      By clearly defining actions, targets, and metrics, companies can effectively manage their pollution-related impacts, risk and opportunities, demonstrate compliance with ESRS E2, and communicate their progress and commitment to stakeholders.

      Give examples of actions, targets and metrics companies can use for ESRS E2 Pollution?

      To effectively manage pollution and comply with ESRS E2 Pollution, companies can develop an integrated approach that aligns actions, targets, and metrics. Don’t forget to consider the short-term, medium-term and long-term time horizons when taking company specific actions and setting targets.

      Below are examples of how a hypothetical company might structure its pollution management strategy with concrete examples of actions leading to targets and associated metrics:

      Example 1: Reducing Air Emissions

      Actions:

      • Implement energy-efficient technologies in manufacturing processes to reduce reliance on fossil fuels.
      • Regular maintenance and updates of pollution control equipment to ensure optimal operation.

      Fictive Targets:

      • Target: Reduce CO2 emissions by 30% by 2030 relative to a 2022 baseline.
      • Target: Achieve a 50% reduction in volatile organic compound (VOC) emissions into the air from manufacturing processes by 2026 compared to 2020 levels.

      Metrics:

      • Metric: Tonnes of CO2 emitted annually, measured using continuous emissions monitoring systems (CEMS).
      • Metric: Concentration of VOCs in exhaust gases, reported monthly and annually.

      Example 2: Enhancing Waste Management

      Actions:

      • Optimize production processes to minimize waste generation.
      • Expand recycling programs and partner with local recycling facilities to ensure proper waste segregation and increased recycling rates.

      Fictive Targets:

      • Target: Increase waste recycling rates to 75% by 2028 from the current 50%.
      • Target: Reduce hazardous waste generation by 60% by 2023 through process optimization and substitution of hazardous materials.

      Metrics:

      • Metric: Total amount of waste generated per year, with breakdowns by type (hazardous vs. non-hazardous) and disposal method (recycled, incinerated, landfilled).
      • Metric: Percentage of waste recycled out of total waste generated, reported quarterly.

      Example 3: Managing Water Pollution

      Actions:

      • Install advanced wastewater treatment technologies to treat effluents before discharge.
      • Eliminate the use of harmful chemicals in processes that contribute to water pollution.

      Targets:

      • Target: Decrease effluent discharge into local water bodies by 35% by 2028 using advanced wastewater treatment technologies.
      • Target: Eliminate the use of non-essential PFAS in all products by 2028, to reduce water pollution.

      Metrics:

      • Metric: Liters of wastewater discharged per unit of product manufactured, including data on the treatment level and compliance with local water quality standards.
      • Metric: Amount of toxic substances (like heavy metals, PFAS) detected in effluent streams, measured semi-annually.

      Example 4: Compliance and Incident Management

      Actions:

      • Conduct regular training for staff on environmental regulations and company policies.
      • Establish a robust incident response system to quickly address and mitigate the impacts of any pollution incidents.

      Targets:

      • Target: Zero non-compliance incidents related to environmental regulations by 2025.
      • Target: Respond to and begin remediation of any pollution incidents within 24 hours of occurrence by 2027.

      Metrics:

      • Metric: Number of environmental non-compliance incidents reported annually, including any fines or penalties incurred.
      • Metric: Response time to pollution incidents, with effectiveness of response actions evaluated annually.

      These examples illustrate a comprehensive approach where specific actions are strategically designed to achieve set targets, and metrics are used to track performance and ensure accountability.

      How does ESRS E2 Pollution integrate with other reporting standards/frameworks like GRI, SASB and TCFD?

      ESRS E2 Pollution is designed to integrate with other reporting standards to provide a comprehensive and coherent approach to sustainability reporting. This integration is critical for ensuring that pollution-related disclosures are consistent with broader environmental, social, and governance (ESG) reporting frameworks.

      Brief description of how ESRS E2 integrates with other reporting standards beside other Topical standards in ESRS:

      Integration with International Reporting Frameworks

      • Global Reporting Initiative (GRI):
        • ESRS E2 can be integrated with GRI standards, particularly those related to environmental compliance, emissions, effluents, and waste. GRI provides detailed guidance on specific environmental metrics that can enhance the depth of pollution-related reporting under ESRS E2.
      • Sustainability Accounting Standards Board (SASB):
        • SASB standards focus on industry-specific sustainability issues, including pollution. Integrating ESRS E2 with SASB standards allows companies to tailor their pollution disclosures to industry-specific risks and opportunities, providing more relevant and material information to investors.
      • Task Force on Climate-related Financial Disclosures (TCFD):
        • Although TCFD focuses primarily on climate change, its recommendations on risk management and governance are applicable to pollution control strategies. Integrating TCFD’s framework with ESRS E2 can help companies articulate how managing pollution-related risks is integral to their overall strategy to mitigate climate change impacts.

      Regulatory Compliance

      • European Union Regulations:
        • ESRS E2 is designed to align with EU environmental regulations, ensuring that companies comply with regional standards for pollution control. This includes regulations like the EU Industrial Emissions Directive and the Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH).
      What methodologies are recommended for pollution measurement under ESRS E2?

      Under ESRS E2 Pollution, companies are required to provide detailed and accurate disclosures on their pollution outputs. While the standard does not prescribe specific methodologies for measuring pollution, it emphasizes the importance of using robust and reliable methodologies to ensure that the data provided is both accurate and reflective of the company’s actual environmental impact.

      Summarized breakdown of the key aspects concerning methodologies for pollution measurement as implied under ESRS E2:

      Recommended Methodologies for Pollution Measurement

      1. Direct Measurement:
        • Direct measurement of emissions is highly recommended whenever feasible. This method involves directly quantifying emissions through monitoring equipment and sensors that measure the concentration and flow of pollutants emitted to air, water, or deposited into soil.
      2. Best Available Techniques (BAT):
        • Companies are encouraged to use BAT for measuring emissions, which involve the most effective and advanced stage in the development of activities and their methods of operation. BAT not only provides data on emissions but also ensures that the most environmentally effective technologies are used.
      3. EU Taxonomy Regulation and Delegated Acts:
        • Adhering to the requirements under the EU Taxonomy Regulation, particularly concerning pollution prevention and control, can guide companies in selecting appropriate measurement methodologies that align with EU standards for sustainability.
      4. Standardized Sectoral Studies or Sources:
        • When direct measurement is not possible, companies may rely on standardized sectoral studies or sources that provide established methodologies for estimating emissions. These sources include industry-specific guidelines and protocols that outline methods for calculating emissions based on operational data.
      5. E-PRTR Regulation Compliance:
        • Companies should ensure that their measurement methodologies comply with the European Pollutant Release and Transfer Register (E-PRTR) Regulation, which mandates the reporting of pollutant releases and transfers. This includes using the methods outlined in Annex II of the E-PRTR Regulation for measuring and reporting emissions.
      6. Measurement Uncertainty and Methodology Description:
        • Companies must disclose any measurement uncertainties and describe the methodologies used. This includes outlining the scope and limits of the methodologies applied, the type of data collected, and the sources of information used. If estimates are used instead of direct measurements, the company should explain the reasons for using these estimates and the degree of uncertainty associated with them.
      7. Contextual Information:

      Alongside methodologies, companies should provide contextual information that helps stakeholders understand the measurement data. This includes describing any changes in measurement techniques over time and how these changes impact the reported data.

      How should companies report on pollution prevention and management?

      Under ESRS E2 Pollution, companies are expected to report comprehensively on their efforts in pollution prevention and management. This encompasses not only the strategies and actions they have implemented but also the effectiveness of these measures and their integration into the broader business practices.

      Summarized description of how companies should report on pollution prevention and management based on the disclosure requirements of ESRS E2. (Detailed descriptions with templates for all Data points of what to disclose, including examples are available in Mentcon model and its App):

      Key Areas for Pollution Prevention and Management Reporting

      1. Policies and Practices:
        • Companies must describe their policies related to pollution prevention, control, and management. This includes disclosing how these policies are developed, implemented, and monitored within the organization.
        • The report should detail specific practices aimed at mitigating negative impacts on air, water, and soil, such as the use of cleaner technologies, process modifications to reduce emissions, and strategies for handling hazardous substances.
      2. Actions Taken:
        • Companies should clearly outline the actions they have taken to prevent and manage pollution. This includes both ongoing and planned actions that contribute to reducing environmental impact.
        • The description should specify how these actions align with their overall environmental strategy and any relevant environmental regulations or standards.
      3. Resource Allocation:
        • Disclosure should include information on the resources allocated to pollution prevention and management. This covers both financial investments and other resources, such as human capital or technological investments.
        • Companies should explain how these resources are directed towards specific activities, such as environmental monitoring systems, staff training, or the development of new pollution control technologies.
      4. Targets and Performance:
        • Companies must set and report on specific, measurable targets related to pollution reduction and control. These targets should be ambitious yet achievable, clearly linked to their pollution management strategies.
        • Reporting should include progress towards these targets, providing data on the effectiveness of pollution control measures and any adjustments made to strategies based on performance outcomes.
      5. Risk and Opportunity Management:
        • Companies need to describe how they identify, assess, and manage material risks and opportunities related to pollution. This includes the potential financial impacts of these risks and opportunities on the organization.
        • The disclosure should cover how pollution-related risks are integrated into the company’s overall risk management framework and any opportunities for innovation or improved sustainability practices derived from pollution management efforts.
      6. Consultation and Engagement:
        • Reporting should reflect any consultations or engagements with stakeholders, particularly affected communities, regarding pollution issues. This helps in understanding stakeholder concerns and integrating their feedback into pollution management strategies.
        • Companies should demonstrate how stakeholder perspectives have influenced their pollution prevention and management practices.
      7. Regulatory Compliance and Adaptation:
        • Companies must disclose their compliance with applicable environmental regulations focused on pollution control. This includes how they adapt their strategies and operations in response to changing regulatory landscapes and emerging best practices in environmental management.
      8. Methodologies and Metrics:
        • The reporting should explain the methodologies used to measure and track pollution levels, including any standard or regulatory frameworks followed.
        • Companies should provide quantitative and qualitative data to support their disclosures, ensuring that the information is clear, accurate, and verifiable.

      By adhering to these detailed reporting requirements, companies can provide a transparent, accountable, and comprehensive view of their efforts in pollution prevention and management.

      What information must be provided about substances of concern?

      Under ESRS E2 Pollution, companies are required to provide detailed information about substances of concern, including substances of very high concern. This disclosure is critical to understanding the environmental and health impacts associated with these substances and to ensuring that stakeholders are aware of the risks and management practices associated with their use.

      Summary of the Disclosure requirements for Substances of consern:

      Specific Disclosure Requirements for Substances of Concern

      1. Identification and Classification:
        • Companies must disclose information on the production, use, distribution, commercialization, and import/export of substances of concern and substances of very high concern. This includes substances in their pure form, in mixtures, or as components of articles.
        • The disclosure should clearly identify these substances and classify them according to their hazard classes.
      2. Quantities and Uses:
        • The total amounts of substances of concern that are generated or used during the production process or that are procured must be reported. Additionally, companies need to disclose the total amounts of these substances that leave their facilities, whether as emissions, products, or as part of products or services.
        • Information should be provided on the main uses of these substances within the company’s operations and products, emphasizing any specific applications that pose significant environmental or health risks.
      3. Management Policies and Practices:
        • Companies should describe their policies and practices related to managing substances of concern. This includes measures for substituting and minimizing the use of hazardous substances, especially in non-essential societal applications and consumer products.
        • Disclosures should cover how the company addresses the lifecycle management of these substances, including safe handling, use, and disposal practices to mitigate negative impacts.
      4. Risks and Regulatory Compliance:
        • Details about the material risks associated with the use of substances of concern, including regulatory risks and the potential for restrictions on their use, should be included. Companies should explain how they comply with applicable regulations, such as REACH in the European Union, and any other international or national regulations affecting these substances.
        • Companies must also disclose any anticipated changes in regulations and how these might impact their operations and product lines.
      5. Incident Management and Emergency Responses:
        • Information on how the company prepares for and responds to incidents involving substances of concern is crucial. This includes emergency response plans and measures to control and limit the impact of such incidents on people and the environment.
      6. Health and Environmental Impact:
        • Companies need to disclose the potential health and environmental impacts of the substances of concern they handle. This should include data on toxicity, persistence, and bioaccumulation potential, and how these properties might affect ecosystems and human health.
        • The impact on communities, especially those living near the company’s facilities, should be considered, with details provided on any measures taken to protect these communities.
      7. Stakeholder Engagement and Transparency:
        • Disclosure should include how the company engages with stakeholders, including affected communities and regulatory bodies, regarding the management of substances of concern. This demonstrates the company’s commitment to transparency and responsible management practices.
      What are the challenges in complying with ESRS E2 Pollution?

      Complying with ESRS E2 Pollution involves several challenges for companies, especially given the comprehensive nature of the required disclosures and the technical complexity associated with pollution measurement and management. Here are some of the key challenges companies may face:

      1. Data Collection and Accuracy
      • Complexity of Measurement: Accurately measuring pollutants released into the environment (air, water, and soil) requires sophisticated monitoring equipment and methodologies. Companies must ensure that these measurements are precise and reflective of actual conditions, which can be technically challenging and costly.
      • Comprehensive Coverage: Ensuring data completeness across all operations, including upstream and downstream value chain activities, poses logistical challenges, especially for companies with extensive global supply chains.
      1. Integration Across Disciplines
      • Cross-Functional Coordination: Pollution impacts and management strategies touch various parts of an organization, from production to environmental compliance and corporate social responsibility. Effective compliance requires coordinated efforts across these departments, which can be difficult to manage.
      • Consistency with Other Standards: Integrating ESRS E2 reporting with other ESRS standards (like E1, E3, E4, and E5) and external frameworks (such as GRI or SASB) requires a harmonized approach to data gathering and reporting that aligns different standards’ requirements.
      1. Regulatory Compliance and Evolving Standards
      • Keeping Up with Regulations: Pollution regulation is a dynamic field with frequent updates and changes. Staying compliant requires companies to be agile and proactive in adjusting their policies and operations in line with new or amended regulations.
      • Global Compliance: Multinational companies face additional complexity in complying with pollution standards that vary significantly across different jurisdictions.
      1. Stakeholder Engagement and Communication
      • Effective Communication: Effectively communicating pollution data and management strategies in a transparent and understandable way to stakeholders (including investors, regulators, and the public) is crucial but challenging. This involves not only reporting raw data but also contextualizing it to convey the company’s environmental impact accurately.
      • Community and Stakeholder Trust: Building and maintaining trust with communities and other stakeholders, particularly when operations have significant environmental impacts, requires continuous engagement and demonstration of effective pollution management and mitigation strategies.
      1. Financial Constraints and Investment
      • Cost of Compliance: Implementing and maintaining systems for pollution control and reporting can be financially demanding. Investments are often needed in technology, training, and system upgrades, which may strain financial resources, especially for smaller firms.
      • Justifying ROI: Aligning expenditure on pollution control with perceived benefits can be challenging. Companies must balance financial outlays with the expected returns in terms of reduced environmental impact, compliance with regulations, and enhanced corporate reputation.
      1. Risk Management
      • Identifying and Managing Risks: Identifying material risks associated with pollution, including potential financial, legal, and reputational risks, and developing effective strategies to manage these risks is complex and requires in-depth understanding and forecasting.
      1. Sustainability and Long-Term Planning
      • Long-Term Impact Assessment: Assessing and planning for the long-term impacts of pollution on the environment and business operations involves uncertainty and requires predictive modeling and scenario analysis, which may not always be precise.

       ESRS E3 Water and Marine Resources

      Here are some answers to Frequently Asked Questions about ESRS E3 Water and marine resources.

      ESRS E3 Water and marine resources
      What is ESRS E3 Water and Marine Resources and its main objective?

      The objective of ESRS E3 Water and Marine Resources is to establish comprehensive disclosure requirements that enable stakeholders to understand the impact of an organization’s activities on water and marine ecosystems. These disclosures focus on both the positive and negative impacts that businesses have on these critical resources, and how these impacts are managed.

      Key Objectives of ESRS E3 Water and Marine Resources:

      1. Impact Assessment:
        • The standard requires companies to disclose how their operations affect water and marine resources, detailing both the positive and negative actual or potential impacts. This includes impacts on water quality, marine biodiversity, and the overall health of aquatic ecosystems.
      2. Action and Mitigation:
        • Companies must report on the actions they have taken to prevent or mitigate negative impacts on water and marine resources. This encompasses measures to reduce water consumption, protect aquatic ecosystems, and ensure the sustainability of water-related activities. The results of these actions and how they contribute to conservation efforts are also to be disclosed.
      3. Alignment with Broader Environmental Goals:
        • Disclosures should indicate how the company’s activities align with broader environmental and sustainability goals, such as the European Green Deal’s ambitions for clean water and the sustainability of the blue economy. Compliance with relevant directives like the EU Water Framework Directive and contributions to Sustainable Development Goals related to water and marine life are also included.
      4. Strategic Adaptation:
        • Companies are expected to outline their strategies for adapting business models to promote sustainable water use and the long-term protection of available water resources. This includes efforts to protect aquatic ecosystems and restore freshwater and marine habitats.
      5. Risk and Opportunity Management:
        • The standard asks companies to detail the material risks and opportunities arising from their dependency on and impact on water and marine resources. Companies must describe how these factors are managed, integrating them into their overall risk management frameworks.
      6. Financial Implications:
        • There is a requirement to report on the financial effects of water and marine resource-related risks and opportunities over the short, medium, and long term. This includes potential financial impacts due to regulatory changes, resource scarcity, and changes in market dynamics related to water and marine resources.

      Specific Disclosure Requirements:

      • Water Management: Disclosures related to water include information on water consumption, water withdrawals, and water discharges. This provides a comprehensive view of how water is used and managed across the company’s operations, products, and services.
      • Marine Resource Management: For marine resources, the standard covers the extraction and utilization of these resources, detailing the associated economic activities and their sustainability.
      How does ESRS E3 Water and Marine Resources interact with other standards within ESRS?

      ESRS E3 Water and Marine Resources interacts comprehensively with other standards within the ESRS framework to provide a holistic view of a company’s environmental impact, particularly concerning water-related issues. This interconnectedness ensures that the environmental disclosures are robust, covering various aspects of sustainability that affect or are affected by water and marine resources.

      Description of how ESRS E3 interacts with other ESRS standards:

      Interaction with Environmental ESRS Standards

      1. ESRS E1 Climate Change:
        • Water and marine resources are directly impacted by climate change, which affects water temperatures, precipitation patterns, ocean acidification, sea level rise, and other hydrological events. ESRS E3 and ESRS E1 are integrated to ensure that companies disclose how climate-related risks and changes affect their water management strategies and marine resource conservation efforts.
      2. ESRS E2 Pollution:
        • Pollution directly affects water quality and marine life. ESRS E3 works in conjunction with ESRS E2 to ensure comprehensive reporting on emissions to water bodies, including the management of pollutants like microplastics. This helps stakeholders understand the extent of water pollution and the measures taken to mitigate these impacts.
      3. ESRS E4 Biodiversity and Ecosystems:
        • The conservation and sustainable use of freshwater and marine ecosystems are vital components of ESRS E3. This standard complements ESRS E4 by addressing how activities impact biodiversity within aquatic ecosystems and detailing efforts to protect and restore these environments.
      4. ESRS E5 Resource Use and Circular Economy:
        • Water resource management is closely linked to practices in the circular economy, particularly in terms of waste management and recycling of water and materials like plastics that often end up in waterways. ESRS E3 and ESRS E5 ensure that companies report on their efforts to reduce water use, enhance recycling rates, and minimize waste, all of which contribute to better water and marine resource management.

      Interaction with Social and Governance Standards

      • ESRS S3 Affected Communities:
        • The impact of water and marine resource management extends to local communities, particularly those that rely on these resources for their livelihoods or are affected by pollution and environmental degradation. ESRS E3 integrates with ESRS S3 to ensure that companies disclose how they address and mitigate negative impacts on these communities, fostering greater accountability and community engagement.

      General Disclosure Integration

      • ESRS 1 General Requirements and ESRS 2 General Disclosures:
        • To ensure comprehensive and consistent reporting, ESRS E3 should be read and implemented in conjunction with the general principles outlined in ESRS 1 and the detailed disclosure requirements provided in ESRS 2. This includes integrating water and marine resource management into the broader context of impact, risk, and opportunity management as specified in ESRS 2.
      What are the disclosure requirements under ESRS E3 Water and Marine Resources summarized?

      The ESRS E3 Water and Marine Resources standard specifies comprehensive disclosure requirements aimed at providing stakeholders with a clear understanding of an organization’s impacts, risks, and opportunities related to water and marine resources. These disclosures are designed to ensure that companies provide detailed information about how they manage these vital resources, the effectiveness of their actions, and the broader implications of their water-related activities.

      Summary of the key disclosure requirements under ESRS E3:

      Impact, Risk, and Opportunity Management

      • Identification Process: Companies must describe their processes for identifying material impacts, risks, and opportunities related to water and marine resources in their operations and along the value chain. This includes the methodologies, tools, and assumptions used for assessing impacts.
      • Stakeholder Engagement: Disclosure on how the company has consulted with affected communities to understand and address the impacts of their water and marine resource utilization.

      Policies on Water and Marine Resources

      • Policy Disclosure: Companies are required to describe their policies for managing the impacts, risks, and opportunities related to water and marine resources.
      • Policy Details: This includes information on water management practices (use, sourcing, treatment), product and service design considerations for water conservation, and commitments to reducing water consumption, especially in water-stressed areas.
      • Compliance and Policy Gaps: If there are sites in high-water stress areas without adequate policies, companies must disclose this and provide reasons or planned actions to address the gap.

      Actions and Resources

      • Implementation of Policies: Details of actions taken and resources allocated to manage water and marine resources effectively, adhering to a mitigation hierarchy that includes avoiding, reducing, reclaiming, and restoring water resources.
      • Specific Actions: Disclosure of specific measures in areas at water risk, including high-water stress areas, to mitigate impacts.

      Targets and Metrics

      • Setting Targets: Companies must disclose specific targets set for managing water and marine resources, linking these targets to the management of material impacts and opportunities.
      • Ecological Considerations: Information on whether ecological thresholds and entity-specific allocations were considered when setting these targets.

      Water Consumption Reporting

      • Consumption Metrics: Detailed reporting on water consumption, including total consumption, consumption in water risk areas, and details on water recycling and reuse.
      • Water Intensity: Disclosure of water intensity metrics, such as water consumption per unit of revenue, providing insights into the efficiency of water use in operations.

      Financial Impacts

      • Anticipated Financial Effects: Companies are required to report on the anticipated financial effects of risks and opportunities related to water and marine resources on their financial position and performance over short, medium, and long terms.
      • Quantitative and Qualitative Information: This includes both quantitative financial impacts and qualitative information if quantitative is not feasible, along with the assumptions and uncertainties involved in these estimations.
      What types of actions, targets and metrics can companies use for ESRS E3 Water and Marine Resources?

      Under the ESRS E3 Water and Marine Resources standard, companies are required to disclose specific actions they have taken to manage water and marine resources, along with the targets they have set and the metrics they use to track their progress.

      Overview of some types of actions, targets, and metrics that companies can employ under ESRS E3 Water and Marine Resources:

      Actions for Water and Marine Resource Management

      1. Water Efficiency and Conservation Actions:
        • Implementing advanced water-saving technologies in operations.
        • Enhancing water recirculation systems in manufacturing processes.
        • Upgrading infrastructure to reduce water losses (e.g., fixing leaks).
      2. Waste Water Treatment and Pollution Control:
        • Installing or upgrading wastewater treatment plants to remove contaminants before discharge.
        • Implementing technologies to reduce the release of harmful chemicals and microplastics into water bodies.
      3. Sustainable Sourcing and Use of Marine Resources:
        • Adopting practices that ensure sustainable fishing and harvesting that do not deplete marine populations.
        • Engaging in restoration projects to rehabilitate marine habitats such as coral reefs and mangroves.
      4. Stakeholder Engagement and Community Initiatives:
        • Conducting consultations with local communities to address concerns related to water and marine resource use.
        • Participating in or leading community-based water conservation and education programs.

      Targets for Water and Marine Resource Management

      1. Reduction Targets:
        • Setting quantifiable targets to reduce water consumption per unit of production.
        • Targets to decrease the load of pollutants (e.g., nitrogen, phosphorus) in wastewater.
      2. Conservation and Restoration Targets:
        • Establishing goals for the area (e.g., hectares) of marine or aquatic habitats to be restored or protected annually.
        • Objectives for increasing the percentage of recycled and reused water in operations.
      3. Compliance and Certification Targets:
        • Aiming to achieve or maintain certifications related to water and environmental management standards (e.g., ISO 14001, Marine Stewardship Council).

      Metrics for Monitoring Performance

      1. Water Consumption Metrics:
        • Total water consumption (in cubic meters) and consumption relative to production volumes.
        • Water recycled and reused as a percentage of total water used.
      2. Water Quality and Pollution Metrics:
        • Concentrations of specific pollutants in effluent compared to regulatory limits.
        • Reduction in the total load of key pollutants discharged into the environment.
      3. Biodiversity and Conservation Metrics:
        • The status of marine species or habitats within areas impacted by the company’s activities.
        • Progress on restoration or conservation projects, such as the number of mangroves planted or areas of coral reefs rehabilitated.
      4. Compliance and Engagement Metrics:
        • The number of non-compliance incidents related to water and marine regulations.
        • Measures of stakeholder engagement effectiveness, such as community feedback and participation rates in conservation initiatives.
      Give examples of actions, targets and metrics companies can use for ESRS E3 Water and Marine Resources?

      To effectively address the requirements of ESRS E3 Water and Marine Resources, companies can develop specific actions, set measurable targets, and employ relevant metrics to track their performance. Below are some examples of how companies might approach these elements:

      Example Actions for Water and Marine Resource Management

      1. Water Recycling Initiative:
        • Action: Implement a closed-loop water system in manufacturing processes to minimize water waste by recycling used water.
      2. Wastewater Treatment Upgrade:
        • Action: Upgrade existing wastewater treatment plants with advanced biological treatment technology to enhance the removal of nutrients and reduce chemical use.
      3. Sustainable Marine Practices:
        • Action: Shift to sustainable aquaculture practices that reduce the impact on wild fish populations and improve water quality.
      4. Community Water Conservation Projects:
        • Action: Launch a partnership with local NGOs to restore watersheds and improve water filtration in communities located near company facilities.

      Example Targets for Water and Marine Resource Management

      1. Water Reduction Target:
        • Target: Reduce overall water consumption by 25% by 2025 compared to 2020 levels through improved efficiency and recycling.
      2. Pollution Reduction Target:
        • Target: Achieve a 50% reduction in the discharge of nitrogen and phosphorus in industrial effluent by 2024 through enhanced treatment processes.
      3. Biodiversity Enhancement Target:
        • Target: Restore 100 hectares of coastal marine habitats by 2027, focusing on areas most affected by the company’s operations.
      4. Engagement and Compliance Target:
        • Target: Reach 100% compliance with all local water quality regulations by 2023 and maintain zero non-compliance incidents annually.

      Example Metrics for Monitoring Performance

      1. Water Consumption Metrics:
        • Metric: Track and report annual water consumption in cubic meters and percentage reduction compared to the baseline year.
        • Metric: Percentage of water recycled and reused out of total water used annually.
      2. Wastewater Quality Metrics:
        • Metric: Measure and report concentrations of key pollutants (e.g., BOD, COD, TSS) in wastewater before and after treatment.
        • Metric: Reduction in total annual pollutant load discharged to natural water bodies, reported in kilograms.
      3. Biodiversity Conservation Metrics:
        • Metric: Number of marine species populations stabilized or increased due to conservation efforts.
        • Metric: Area (in hectares) of marine habitats successfully restored or protected.
      4. Compliance and Community Metrics:
        • Metric: Number of regulatory non-compliance incidents recorded and resolved.
        • Metric: Number of community stakeholders engaged in water conservation initiatives and satisfaction ratings of these engagements.
      How does ESRS E3 align with global water management and marine conservation goals?

      ESRS E3 Water and Marine Resources is designed to align closely with global water management and marine conservation goals by setting out comprehensive disclosure requirements that ensure organizations are transparent about their impact on water and marine environments. These disclosures not only promote accountability but also encourage practices that contribute to sustainable water use and marine conservation.

      Summary of how ESRS E3 aligns with global water management and marine conservation objectives:

      Alignment with Sustainable Development Goals (SDGs)

      • SDG 6 (Clean Water and Sanitation): ESRS E3 requires companies to disclose their water management practices, including water consumption, treatment, and recycling efforts. This aligns with SDG 6 by promoting actions that ensure sustainable water use and effective water management to prevent water scarcity.
      • SDG 14 (Life Below Water): The standard also covers the management of marine resources and efforts to reduce impacts on marine life, supporting the objectives of SDG 14 which aims to conserve and sustainably use the oceans, seas, and marine resources.

      Compliance with EU Directives

      • EU Water Framework Directive: ESRS E3 encourages disclosures that align with the EU Water Framework Directive’s goals of achieving good qualitative and quantitative status of all water bodies. Companies are required to report on measures taken to prevent water pollution and manage water resources sustainably.
      • EU Marine Strategy Framework Directive: This directive aims at maintaining Europe’s marine environments. ESRS E3’s requirements for companies to disclose their impact on marine ecosystems and how they manage these impacts support the directive’s goals.
      • EU Maritime Spatial Planning Directive: By requiring companies to consider how their use of marine resources aligns with spatial planning and management strategies, ESRS E3 supports the sustainable growth of marine and coastal activities in line with this directive.

      Support for Global Environmental Limits

      • Planetary Boundaries: ESRS E3 encourages companies to consider ecological thresholds and entity-specific allocations when setting targets. This is in line with the concept of planetary boundaries, which defines safe operating spaces based on environmental limits.

      Risk Management and Opportunity Exploration

      • Material Risks and Opportunities: By mandating companies to disclose material risks and opportunities related to water and marine resources, ESRS E3 ensures that businesses assess and manage their environmental impact comprehensively. This includes anticipating financial effects due to material risks and opportunities, which helps companies adapt to changes in environmental regulations and market conditions that could affect their financial stability.

      Stakeholder Engagement and Policy Development

      • Community Consultations and Policy Transparency: ESRS E3 requires active engagement with affected communities and transparent disclosure of policies related to water and marine resource management. This promotes inclusivity and ensures that the policies are robust, widely understood, and capable of addressing the specific needs and concerns of different stakeholders.
      What methodologies are recommended for assessing impacts on water and marine resources?

      The ESRS E3 Water and Marine Resources standard specifies methodologies companies should employ to assess their impacts on water and marine resources effectively. These methodologies are designed to ensure that the assessments are thorough, accurate, and capable of identifying both actual and potential impacts.

      Overview look at the recommended methodologies for assessing impacts on water and marine resources as outlined in ESRS E3:

      Recommended Methodologies for Impact Assessment

      1. Screening of Operations and Value Chain:
        • Companies are required to screen their assets, activities, and entire value chain to identify actual and potential impacts on water and marine resources. This involves a comprehensive review of all operations, including those of suppliers and distributors, to understand where and how water and marine resources are affected.
      2. Use of Established Environmental Assessment Tools:
        • The use of recognized environmental assessment tools and frameworks is recommended to ensure that the screening and subsequent impact assessments are based on scientifically sound and widely accepted methods. Tools such as Life Cycle Assessment (LCA), Water Footprint Assessment (WFA), and the use of Environmental Impact Assessments (EIA) can provide detailed insights into the environmental impacts associated with a company’s operations.
      3. Methodologies and Assumptions:
        • It is important for companies to clearly state the methodologies, assumptions, and tools used in the screening process. This transparency helps stakeholders understand the basis of the impact assessments and the reliability of the conclusions drawn. Companies should detail any sector-specific guidelines followed, the criteria used for determining materiality of impacts, and the scientific methods employed to measure and analyze data.
      4. Stakeholder Consultations:
        • Engaging with affected communities and other stakeholders is a key part of the methodology for assessing impacts on water and marine resources. These consultations can provide valuable local insights that may not be apparent through quantitative analysis alone. They help ensure that the assessments consider a wide range of perspectives and that the impacts identified are relevant to those most affected by the company’s operations.
      5. Integration with Risk and Opportunity Management:
        • The impact assessment process should be integrated with the company’s overall risk and opportunity management frameworks. This ensures that the findings from the impact assessments are used to inform strategic decisions and risk management processes, particularly in identifying and mitigating risks related to water and marine resources.
      6. Compliance with Regulatory Requirements:
        • Methodologies used should also ensure compliance with relevant local, national, and international regulations. This includes adherence to directives and standards that govern water and marine resource management, such as the EU Water Framework Directive and the Marine Strategy Framework Directive.

      Additional Considerations

      • Ecological Thresholds and Planetary Boundaries:
        • Companies are encouraged to consider ecological thresholds and planetary boundaries in their impact assessments. This means identifying critical limits beyond which the environmental impacts could lead to irreversible damage. Understanding these thresholds can help companies set more meaningful targets and actions to mitigate their impacts.
      • Longitudinal Data Analysis:
        • Assessing trends over time can provide deeper insights into the impacts on water and marine resources and the effectiveness of the mitigation measures implemented. Companies should aim to collect and analyze data over multiple reporting periods to track progress and adjust strategies as needed.

      These methodologies, when applied rigorously, allow companies to not only comply with ESRS E3 but also to enhance their sustainability practices by making more informed decisions that benefit both the business and the environment.

      What are the challenges companies might face in complying with ESRS E3?

      Complying with ESRS E3 Water and Marine Resources can present several challenges for companies, particularly due to the comprehensive nature of the disclosures required and the complexity of managing water and marine resources effectively.

      Overview of some of the main challenges companies might face:

      1. Data Collection and Quality
      • Challenge: Gathering accurate and comprehensive data on water and marine resource usage across different operations and regions can be difficult, especially for multinational companies with diverse and geographically dispersed operations.
      • Implication: Inadequate data can hinder effective impact assessment and may lead to non-compliance with disclosure requirements.
      1. Complexity of Impact Assessments
      • Challenge: Assessing the impacts on water and marine resources involves complex environmental and ecological evaluations, which require specialized knowledge and tools.
      • Implication: Companies may need to invest in advanced technologies and expertise to conduct these assessments accurately, adding to operational costs.
      1. Integration Across Business Functions
      • Challenge: Integrating water and marine resource considerations into broader business strategies and operations involves multiple departments and functions, from supply chain management to product design and corporate strategy.
      • Implication: This requires effective internal communication and coordination, which can be challenging to implement, especially in large or segmented organizations.
      1. Regulatory Compliance
      • Challenge: Keeping up with evolving regulatory requirements related to water and marine resources in different jurisdictions can be complex.
      • Implication: Non-compliance can result in legal and financial repercussions, damaging a company’s reputation and financial stability.
      1. Stakeholder Engagement
      • Challenge: Effectively engaging with stakeholders, including local communities, regulators, and environmental groups, to understand their concerns and expectations can be resource-intensive.
      • Implication: Poor stakeholder engagement can lead to conflicts, project delays, and challenges in obtaining necessary approvals or licenses.
      1. Setting and Achieving Targets
      • Challenge: Setting realistic yet ambitious targets for water and marine resource management that align with global sustainability goals requires a deep understanding of both local and global environmental contexts.
      • Implication: Unrealistic targets may either lead to failure in achieving them, affecting credibility, or may not adequately address the material impacts, risking non-compliance with ESRS E3.
      1. Financial Implications
      • Challenge: Assessing and disclosing the financial impacts of risks and opportunities related to water and marine resources requires detailed financial modelling and forecasting.
      • Implication: Difficulty in accurately predicting long-term financial effects can affect investment decisions and stakeholder confidence.
      1. Sustainability Integration
      • Challenge: Fully integrating water and marine resource sustainability into the corporate strategy is often still new terrain for many companies, particularly those not directly dependent on these resources for their core business activities.
      • Implication: This may lead to underestimation of the importance of water and marine resource management in corporate risk profiles and sustainability reporting.
      How should companies report on water consumption and waste management under ESRS E3?

      Under the ESRS E3 Water and Marine Resources, companies are required to provide comprehensive disclosures regarding their water consumption and waste management practices to ensure transparency and accountability in how they manage and impact water and marine resources.

      Summary of key aspect on how companies should report on these aspects according to ESRS E3 Water and Marine Resources:

      Reporting on Water Consumption

      1. Total Water Consumption:
        • Companies must disclose the total volume of water consumed during the reporting period, measured in cubic meters. This should include water used across all operational activities.
      2. Water Consumption in High-Risk Areas:
        • Special attention should be given to reporting water consumption in areas classified as high water risk. This includes areas prone to water scarcity, where water consumption can have a more significant impact on the local community and environment.
      3. Water Recycling and Reuse:
        • Disclosures should include detailed information on the volume of water that is recycled and reused within the company’s operations. This highlights the company’s efforts in reducing the demand for fresh water and its impact on water resources.
      4. Water Sourcing and Storage:
        • Information on how water is sourced (e.g., rivers, groundwater, municipal supplies) and any changes in water storage capacities should also be reported. This includes details on water storage practices and how these are managed to ensure sustainability.
      5. Methodologies and Standards:
        • Companies should explain the methodologies and standards used to measure and calculate water consumption. This includes any sector-specific factors or assumptions made in the measurement process. If water consumption data are estimated or modeled, the basis of these estimates should be clearly stated.

      Reporting on Waste Management Related to Water

      1. Waste Discharge:
        • Reporting should include detailed information on waste discharges into water bodies, specifying the types and quantities of waste, including hazardous and non-hazardous waste. This should align with local and international regulations regarding waste discharge standards.
      2. Impact on Water Quality:
        • Companies should disclose how their waste management practices impact water quality. This includes the effectiveness of wastewater treatment processes and compliance with water quality standards set by regulatory bodies.
      3. Waste Reduction Initiatives:
        • Disclosures should include actions taken to reduce waste generation, particularly waste that could impact water and marine resources. This could involve initiatives like process optimization, material substitution, and improvements in waste treatment technologies.
      4. Waste Handling and Treatment Technologies:
        • The report should detail the technologies and processes used for waste handling and treatment, emphasizing innovations or improvements that reduce the environmental impact of waste on water resources.

      Targets and Performance Indicators

      • Water Consumption Targets:
        • Companies should set and report on targets related to reducing water consumption, especially in high-risk areas. These targets should be specific, measurable, and time-bound, reflecting the company’s commitment to sustainable water use.
      • Waste Management Targets:
        • Similarly, targets for waste reduction and improvements in waste treatment should be disclosed. This includes goals for increasing the proportion of waste recycled and reducing the contaminant load in waste discharges.

      In the Mentcon model, each Data point is thoroughly described in terms of what should be disclosed. It provides templates for complex disclosures and offers example disclosures for all Data points.

      How does ESRS E3 address risks and opportunities related to water and marine resources?

      ESRS E3 Water and Marine Resources specifically addresses risks and opportunities related to water and marine resources by requiring companies to conduct thorough assessments and provide detailed disclosures. These requirements ensure that companies not only recognize and manage the risks associated with their water and marine resource use but also identify and leverage potential opportunities for improvement and sustainability.

      Overview of how ESRS E3 approaches this:

      Identification of Risks and Opportunities

      1. Comprehensive Assessment:
        • Companies are required to describe the processes they use to identify material impacts, risks, and opportunities related to water and marine resources. This involves screening assets and activities across their own operations as well as their upstream and downstream value chains.
      2. Methodological Detail:
        • The standard mandates that companies disclose the methodologies, assumptions, and tools used in their screening processes. This ensures that the risk assessments are robust, transparent, and reproducible, allowing stakeholders to understand the basis of the risk evaluation.
      3. Stakeholder Consultations:
        • Engaging with affected communities and other stakeholders is a critical aspect of identifying risks and opportunities. Through these consultations, companies can gain insights into local concerns and expectations, which can inform their management strategies and help mitigate risks associated with community relations and social license to operate.

      Disclosure of Policies and Strategies

      1. Policy Development:
        • Companies must detail the policies they have adopted to manage identified risks and opportunities related to water and marine resources. This includes policies on sustainable water use, pollution prevention, and conservation of marine environments.
      2. Effectiveness and Adaptation:
        • The disclosure requirements extend to describing how these policies are implemented and their effectiveness. Companies are expected to discuss how these policies help in mitigating risks and capitalizing on opportunities, as well as how they adapt their strategies based on evolving environmental conditions and regulatory landscapes.

      Actions and Resource Allocation

      1. Implementation of Strategies:
        • ESRS E3 requires companies to disclose specific actions they have taken and the resources allocated to manage risks and seize opportunities related to water and marine resources. This includes initiatives to reduce water consumption, improve wastewater treatment, and protect marine biodiversity.
      2. Mitigation Hierarchy:
        • Companies are encouraged to report on how their actions align with a mitigation hierarchy—avoiding, minimizing, and mitigating impacts—thereby demonstrating a strategic approach to managing environmental risks.

      Setting and Reporting on Targets

      1. Clear Targets:
        • Companies must set clear, measurable targets related to the management of water and marine resources. These targets should be aligned with the identified risks and opportunities, aiming to reduce negative impacts and enhance positive contributions to water and marine ecosystems.
      2. Performance Indicatorsv (Metrics):
        • The disclosure of performance against these targets is required, which helps companies and stakeholders track progress and adjust strategies as necessary. This includes indicators on water quality improvement, reduction in water consumption, and enhancement of marine resource sustainability.

      Financial Implications

      1. Financial Assessment:
        • ESRS E3 mandates that companies disclose the anticipated financial effects of risks and opportunities related to water and marine resources on their financial position, performance, and cash flows. This includes both short-term and long-term financial risk and opportunities, providing a comprehensive view of the financial relevance of water and marine resource management.
      2. Contextual Information:
        • Companies are required to provide contextual information that explains the assumptions and methodologies used in quantifying financial effects. This adds depth to the financial disclosures, allowing stakeholders to better understand the economic dimensions of environmental sustainability.

      ESRS E4 Biodiversity and Ecosystems

      Here are some answers to Frequently Asked Questions about ESRS E4 Biodiversity and ecosystems.

      ESRS E4 Biodiversity and ecosystems
      What is ESRS E4 Biodiversity and Ecosystems and its main objective?

      The objective of ESRS E4 Biodiversity and Ecosystems is to establish clear disclosure requirements that allow stakeholders to understand how an organization impacts biodiversity and ecosystems, encompassing both positive and negative effects. These disclosures are aimed at providing a comprehensive view of the organization’s interaction with the natural environment and its efforts to mitigate harmful impacts and enhance biodiversity conservation.

      Overview of the key objectives outlined in the standard ESRS E4:

      Objectives of ESRS E4 Biodiversity and Ecosystems:

      1. Impact Assessment:
        • (a) The standard requires companies to disclose how their activities impact biodiversity and ecosystems. This includes detailing both the detrimental and beneficial impacts, and the extent to which the organization contributes to biodiversity loss and ecosystem degradation.
      2. Conservation and Mitigation Actions:
        • (b) Organizations must report on the actions they have taken to mitigate negative impacts and enhance positive impacts on biodiversity and ecosystems. This includes efforts to protect, restore, and sustainably manage natural habitats and wildlife populations.
      3. Strategic Alignment and Adaptation:
        • (c) Companies are expected to align their business models and strategies with global and regional biodiversity goals and frameworks, such as:
          • Respecting planetary boundaries related to biosphere integrity and land-system change.
          • Aligning with the goals and targets of the Kunming-Montreal Global Biodiversity Framework.
          • Complying with the EU Biodiversity Strategy for 2030.
          • Adhering to the EU Birds and Habitats Directives, and the Marine Strategy Framework Directive.
      4. Risk Management and Opportunity Development:
        • (d) There is a need to disclose the nature, type, and extent of material risks, dependencies, and opportunities related to biodiversity and ecosystems. Companies should detail how they manage these aspects to mitigate risks and capitalize on opportunities linked to ecosystem services and natural capital.
      5. Financial Implications:
        • (e) Organizations must assess and disclose the financial impacts of biodiversity and ecosystem-related risks and opportunities. This should cover the short, medium, and long-term financial effects, providing a clear picture of how biodiversity considerations influence financial performance and stability.

      Scope of the Standard:

      • The standard covers the organization’s interactions with terrestrial, freshwater, and marine habitats, as well as impacts on the fauna and flora species that inhabit these ecosystems. It also encompasses biodiversity within species, between species, and of ecosystems, including their interrelations with indigenous peoples and other affected communities.
      How does ESRS E4 Biodiversity and Ecosystems interact with other standards within ESRS?

      ESRS E4 Biodiversity and Ecosystems is intricately connected with other standards within the ESRS framework, forming a comprehensive network of interrelated environmental disclosures. This interconnectedness ensures a holistic approach to sustainability reporting, where the diverse but interlinked aspects of environmental impact are collectively addressed.

      Overview of how ESRS E4 interacts with other ESRS standards:

      Interaction with Other Environmental ESRS Standards

      1. ESRS E1 Climate Change:
        • Climate change is a significant driver of biodiversity loss and changes to ecosystems. ESRS E4 complements ESRS E1 by addressing the impacts that are not covered by climate-specific disclosures, such as those related to the direct impacts of climate change on biodiversity. ESRS E1 covers greenhouse gas (GHG) emissions and energy resource use, which are also crucial for understanding the broader environmental context affecting biodiversity.
      2. ESRS E2 Pollution:
        • Pollution directly affects ecosystems and biodiversity. ESRS E4 interacts with ESRS E2 by providing a broader context on how pollution impacts biodiversity and ecosystems beyond the immediate pollution events, encompassing long-term and widespread effects on flora and fauna.
      3. ESRS E3 Water and Marine Resources:
        • Water use and the management of marine resources are critical aspects of biodiversity and ecosystem health. ESRS E4 requires disclosures that complement the information provided in ESRS E3, emphasizing how water consumption and changes in marine resource use impact biodiversity within these aquatic environments.
      4. ESRS E5 Resource Use and Circular Economy:
        • This standard addresses the sustainable use of resources and the reduction of waste, which are important for preserving ecosystems. ESRS E4 and ESRS E5 work together to ensure that resource extraction and waste management practices are conducted in a manner that minimizes their impact on biodiversity and promotes a circular economy.

      Additional Interactions with Governance and Social Standards

      • ESRS S3 Affected Communities:
        • The impacts of biodiversity and ecosystem changes often extend to human communities, particularly those dependent on natural resources or those living in close proximity to impacted areas. ESRS E4 requires that companies consider how their activities affect these communities and disclose these impacts in conjunction with ESRS S3, which focuses on the social aspects of environmental changes.

      General ESRS Framework Integration

      • ESRS 1 General Requirements and ESRS 2 General Disclosures:
        • ESRS E4 should be interpreted and implemented in conjunction with the general principles and requirements laid out in ESRS 1 and ESRS 2. This includes integrating biodiversity and ecosystem considerations into the company’s overall governance, strategy, and risk management processes as detailed in ESRS 2’s chapters on Governance, Strategy, and Impact, Risk, and Opportunity Management.

      Special Considerations

      • Topic-Specific Disclosures:
        • ESRS E4 includes a specific Disclosure Requirement (E4-1) focused on the transition plan and the consideration of biodiversity and ecosystems in the company’s strategy and business model. This requirement emphasizes the need for strategic alignment and adaptation to protect and enhance biodiversity as part of long-term business planning.

      The integration of ESRS E4 with other ESRS standards ensures that biodiversity and ecosystems are not considered in isolation but as part of a broader environmental and sustainability context. This approach enables stakeholders to gain a more complete understanding of a company’s environmental impact and its efforts to mitigate risks and capitalize on opportunities related to biodiversity and ecosystems.

      What are the disclosure requirements under ESRS E4 Biodiversity and Ecosystems summarized?

      ESRS E4 Biodiversity and Ecosystems provides comprehensive disclosure requirements designed to enable stakeholders to understand how organizations interact with biodiversity and ecosystems, including the impacts, management strategies, and financial implications associated with these interactions.

      Summary of key disclosure requirements outlined in the standard ESRS E4:

      Governance and Strategy Integration

      • General Disclosures: ESRS E4 must be read and reported in conjunction with ESRS 2, which covers Governance, Strategy, and Impact, Risk, and Opportunity Management. This ensures that biodiversity and ecosystems considerations are integrated into the core strategic decision-making processes of the organization.

      Transition Plan and Strategy Adaptation

      • Disclosure Requirement E4-1: Organizations are required to disclose how they incorporate biodiversity and ecosystem considerations into their business model and strategy. This includes:
        • Assessing and adapting strategies to minimize negative impacts on biodiversity.
        • Aligning business practices with global and regional biodiversity targets such as the Kunming-Montreal Global Biodiversity Framework, the EU Biodiversity Strategy for 2030, and respecting planetary boundaries.

      Impact, Risk, and Opportunity Management

      • Material Impact Identification: Companies must describe their processes for identifying material impacts, risks, and dependencies on biodiversity and ecosystems across their operations and value chain.
      • Stakeholder Consultations: Engaging with communities and stakeholders, particularly those affected by the company’s operations, is crucial for understanding and managing impacts on shared biological resources.

      Policy Development

      • Disclosure Requirement E4-2: Companies must disclose their policies related to biodiversity and ecosystems, explaining how these policies address their material impacts, dependencies, risks, and opportunities. This includes details on policies that support the sustainability of biodiversity and ecosystem services.

      Actions and Resources

      • Disclosure Requirement E4-3: Organizations should outline the specific actions they have taken to address their impacts on biodiversity and ecosystems and the resources allocated to these actions. This disclosure includes how the mitigation hierarchy (avoidance, minimization, restoration, and compensation) is applied to biodiversity-related actions.

      Metrics and Targets

      • Disclosure Requirement E4-4: Firms need to set and disclose specific targets related to biodiversity and ecosystems, detailing how these targets are informed by and align with broader biodiversity frameworks and strategies. Metrics should measure the effectiveness of actions taken against these targets.

      Financial Implications

      • Disclosure Requirement E4-6: Companies are expected to report the anticipated financial effects of biodiversity and ecosystem-related risks and opportunities, providing both quantitative and qualitative insights into how these factors could impact the organization’s financial position and performance over various time horizons.

      Integration with Other Standards

      • Companies must ensure that their disclosures on biodiversity and ecosystems are consistent with the disclosures made under other relevant ESRS, such as those related to climate change (E1), pollution (E2), water and marine resources (E3), and resource use and circular economy (E5). This holistic approach ensures that all environmental aspects are considered in an integrated manner.
      What types of actions, targets and metrics can companies use for ESRS E4 Biodiversity and Ecosystems?

      Under ESRS E4 Biodiversity and Ecosystems, companies are expected to establish specific actions, targets, and metrics that contribute to the conservation and sustainable management of biodiversity and ecosystems. These elements are crucial for demonstrating a company’s commitment from short- to long-term to environmental stewardship and its alignment with global biodiversity goals.

      Overview of types of actions, targets, and metrics that companies can employ under the standard ESRS 4:

      Actions for Biodiversity and Ecosystem Management

      1. Habitat Restoration Projects:
        • Action: Implement initiatives to restore native habitats that have been degraded or destroyed due to company operations, such as reforestation, wetland restoration, or coral reef rehabilitation.
      2. Sustainable Resource Use:
        • Action: Adopt practices that minimize the impact on biodiversity, such as sustainable forestry, fishing, and agricultural practices that protect soil health and water quality.
      3. Pollution Reduction:
        • Action: Implement measures to reduce pollution outputs that negatively affect biodiversity, such as switching to cleaner technologies, enhancing waste treatment processes, and reducing pesticide and fertilizer use.
      4. Protected Area Management:
        • Action: Participate in or establish conservation programs for protected areas, including private reserves or contributing to public conservation efforts.
      5. Invasive Species Control:
        • Action: Develop and implement strategies to manage or eradicate invasive species that threaten native biodiversity.

      Targets for Biodiversity and Ecosystems

      1. Biodiversity Conservation Targets:
        • Target: Achieve no net loss of biodiversity in operational areas by a specified year or achieve a net positive impact on biodiversity through restoration and conservation actions.
      2. Specific Habitat Targets:
        • Target: Restore or protect a set number of hectares of natural habitats by a certain date, focusing on ecosystems most affected by the company’s operations.
      3. Pollution Reduction Targets:
        • Target: Reduce specific pollutants known to harm biodiversity by a set percentage within a defined timeframe.
      4. Invasive Species Management Targets:
        • Target: Reduce the presence of key invasive species by a certain percentage in identified critical areas within a specified period.

      Metrics for Monitoring Biodiversity and Ecosystems

      1. Area of Habitat Protected or Restored:
        • Metric: Measure the area (in hectares) of habitats protected, restored, or enhanced to track progress towards habitat conservation targets.
      2. Species Population Metrics:
        • Metric: Monitor changes in populations of key species (both flora and fauna) within areas affected by the company’s operations, using data from biodiversity surveys and research.
      3. Pollution Impact Metrics:
        • Metric: Track reductions in emissions or discharges of pollutants that negatively impact biodiversity, such as heavy metals, nitrogen, phosphorus, or toxic chemicals.
      4. Water Quality Indicators:
        • Metric: Measure improvements in water quality in bodies of water affected by company operations, focusing on parameters critical for aquatic life.
      5. Compliance and Engagement Metrics:
        • Metric: Report on compliance rates with environmental regulations related to biodiversity and ecosystems and the level of engagement with local communities and stakeholders in conservation efforts.

      By setting these specific actions, targets, and metrics, companies can effectively manage their impacts on biodiversity and ecosystems, demonstrate their commitment to sustainability, and provide clear, measurable results that stakeholders can evaluate. These efforts not only help in regulatory compliance but also enhance corporate reputation and contribute to global biodiversity conservation objectives.

      Give examples of actions, targets and metrics companies can use for ESRS E4 Biodiversity and Ecosystems?

      To effectively address the requirements of ESRS E4 Biodiversity and Ecosystems, companies can develop specific actions, set measurable targets, and employ relevant metrics to track their performance.

      Below are some examples of how companies might approach these elements:

      Example Actions for Biodiversity and Ecosystem Management

      1. Habitat Restoration Initiative:
        • Action: Implement a multi-year project to restore 500 hectares of wetlands that have been degraded due to past industrial activities, using native plant species and sustainable water management techniques.
      2. Sustainable Sourcing Program:
        • Action: Develop and implement a sustainable sourcing program that ensures raw materials such as timber or palm oil are obtained from certified sustainable sources, aiming to reduce deforestation and habitat loss.
      3. Biodiversity Monitoring System:
        • Action: Install biodiversity monitoring systems in key operational areas to track the impact of company activities on local wildlife and ecosystems, using camera traps and bioacoustic monitoring techniques.
      4. Invasive Species Management:
        • Action: Launch an invasive species management strategy at all sites located near sensitive ecosystems, including regular surveys and the removal of invasive plant species that threaten local biodiversity.

      Example Targets for Biodiversity and Ecosystems

      1. Biodiversity Net Gain Target:
        • Target: Achieve a biodiversity net gain of 10% by 2030 across all company-owned properties by enhancing habitat quality and increasing species diversity.
      2. Pollution Reduction Target:
        • Target: Reduce pesticide use by 40% by 2025 across all agricultural operations to decrease the negative impacts on pollinators and aquatic life.
      3. Water Quality Improvement Target:
        • Target: Improve water quality in discharge areas by 30% by 2027, measured by reductions in nitrogen, phosphorus, and sediment levels, to support healthier aquatic ecosystems.

      Example Metrics for Monitoring Biodiversity and Ecosystems

      1. Area of Habitat Restored:
        • Metric: Track the total area of degraded habitat successfully restored annually, measured in hectares, with a focus on habitats critical for endangered species.
      2. Species Population Index:
        • Metric: Monitor changes in populations of targeted species in restoration areas using a standardized species population index to assess the success of biodiversity enhancement efforts.
      3. Sustainability Certification Compliance:
        • Metric: Measure the percentage of raw materials sourced from suppliers with certified sustainable practices, such as FSC for timber or RSPO for palm oil, to ensure compliance with sustainable sourcing goals.
      4. Water Quality Indicators:
        • Metric: Regularly measure key water quality indicators (e.g., levels of nitrogen, phosphorus, pH) in bodies of water adjacent to operational sites to evaluate the effectiveness of pollution reduction initiatives.
      How does ESRS E4 Biodiversity and Ecosystems align with global biodiversity frameworks?

      ESRS E4 Biodiversity and Ecosystems is when comparing it to other frameworks designed to align closely with global biodiversity frameworks by setting comprehensive disclosure requirements that guide organizations in reporting their impacts on biodiversity and ecosystems. This alignment is crucial for ensuring that corporate actions support broader environmental goals and comply with international biodiversity conservation standards.

      Brief explanations of how ESRS E4 specifically aligns with some of these frameworks:

      Alignment with Global Biodiversity Frameworks

      1. Kunming-Montreal Global Biodiversity Framework:
        • Disclosure Requirement: Companies are required to describe how their biodiversity and ecosystem strategies and actions are aligned with the goals and targets of the Kunming-Montreal Global Biodiversity Framework. This includes detailing efforts to conserve biodiversity, restore ecosystems, and sustainably manage natural resources.
        • Transition Plans: ESRS E4 encourages companies to disclose their transition plans to improve and ultimately align their business models and strategies with the vision of this global framework, focusing on enhancing biodiversity and reducing biodiversity loss.
      2. EU Biodiversity Strategy for 2030:
        • Strategic Integration: Companies must integrate and disclose how their operations and strategic planning adhere to the EU Biodiversity Strategy for 2030. This strategy includes commitments to protect nature, reverse the degradation of ecosystems, and green the EU’s economy.
        • Policy Alignment: The disclosures also require information on how corporate policies support the EU’s biodiversity objectives, such as restoring degraded ecosystems and implementing green infrastructures.
      3. Respecting Planetary Boundaries Related to Biosphere Integrity and Land-System Change:
        • Risk and Impact Assessments: Companies need to assess and disclose how their activities impact critical ecological thresholds, such as land-system change and biosphere integrity. These are key components of the planetary boundaries framework, which defines limits within which humanity can safely operate.
        • Resilience and Adaptation: Disclosure on the resilience of the company’s strategy and business model in relation to biodiversity and ecosystems also aligns with respecting planetary boundaries, ensuring that corporate actions do not push ecological systems beyond their safe operating spaces.

       

      Additional Alignments and Compliance

      • EU Birds and Habitats Directives: Companies must disclose how their operations comply with these directives, which are crucial for protecting natural habitats and the wildlife they support within the EU. This includes managing operations to avoid deteriorating habitats or disturbing protected species.
      • Marine Strategy Framework Directive: For organizations that impact marine ecosystems, ESRS E4 requires disclosures that show alignment with this directive, which aims to protect more effectively the marine environment across Europe.

      Impact and Dependency Assessments

      • Comprehensive Assessments: ESRS E4 mandates that companies not only report on direct impacts but also assess dependencies on ecosystem services. This holistic approach helps organizations understand and mitigate risks associated with ecosystem degradation and biodiversity loss.
      • Scenario Analysis: The standard suggests that companies may use biodiversity and ecosystems scenario analysis to inform their risk assessments and strategic decisions. This method helps predict and prepare for future changes in biodiversity and ecosystem services, ensuring that business models are sustainable and resilient in the face of environmental changes.
      What should companies report regarding their, impacts, risks and opportunities related to biodiversity?

      Based on the disclosure requirements in ESRS E4 Biodiversity and Ecosystems, companies are required to provide a detailed account of their impacts, risks and opportunities related to biodiversity and ecosystems. This involves a thorough examination and disclosure of how their operations and activities impact biodiversity, the measures taken to manage these impacts, and how these efforts are integrated into their broader business strategies.

      Identification and Assessment of impacts, Risks and Opportunities

      1. Material Assesment:
        • Companies must describe their process for identifying material biodiversity-related impacts, risks, dependencies, and opportunities. This includes detailing actual and potential effects on biodiversity within their own operations and throughout their upstream and downstream value chains.
      2. Criteria and Methodologies:
        • The disclosure should specify the criteria and methodologies used to assess these impacts and risks. Companies should explain whether these assessments include direct impacts on ecosystems and indirect effects mediated through ecosystem services.
      3. Risk and Opportunity Analysis:
        • Companies need to identify and assess both transition and physical risks related to biodiversity, along with opportunities that arise from ecosystem conservation and sustainable use. This includes evaluating how changes in biodiversity might affect their business, both negatively and positively.

      Strategic Implications and Transition Plans

      1. Integration into Business Strategy:
        • Companies should disclose how biodiversity-related risks and opportunities are integrated into their business strategies and operations. This involves outlining how these considerations trigger adaptations in their business models.
      2. Resilience and Adaptability:
        • There should be a detailed description of the resilience of the company’s business model and strategy in relation to biodiversity and ecosystems. This includes an assessment of how well the company is prepared to handle biodiversity-related physical, transition, and systemic risks.
      3. Transition Plans:
        • Companies are encouraged to report on their transition plans to align their operations with global biodiversity goals, such as those set out in the Kunming-Montreal Global Biodiversity Framework and the EU Biodiversity Strategy for 2030. This includes steps taken to improve biodiversity outcomes and achieve sustainability targets.

      Policies and Actions

      1. Policies on Biodiversity and Ecosystems:
        • Disclosure of policies that manage material impacts, risks, dependencies, and opportunities related to biodiversity and ecosystems is required. Companies should describe these policies and how they address the identification, assessment, management, and remediation of impacts.
      2. Actions Taken:
        • Companies must detail the actions they have taken to address their biodiversity-related impacts and the resources allocated to these actions. This includes how they apply the mitigation hierarchy (avoid, minimize, restore, and offset) to biodiversity conservation.

      Metrics and Targets

      1. Biodiversity-Related Targets:
        • The disclosure should include specific, measurable targets set by the company to manage its biodiversity impacts and dependencies. Companies should explain how these targets are designed to mitigate risks or capitalize on opportunities related to biodiversity.
      2. Performance Metrics:
        • Companies need to report metrics related to their material impacts on biodiversity and ecosystems. This could include data on the status of species populations, habitat conditions, or the effectiveness of biodiversity conservation measures.

      Financial Effects

      1. Financial Impact Reporting:
        • Companies should disclose the anticipated financial effects of material biodiversity-related risks and opportunities on their financial position, performance, and cash flows over the short, medium, and long term. This includes both the potential costs and benefits of implementing biodiversity-related actions and policies.

      ESRS E5 Resource use and circular economy

      Here are some answers to Frequently Asked Questions about ESRS E5 Resource use and circular economy.

      ESRS E5
      What are the disclosure requirements under ESRS E5 Resource Use and Circular Economy summarized?

      The objective of ESRS E5 Resource Use and Circular Economy is to provide a framework for companies to disclose comprehensive information about how they manage resource use and integrate circular economy principles into their operations. This standard aims to help stakeholders understand the various aspects of a company’s resource management, from the efficiency of resource use to the strategies for minimizing waste and enhancing sustainability.

      Key Objectives of ESRS E5:

      1. Impact Assessment on Resource Use:
        • Companies are required to disclose the impact of their operations on resource use, focusing on both the positive and negative impacts. This includes how they manage resource efficiency, avoid resource depletion, and promote the sustainable sourcing and use of renewable resources.
      2. Actions to Mitigate Negative Impacts:
        • Disclosure of actions taken to mitigate any negative impacts related to resource use. This includes strategies to decouple economic growth from material use, thus addressing both environmental impact and resource sustainability.
      3. Adaptation to Circular Economy Principles:
        • Companies must disclose how they are adapting their business models and strategies in accordance with circular economy principles. This involves minimizing waste, maintaining the value of products and materials for as long as possible, and optimizing resource efficiency in both production and consumption phases.
      4. Risk Management and Opportunity Development:
        • Disclosure of the nature, type, and extent of material risks and opportunities related to resource use and the circular economy. Companies should explain how they manage these risks and capitalize on opportunities to enhance sustainability.
      5. Financial Impact Analysis:
        • Companies need to report on the financial effects, both short-term and long-term, of risks and opportunities associated with their practices in resource use and circular economy. This helps stakeholders understand the economic implications of sustainable resource management practices.

      Detailed Disclosure Requirements:

      • Resource Inflows and Outflows:
        • Detailed disclosures on resource inflows should include information on the circularity of material resources, differentiating between renewable and non-renewable resources.
        • Information on resource outflows must cover details on products, materials, and waste, highlighting how resources are managed at the end of their life cycle.
      • Waste Management:
        • Disclosures should include how waste is handled, emphasizing the application of the waste hierarchy to reduce environmental impacts and enhance the recovery and recycling of materials.

      Broader Context and Legislative Alignment:

      • The standard aligns with relevant EU policies, such as the EU Circular Economy Action Plan and the Waste Framework Directive. This ensures that the disclosures not only meet regulatory requirements but also promote best practices in resource management and waste reduction.
      • The transition from a traditional “take-make-waste” model to a circular economy is emphasized, requiring companies to identify and report on the physical flows of resources and materials, thereby enabling stakeholders to track progress and efficiency in resource use.

      By fulfilling these objectives, ESRS E5 helps companies demonstrate their commitment to sustainable resource management and circular economy principles, providing transparent and actionable information to investors, regulators, and the public on their environmental stewardship and sustainability strategies.

      How does ESRS E5 Resource Use and Circular Economy interact with other standards within ESRS?

      ESRS E5 Resource Use and Circular Economy is closely interconnected with other Environmental, Social, and Governance (ESG) standards within the ESRS, reflecting the interdependent nature of environmental issues. The interactions are designed to ensure that companies provide a holistic view of their environmental impacts and strategies, particularly how resource use and circular economy principles tie into broader sustainability goals.

      Overview of how ESRS E5 interacts with other governance standards within ESRS:

      Interactions with Other Environmental ESRS

      1. ESRS E1 Climate Change:
        • Resource use directly impacts climate change through the energy consumed and the greenhouse gases emitted during extraction, production, and disposal processes. ESRS E5 complements ESRS E1 by addressing how circular economy practices can reduce GHG emissions and energy consumption by enhancing efficiency and promoting the reuse and recycling of materials.
      2. ESRS E2 Pollution:
        • The management of resources, particularly waste management practices, influences emissions to air, water, and soil. ESRS E5 works in conjunction with ESRS E2 to detail how reduced resource consumption and improved waste management can decrease pollution levels and mitigate the release of hazardous substances.
      3. ESRS E3 Water and Marine Resources:
        • The circular economy aims to limit water withdrawals and discharges, which are critical aspects of water resource management covered under ESRS E3. By promoting more sustainable resource use, ESRS E5 helps reduce the pressure on water and marine resources, aligning with the water conservation and management strategies outlined in ESRS E3.
      4. ESRS E4 Biodiversity and Ecosystems:
        • The extraction and processing of natural resources can significantly impact biodiversity and ecosystems. ESRS E5’s focus on minimizing resource depletion and enhancing the circular use of materials supports the objectives of ESRS E4 by limiting the negative impacts on natural habitats and promoting the regeneration of ecosystems.

      Broader Social and Governance Interactions

      • ESRS S3 Affected Communities:
        • The management of resources, especially waste, can have profound effects on local communities. ESRS E5 acknowledges that circular economy practices must consider their social implications, ensuring that resource use does not adversely affect the health, wellbeing, and environmental quality of nearby communities.
      • ESRS 1 General Requirements and ESRS 2 General Disclosures:
        • As with all standards, ESRS E5 should be read and implemented in conjunction with the general principles and disclosure requirements set out in ESRS 1 and ESRS 2. This ensures that the management of resources and circular economy practices are integrated into the company’s overall governance structure, strategic planning, and risk management processes.

      Implementation in Reporting

      • Impact, Risk, and Opportunity Management:
        • Companies are encouraged to report on resource use and circular economy alongside other related disclosures in ESRS 2, particularly Chapter 4, which deals with impact, risk, and opportunity management. This approach helps stakeholders understand how resource management is integrated into the company’s broader environmental and sustainability strategy.
      What are the disclosure requirements under ESRS E5 Resource Use and Circular Economy?

      The ESRS E5 Resource Use and Circular Economy standard provides comprehensive disclosure requirements for companies to report on their resource management and adoption of circular economy principles.

      Summary of key disclosure areas outlined in the standard ESRS E5:

      General Disclosures and Impact Management

      • Companies must integrate the ESRS E5 disclosures with ESRS 2, Chapter 4, which focuses on impact, risk, and opportunity management, ensuring a holistic view of how resource use and circular economy practices are embedded in the overall business strategy.

      Identification and Assessment of Impacts, Risks, and Opportunities

      • Disclosure Requirement: Describe the processes to identify and assess material impacts, risks, and opportunities related to resource use and circular economy, including resource inflows, outflows, and waste management.
      • Key Areas:
        • Screening of assets and activities to identify actual and potential impacts and risks.
        • Methodologies, assumptions, and tools used in these assessments.
        • Consultations conducted, particularly with affected communities.

      Policies on Resource Use and Circular Economy

      • Disclosure Requirement: Outline policies that manage material impacts and risks associated with resource use and circular economy.
      • Focus Areas:
        • Transitioning from the use of virgin resources to increased use of secondary (recycled) resources.
        • Sustainable sourcing and the use of renewable resources.
        • How these policies are applied across the company’s operations and value chain.

      Actions and Resources

      • Disclosure Requirement: Report on specific actions taken and resources allocated towards achieving resource use and circular economy objectives.
      • Details:
        • Efficiency improvements in the use of technical, biological materials, and water.
        • Implementation of circular design principles to enhance product durability and reusability.
        • Circular business practices, including value retention actions (like maintenance and refurbishing) and end-of-life management strategies like recycling and upcycling.

      Targets and Metrics

      • Disclosure Requirement: Set and disclose specific, measurable targets related to resource use and circular economy.
      • Target Areas:
        • Increases in circular product design and material use rates.
        • Reductions in the use of primary raw materials.
        • Improvements in waste management practices.
      • Metrics:
        • Resource inflows and outflows, emphasizing the transition to more sustainable resource usage.
        • Effectiveness of actions in terms of resource conservation and waste reduction.

      Resource Inflows and Outflows

      • Disclosure Requirement: Provide detailed information on resource inflows and outflows.
      • Specifics:
        • Total weight and types of materials used, including critical raw materials and rare earths.
        • Sustainable sourcing metrics and the percentage of recycled materials used.

      Financial Effects

      • Disclosure Requirement: Analyze the financial impacts of resource use and circular economy strategies.
      • Components:
        • Anticipated financial effects of risks and opportunities arising from resource management practices.
        • Quantification of financial effects, or qualitative descriptions if quantification is not feasible.
      What types of actions, targets and metrics can companies use for ESRS E5 resource use and circular economy?

      In line with the disclosure requirements of ESRS E5 Resource Use and Circular Economy, companies are encouraged to adopt a series of actions, define clear targets, and measure progress using specific metrics. These elements are designed to help companies transition towards more sustainable practices and align their operations with the principles of the circular economy.

      Overview of some types of actions, targets, and metrics companies can use:

      Actions

      1. Resource Efficiency Improvements:
        • Implementing processes that enhance the efficiency of material and energy use at all stages of the product lifecycle.
      2. Sustainable Sourcing:
        • Prioritizing the procurement of renewable and recyclable materials.
        • Establishing partnerships with suppliers committed to sustainable practices.
      3. Circular Design:
        • Designing products for longer life, easy disassembly, reparability, and recyclability.
        • Innovating to reduce the material complexity of products to facilitate recycling.
      4. Waste Reduction Strategies:
        • Minimizing waste generation through improved process efficiency and waste segregation.
        • Implementing reuse and refurbishment programs.
      5. Circular Business Models:
        • Developing business models based on product-as-a-service, leasing, or sharing to extend the product lifecycle and reduce resource consumption.
        • Establishing take-back schemes to reclaim used products for refurbishing, remanufacturing, or recycling.

      Targets

      1. Increase in Recycled Content:
        • Setting quantifiable targets for increasing the percentage of recycled materials in production processes.
      2. Reduction of Primary Raw Materials:
        • Aiming to reduce the intake of virgin materials by a specific percentage within a defined timeframe.
      3. Waste Diversion Goals:
        • Targeting specific rates of waste diversion from landfill and incineration, aiming for higher recycling and reuse rates.
      4. Circularity Metrics for Products:
        • Defining targets for the number of products designed and sold that are fully recyclable or upcyclable.
      5. Sustainable Resource Sourcing:
        • Setting targets for the percentage of sustainably sourced renewable resources used in manufacturing.

      Metrics

      1. Resource Utilization Rates:
        • Tracking the amount of recycled versus virgin raw materials used in production.
        • Measuring the percentage of renewable energy utilized in operations.
      2. Waste Quantification and Management:
        • Reporting total waste generated, segmented by type (hazardous, non-hazardous) and treatment method (recycling, landfill, incineration).
        • Measuring the percentage of waste recycled, reused, or recovered.
      3. Product Lifecycle Impact:
        • Calculating the lifecycle impacts of products, including water and energy footprints.
        • Assessing the durability and recyclability of products through established lifecycle assessment methodologies.
      4. Circularity Indicators:
        • Implementing metrics such as the Material Circularity Indicator (MCI) to assess how effectively materials are being cycled through the economy.
        • Measuring the change in product returns and their integration back into the production cycle.
      5. Economic Performance Related to Circular Practices:
        • Monitoring financial savings or gains from circular economy initiatives, such as cost reductions from using recycled materials or revenue generated from circular business models.

      By strategically implementing these actions, setting clear targets, and regularly measuring outcomes through these metrics, companies can effectively report their advancements in resource use and circular economy practices as required by ESRS E5.

      Give examples of actions, targets and metrics companies can use for ESRS E5 resource use and circular economy?

      Here are some fictive examples of actions, targets, and metrics that companies might employ to align with ESRS E5 Resource Use and Circular Economy disclosure requirements:

      Actions

      1. Eco-Design Initiative:
        • Action: Develop a series of product lines designed for easy disassembly and recycling, incorporating modular components to facilitate repair and upgrade.
      2. Supplier Sustainability Program:
        • Action: Implement a supplier audit system to ensure all suppliers adhere to sustainable resource extraction and production practices, with a focus on reducing environmental impact.
      3. Zero-Waste Manufacturing:
        • Action: Establish a manufacturing process that aims to completely eliminate waste through lean manufacturing techniques and closed-loop recycling systems.
      4. Circular Packaging Solutions:
        • Action: Transition to 100% reusable, recyclable, or compostable packaging materials across all product lines by redesigning packaging formats and materials.
      5. Renewable Resource Integration:
        • Action: Increase the use of renewable materials in production processes, such as bioplastics or recycled metals, to replace virgin materials.

      Targets

      1. Recycled Content Target:
        • Target: Achieve 50% recycled content in all plastic products by 2025.
      2. Waste Reduction Target:
        • Target: Reduce manufacturing waste by 30% by 2024 through process optimization and waste diversion strategies.
      3. Circular Design Adoption:
        • Target: Design 75% of new products to meet established circularity criteria by 2023, focusing on durability and reparability.
      4. Sustainable Sourcing Goal:
        • Target: Source 60% of raw materials from certified sustainable operations by 2026.
      5. Energy Efficiency Improvement:
        • Target: Increase energy efficiency in production facilities by 40% by 2027 compared to 2022 levels.

      Metrics

      1. Material Circularity Indicator (MCI):
        • Metric: Calculate and report the MCI for major product lines annually to assess progress towards material circularity.
      2. Waste Volume and Composition:
        • Metric: Track and report total waste generated, the percentage recycled, and the percentage sent to landfill annually.
      3. Recycled Material Usage:
        • Metric: Measure and report the percentage of recycled materials used in production relative to total material usage.
      4. Water Footprint:
        • Metric: Measure and report water consumption and recycling rates in production processes to monitor improvements in water efficiency.
      5. Supplier Compliance Rate:
        • Metric: Track and report the percentage of suppliers complying with the company’s sustainability criteria, aiming for 100% compliance.

      These fictive examples are designed to demonstrate how a company could develop robust strategies and practices to meet ESRS E5 requirements, leveraging actionable steps, quantifiable targets, and clear metrics to monitor and report progress towards achieving a circular economy.

      How does ESRS E5 integrate with other sustainability standards?

      ESRS E5 integrates with other sustainability and environmental standards by aligning its reporting requirements with global frameworks like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB). This alignment ensures that companies can provide comprehensive, globally recognized reports that address resource efficiency and circular economy practices while remaining consistent with broader sustainability goals.

      What methodologies are recommended for measuring resource use and circularity under ESRS E5?

      Under the ESRS E5 Resource Use and Circular Economy, several methodologies are recommended to measure resource use and circularity effectively. These methodologies are critical for ensuring accurate and transparent reporting on how companies manage resources and implement circular economy principles.

      Overview of recommended methodologies based on the disclosure requirements of ESRS E5:

      1. Screening of Assets and Activities
      • Methodology: Companies are encouraged to conduct comprehensive screenings of their assets and activities to identify actual and potential impacts, risks, and opportunities related to resource use and circular economy. This includes analyzing both direct operations and the upstream and downstream value chain.
      • Tools and Assumptions: Use of specific analytical tools and assumptions should be clearly stated, which might include lifecycle assessments (LCA), material flow analysis (MFA), and other standardized environmental assessment tools.
      1. Resource Inflows and Outflows
      • Quantitative Measurement: Detailed tracking and reporting of the amounts and types of resources entering and leaving the company, including water, energy, raw materials, and finished products.
      • Methodologies: Employ calculations based on direct measurements where possible, or estimations using recognized standards and practices. Companies should specify whether data is sourced from direct measurements or estimations and disclose the key assumptions used.
      1. Circularity Metrics
      • Circular Material Use Rate: Measurement of the proportion of recycled input materials in production processes as compared to virgin materials.
      • Reusability and Recyclability Index: Evaluation of product design for durability, reparability, and recyclability, often using established frameworks such as the Ellen MacArthur Foundation’s circularity indicators or the Cradle to Cradle Certified Product Standard.
      1. Waste Hierarchy Application
      • Methodology: Reporting on waste management practices aligned with the waste hierarchy (reduce, reuse, recycle, recover, and dispose).
      • Waste Stream Analysis: Detailed analysis of waste streams, including hazardous and non-hazardous waste, with breakdowns by type of recovery or disposal operation.
      1. Sustainable Sourcing
      • Assessment of Sustainable Practices: Use of certifications and third-party verification to ensure resources are sustainably sourced. Information on certification schemes and the application of the cascading principle for biological materials should be provided.
      1. Application of Circular Economy Principles in Product Design
      • Design for Circularity: Assessment of product design regarding ease of disassembly, material purity, and suitability for recycling or composting. This might include using design software tools that can evaluate and score product designs based on their circularity potential.
      1. Ecological Thresholds and Entity-Specific Allocations
      • Methodology for Setting Targets: Define ecological thresholds with respect to resource use, considering both global standards and local environmental conditions. Detail how these thresholds are identified and used in setting sustainability targets.

      How to disclose each data point is available in Mentcon’s App, along with examples of disclosures from other companies, to facilitate a comprehensive understanding of what and how to disclose.

      How should companies report on their progress towards circular economy goals under ESRS E5?

      Under the ESRS E5 Resource Use and Circular Economy, companies are expected to report comprehensively on their progress towards implementing circular economy goals. This reporting should encompass a wide range of elements from policy formulation and implementation to specific actions, outcomes, and the setting and achievement of targets.

      Breakdown of how companies should report on their progress:

      1. Disclosure of Policies and Practices
      • Policies Description: Companies need to disclose the policies they have adopted to manage their material impacts, risks, and opportunities related to resource use and circular economy. This includes details on how these policies facilitate the transition to a circular economy, such as promoting the sustainable sourcing and use of renewable resources, increasing the use of secondary (recycled) resources, and minimizing waste generation.
      • Implementation Details: Report on how these policies are being implemented across the organization’s own operations and throughout its upstream and downstream value chain.
      1. Actions and Resource Allocation
      • Specific Actions: Companies must disclose specific actions they have taken to achieve circular economy-related policy objectives and targets. This includes higher levels of resource efficiency, application of circular design principles, and innovations in product lifecycle management.
      • Resources Allocated: It is crucial to report on the resources allocated to these actions, detailing how investments and other resource allocations are being used to support circular economy initiatives.
      1. Targets and Metrics
      • Setting Targets: Companies should set clear, measurable targets that align with their circular economy goals. These targets should address aspects such as increasing circular product design, enhancing the rate of circular material use, and minimizing the use of primary raw materials.
      • Metrics for Tracking: The reporting should include metrics that demonstrate progress toward these targets. Metrics might include the percentage of recycled content used in products, reductions in primary raw material use, and improvements in waste management practices.
      1. Reporting Resource Inflows and Outflows
      • Resource Inflows: Companies need to provide detailed information on resource inflows, which should include the types and quantities of raw materials used, specifying critical raw materials and rare earth elements where relevant.
      • Resource Outflows: Similarly, detailed information on resource outflows should be provided, highlighting how products and materials are designed to align with circular economy principles and what happens to these materials at the end of their lifecycle.
      1. Quantitative and Qualitative Data
      • Quantification of Data: Where possible, companies should quantify the financial and operational effects of their circular economy strategies, providing a clear picture of economic impacts.
      • Qualitative Descriptions: In cases where quantification is not feasible, qualitative descriptions should be used to convey the impact of circular economy practices on the company’s operations and its broader environmental commitments.
      1. Anticipated Financial Effects
      • Risks and Opportunities: Companies should discuss the anticipated financial effects of risks and opportunities related to resource use and circular economy practices, explaining how these might affect the company’s financial position, performance, and cash flows over the short, medium, and long term.
      1. Contextual Information
      • Methodologies and Assumptions: The reporting should include contextual information about the methodologies and assumptions used in gathering and analyzing data. This helps in ensuring transparency and enhances the credibility of the reported information.
      What are the expected benefits for companies complying with ESRS E5?

      Compliance with ESRS E5 Resource Use and Circular Economy offers several benefits to companies, enhancing their sustainability profiles, operational efficiencies, and potentially their financial performance.

      Overview of some key benefits companies can expect from adhering to ESRS E5 Resource use and circular economy:

      1. Enhanced Resource Efficiency
      • Reduced Costs: By focusing on circular economy principles, companies can significantly reduce their resource costs. Efficient use of materials through recycling, reuse, and reduction strategies helps minimize waste and lower procurement costs.
      • Sustainability of Supply: Implementing circular economy practices such as sustainable sourcing and increased use of secondary materials helps ensure more stable and sustainable supply chains, which can be less vulnerable to fluctuations in raw material prices and availability.
      1. Improved Environmental Impact
      • Reduced Environmental Footprint: By minimizing waste and decreasing reliance on virgin materials, companies can significantly reduce their environmental impact, contributing to global efforts like carbon reduction and pollution prevention.
      • Support for Biodiversity and Ecosystems: Circular economy practices can lead to reduced extraction of natural resources, thereby supporting biodiversity and the health of ecosystems.
      1. Regulatory Compliance and Risk Management
      • Compliance with Regulations: Adhering to ESRS E5 helps companies stay compliant with existing and upcoming environmental regulations focused on waste management, resource efficiency, and sustainability reporting.
      • Reduced Regulatory Risks: By proactively managing resource use and waste, companies can mitigate the risks associated with non-compliance, such as fines, sanctions, and operational disruptions.
      1. Enhanced Brand Reputation and Competitive Advantage
      • Stakeholder Trust: Companies that demonstrate commitment to sustainable practices typically enjoy enhanced trust and support from customers, investors, and other stakeholders.
      • Market Differentiation: Adopting circular economy principles can differentiate a company in the market, making its products and services more attractive to environmentally conscious consumers and business partners.
      1. Financial Performance and Investor Attraction
      • Investor Appeal: Investors are increasingly focusing on sustainability as a critical factor in decision-making. Companies that demonstrate robust circular economy practices are likely to attract investment from funds focused on environmental, social, and governance (ESG) criteria.
      • Long-term Financial Sustainability: Efficient resource management and circular economy practices can lead to long-term financial sustainability by future-proofing operations against resource scarcity and regulatory changes.
      1. Innovation and New Business Opportunities
      • Drive for Innovation: The challenges of implementing circular economy practices can spur innovation in product design, manufacturing processes, and business models.
      • New Business Models: Circular economy opens up opportunities for new business models such as product-as-a-service, which can provide new revenue streams and deepen customer relationships.
      1. Strengthened Stakeholder Relationships
      • Community and Consumer Relations: Companies that actively engage in sustainable practices tend to have stronger relationships with their communities and consumers, who increasingly demand environmentally responsible actions from businesses.
      1. Operational Resilience
      • Adaptability to Market Changes: Companies that integrate circular economy principles are better positioned to adapt to changes in market conditions, such as resource shortages or changes in consumer preferences towards sustainable products.

      ESRS S1 Own Workforce

      Here are some answers to Frequently Asked Questions about ESRS S1 Own workforce.

      ESRS S1
      What is ESRS S1 Own Workforce and its main objective?

      The objective of the ESRS S1 Standard on “Own Workforce” is to provide clear guidelines for disclosing how a company impacts its own workforce, addressing both positive and negative effects, and detailing related material risks and opportunities. This includes:

      1. Impact Assessment: Detailing how the company’s actions affect its workforce, highlighting both beneficial and adverse impacts.
      2. Action and Outcome Reporting: Documenting the actions taken to mitigate negative impacts or capitalize on opportunities related to workforce management, and reporting on the outcomes of these actions.
      3. Risk and Opportunity Management: Explaining how the company identifies and manages material risks and opportunities concerning its workforce, including the strategies it employs.
      4. Financial Implications: Describing the financial effects on the company over short, medium, and long terms, which arise from its workforce-related practices.

      Additionally, the standard necessitates a comprehensive approach to managing impacts related to various aspects of working conditions, such as secure employment, working time, wages, and health and safety, among others. It also covers equal treatment, opportunities, and other workers’ rights, which impact how the company manages its workforce and the potential risks and benefits that arise from these practices.

      The standard aims to enable stakeholders to understand how well the company aligns with international and European human rights frameworks and the extent to which it adheres to relevant social and labor standards. This alignment helps in assessing the company’s commitment to maintaining an ethical and supportive working environment that fosters productivity and retention while managing potential liabilities and enhancing its reputation.

      How does ESRS S1 Own Workforce interact with other standards within ESRS?

      ESRS S1 Own Workforce interacts with other  standards within the European Sustainability Reporting Standards (ESRS) framework to provide a comprehensive view of a company’s approach to workforce management and its broader sustainability strategy. Here’s how ESRS S1 is interconnected with other ESRS components:

      Interaction with General ESRS Requirements

      1. General Principles and Requirements:
        • ESRS S1 should be aligned with ESRS 1 General principles and ESRS 2 General requirements, ensuring that the reporting on workforce-related matters follows the overarching principles of transparency, consistency, and materiality defined by these standards.

      Linkage with Related Social Standards

      1. ESRS S2 Workers in the Value Chain:
        • ESRS S1 should be read in conjunction with ESRS S2, which focuses on the workers in the company’s value chain. This alignment helps ensure that the reporting on workforce management inside the company is consistent with the disclosures on how workers are treated in the supply chain, providing a holistic view of labor practices across all operations.
      2. ESRS S3 Affected Communities:
        • There is a natural overlap between the workforce (S1) and the communities in which they live and operate (S3). This interaction is crucial as workforce policies can significantly impact local communities, and vice versa, making it essential to consider both standards for a complete disclosure of social impacts.
      3. ESRS S4 Consumers and End-users:
        • Although primarily focused on consumers and end-users, ESRS S4 disclosures can be influenced by the company’s workforce practices, particularly in sectors where direct interaction between employees and consumers/end-users plays a critical role in the consumer experience.

      Reporting Consistency and Coherence

      1. Coherent Reporting with Other Standards:
        • The disclosures under ESRS S1 should be coherent and linked with disclosures under ESRS S2, especially when addressing aspects of workforce management that affect both the company’s direct employees and its broader supply chain workers. This linkage ensures that stakeholders receive a clear and consistent picture of the company’s labor practices across different parts of its operation.
      2. Strategy and Business Model (SBM):
        • The requirements of ESRS 2 on Strategy (SBM) necessitate that the reporting on workforce-related disclosures is presented alongside or integrated into the company’s strategic disclosures. This integration highlights how workforce management is a critical part of the company’s overall business strategy and sustainability commitments.

      Implementation in Reporting

      • Companies are encouraged to present workforce disclosures in a manner that is not only consistent with general principles but also clearly integrates into the broader context of the company’s sustainability report. This includes how workforce strategies align with and support the company’s sustainability goals and how they adapt in response to external and internal changes.
      What are the disclosure requirements under ESRS S1 Own Workforce?

      ESRS S1 Own Workforce specifies disclosure requirements for companies to provide insights into how they impact their own workforce, manage related risks and opportunities, and handle the financial effects of these factors.

      The disclosure requirements under ESRS S1 Own Workforce are answered in over 200 Data points.

      Here’s a brief summary of the disclosure requirements as outlined in ESRS S1 Own Workforce:

      General Strategy and Business Model Interaction

      1. Strategy Alignment (ESRS 2 SBM-2 and SBM-3):
        • Companies must disclose how their workforce impacts and policies integrate into their overall strategy and business model. This includes detailing how workforce-related matters influence and are influenced by corporate strategy, especially regarding material risks and opportunities.

      Detailed Disclosures on Workforce Impact

      1. Impact Descriptions:
        • Descriptions of how the company affects its workforce, including both positive and negative impacts, risks, opportunities, and the financial implications over different time frames.
      2. Specific Workforce Policies (Disclosure Requirement S1-1):
        • Information on policies aimed at managing impacts on the workforce. This includes strategies to mitigate negative effects and enhance positive outcomes related to employment conditions such as wages, working hours, and health and safety.
      3. Actions and Resources (Disclosure Requirement S1-2):
        • Details on actions taken to address workforce impacts and the resources allocated to these actions. Companies should explain initiatives to prevent, mitigate, or remediate negative impacts and to leverage opportunities that benefit their workforce.
      4. Engagement Processes (Disclosure Requirement S1-2):
        • Disclosure of how the company engages with its workforce and workers’ representatives about impacts, particularly regarding human rights aspects.
      5. Remediation Processes (Disclosure Requirement S1-3):
        • Companies must outline the processes they have established for remediating negative impacts on their workforce. This includes grievance mechanisms and other channels for employees to raise concerns.

      Metrics and Targets

      1. Workforce Metrics (Disclosure Requirement S1-4 to S1-17):
        • A range of metrics concerning workforce characteristics, health and safety statistics, remuneration disparities, and incidents of discrimination or human rights abuses. Companies are expected to provide detailed breakdowns by gender, type of employment, and other relevant categories.
      2. Target Setting (Disclosure Requirement S1-5):
        • Firms should disclose specific, time-bound targets related to managing negative impacts and enhancing positive impacts on their workforce. This includes targets for reducing discrimination, improving health and safety, and increasing workforce diversity.

      Additional Specific Disclosures

      1. Characteristics of the Workforce (Disclosure Requirement S1-6 and S1-7):
        • Detailed descriptions of the workforce, including the division between employees and non-employees, and the specific conditions and risks associated with different groups within the workforce.
      2. Collective Bargaining and Social Dialogue (Disclosure Requirement S1-8):
        • Information on the extent of collective bargaining coverage and the role of social dialogue within the company, including any relevant agreements with workers’ representatives.
      3. Diversity and Inclusion (Disclosure Requirement S1-9 to S1-17):
        • Companies must disclose efforts and results related to promoting diversity and ensuring inclusion within their workforce, including specific policies and their outcomes.

      These requirements are designed to provide a comprehensive view of how companies manage their direct workforce, addressing a wide range of social, human rights, and labor issues within the context of their broader business operations and strategies.

      What types of actions, targets and metrics can companies use for ESRS S1 Own Workforce?

      Under ESRS S1 Own Workforce, companies are encouraged to implement various actions, establish specific targets, and use defined metrics to manage and report on the impacts on their own workforce.

      Types of actions, targets and metrics companies might use for ESRS S1 Own Workforce:

      Actions

      Companies should take proactive steps to:

      • Prevent and mitigate negative impacts on the workforce, such as improving working conditions, preventing discrimination, and ensuring fair treatment.
      • Provide or enable remedy for negative impacts when they occur, including through grievance mechanisms.
      • Promote positive impacts, such as implementing policies that support diversity, inclusion, and equal opportunities.
      • Address material risks and pursue opportunities related to workforce management, such as enhancing employee training programs to improve skills and employability.

      Targets

      Companies should set clear, time-bound, and outcome-oriented targets related to:

      • Reducing negative impacts on the workforce, such as decreasing the incidence of work-related injuries or reducing cases of unfair labor practices.
      • Advancing positive impacts, such as increasing the representation of underrepresented groups in management positions or improving employee satisfaction scores.
      • Managing material risks and opportunities, which could involve targets related to enhancing employee retention, improving workforce productivity, or increasing the percentage of employees under collective bargaining agreements.

      Metrics

      To track and measure the effectiveness of actions and progress towards targets, companies should use various metrics, such as:

      • Health and safety metrics, including the number of work-related injuries, the rate of incidents, and days lost due to work-related issues.
      • Diversity metrics, detailing the gender, age, and other demographic breakdowns of the workforce at different organizational levels.
      • Training and skills development metrics, such as the average number of training hours per employee, and the percentage of employees participating in career development programs.
      • Employment conditions metrics, like the percentage of employees covered by collective bargaining agreements, the breakdown of permanent versus temporary employees, and details about work-life balance provisions.
      • Turnover and retention metrics, reporting on the rate of employee turnover, reasons for departures, and measures taken to improve retention.
      • Remuneration metrics, which might include the pay gap between genders and other demographic groups, and the ratio of highest to median remuneration within the company.
      Give examples of actions, targets and metrics companies can use for ESRS S1 Own Workforce?

      These examples are a summary made based on a company having Health and Safety, Training and skills development and Diversity as material matters in ESRS S1 Own Workforce.

      Disclosure requirements for actions, targets and metrics are divided and detailed into many Data points to answer on specific details. Totally, there are 22 disclosure requirements related to action and targets to answer on. All these and the metrics are detailed and exemplified in Mentcon model App of how to disclose.

      However, here’s a very brief summary of the example actions, targets and metrics for ESRS S1:

      Actions

      1. Implement a Comprehensive Training Program:
        • Action: Develop and deploy a training program focused on upskilling and reskilling employees to adapt to new technologies and market demands.
      2. Enhance Health and Safety Measures:
        • Action: Introduce ergonomic workstations and regular health screenings to reduce work-related injuries and improve overall employee health.
      3. Promote Diversity and Inclusion:
        • Action: Establish a diversity office tasked with developing policies and practices to increase diversity in hiring, promotions, and team composition.
      4. Develop a Grievance Mechanism:
        • Action: Set up an anonymous reporting system and ombudsman to handle grievances related to workplace issues, ensuring confidentiality and non-retaliation.

      Targets

      1. Training and Development:
        • Target: Achieve a 90% participation rate in professional development programs across all departments by the end of the fiscal year.
      2. Reduction in Work-Related Injuries:
        • Target: Reduce the number of work-related injuries by 30% within two years through enhanced safety training and better ergonomic practices.
      3. Improvement in Diversity Ratios:
        • Target: Increase the representation of underrepresented groups in senior management positions to 40% within five years.
      4. Resolution of Grievances:
        • Target: Ensure that 95% of all grievances are addressed and closed within 30 days of their filing.

      Metrics

      1. Training Participation Rate:
        • Metric: Track and report the percentage of employees participating in training and development programs annually.
      2. Incidence Rate of Work-Related Injuries:
        • Metric: Calculate and disclose the number of incidents per 100 full-time employees annually to monitor the effectiveness of new health and safety measures.
      3. Diversity and Inclusion Metrics:
        • Metric: Report the percentage of employees from underrepresented groups in various levels of the organization, comparing annual progress against targets.
      4. Grievance Resolution Efficiency:
        • Metric: Monitor the percentage of grievances resolved within the target timeframe, along with satisfaction ratings from employees who filed grievances.
      How should companies report on workforce turnover under ESRS S1 Own Workforce?

      Under ESRS S1 Own Workforce, companies are required to report on workforce turnover to provide stakeholders with a clear understanding of the dynamics within the workforce, including hiring, retention, and attrition rates.

      Summary of how companies should report on workforce turnover according to the disclosure requirements:

      1. Breakdown by Employee Type:
        • Companies must disclose the total number of employees who have left the organization during the reporting period. This should include a breakdown by employee type, such as permanent, temporary, and non-guaranteed hours employees.
      2. Rate of Employee Turnover:
        • The rate of employee turnover during the reporting period should be reported, providing a percentage that reflects the proportion of the workforce that has left the company.
      3. Methodology and Assumptions:
        • A description of the methodologies and assumptions used to compile the data is required. This includes specifying whether the numbers are reported in head count or full-time equivalent (FTE), and whether the figures are calculated at the end of the reporting period, as an average across the reporting period, or using another methodology.
      4. Contextual Information:
        • Companies should provide contextual information necessary to understand the data. This can include explanations of significant fluctuations in the number of employees during the reporting period and the reasons behind these changes.
      5. Link to Financial Statements:
        • The turnover data should be cross-referenced with the most representative number in the financial statements, ensuring coherence between financial and non-financial reporting.
      6. Additional Breakdowns:
        • Optionally (voluntary), the breakdown by gender, age group, and region can be included to provide a more detailed view of the turnover dynamics within the company.

      By following these guidelines, companies can ensure that their reporting on workforce turnover is comprehensive, transparent, and useful for stakeholders assessing the company’s management of human resources and its impact on the workforce. This information is critical for understanding the stability of the workforce, the company’s appeal as an employer, and potential issues in workforce management that could affect performance and compliance with labor standards.

      What information must be included about employment conditions?

      Under ESRS S1 Own Workforce, companies are required to include comprehensive information about the employment conditions affecting their workforce.

      Note! What needs to be included depends on the double materiality assessment. When following the Mentcon model, the data points to disclose on are based on the double materiality assessment and they are automatically generated.

      Brief overview of disclosure requirement concerning employment conditions:

      1. Working Conditions: Companies must disclose information regarding:
        • Secure Employment: Conditions related to the security of employment.
        • Working Time: Details about working hours, including overtime regulations.
        • Adequate Wages: Information about salary levels and their adequacy relative to living standards and legal benchmarks.
        • Social Dialogue: How the company engages in dialogue with its workforce, including consultation, information sharing, and participation rights.
        • Freedom of Association: Disclosure on the rights of workers to freely associate, form, or join labor unions, and the presence of works councils.
        • Collective Bargaining: The extent of the workforce covered by collective agreements.
        • Work-Life Balance: Initiatives and policies to support a balance between work and personal life.
        • Health and Safety: Measures and policies in place to ensure the health and safety of the workforce.
      2. Equal Treatment and Opportunities: Companies should provide information about:
        • Gender Equality and Equal Pay: Efforts and policies to ensure gender equality and equal pay for work of equal value.
        • Training and Skills Development: Opportunities provided for professional development and skills enhancement.
        • Employment and Inclusion of Persons with Disabilities: How the company supports the inclusion and employment of people with disabilities.
        • Measures Against Violence and Harassment: Policies and actions to prevent and address violence and harassment in the workplace.
        • Diversity: Efforts to promote diversity within the workforce.
      3. Other Work-Related Rights: Disclosure should include:
        • Child Labour and Forced Labour: Company policies and practices to prevent child and forced labor.
        • Adequate Housing: If applicable, the company’s initiatives or support for ensuring adequate housing for workers.
        • Privacy: How the company respects and protects the privacy rights of its workforce.
      4. Material Impacts, Risks and Opportunities: Information on how the employment conditions and related factors create material risks or opportunities for the company. This could include the impact of discriminatory practices on access to skilled labor or how equitable employment practices enhance the company’s reputation and operational efficiency.
      How does ESRS S1 address health and safety reporting?

      ESRS S1 Own Workforce specifically addresses health and safety reporting by requiring companies to disclose extensive information about their practices and the impacts of these practices on their workforce.

      Brief overview of disclosure requirements regarding health and safety under ESRS S1 Own workfoce:

      1. Health and Safety Management System: Companies must disclose whether they have a health and safety management system in place, based on legal requirements and/or recognized standards or guidelines. They need to specify the percentage of their workforce covered by this system.
      2. Incidents of Work-Related Injuries and Ill Health: Companies must report on work-related injuries, ill health, and fatalities within their workforce. This includes:
        • The number of fatalities resulting from work-related injuries and ill health.
        • The number and rate of recordable work-related accidents.
        • Information on work-related ill health, subject to legal restrictions on data collection.
        • The number of days lost due to work-related injuries and ill health.
      3. Coverage and Effectiveness: The disclosure should include information about how the health and safety management system is audited, whether internally or by external parties, and how its effectiveness is assessed.
      4. Additional Metrics:
        • The undertaking may provide additional data such as the total number and percentage of non-recycled waste.
        • Information about hazardous waste and radioactive waste, if applicable.
        • Details on the recovery operations for waste generated, such as recycling, preparation for reuse, and other recovery operations.
      5. Contextual Information: Companies are encouraged to provide contextual information necessary to understand the data, including the methodologies and assumptions used to compile health and safety data, and any relevant changes in data collection or methodology that might affect the comparability of data across reporting periods.

      These disclosures aim to provide stakeholders with a comprehensive understanding of the company’s commitment to maintaining a safe and healthy working environment, the effectiveness of its health and safety policies, and the impact of these policies on the workforce. This helps in evaluating the company’s risk management and its alignment with best practices and regulatory requirements.

      What does ESRS S1 ask regarding training and skill development?

      Under the ESRS S1 Own Workforce, companies are asked to provide detailed disclosures regarding their practices related to training and skills development as part of their overall management of workforce-related impacts, risks, and opportunities.

      Summary of the standard that companies should disclose regarding training and skill development.

      1. Extent of Training and Development Provided:
        • Companies are required to report on the training and skills development activities offered to employees. This includes not just the availability of such programs but also their scope and reach within the organization.
      2. Participation Rates:
        • Organizations should disclose the percentage of employees that participated in regular performance and career development reviews. This data should be broken down by gender to provide a clear view of inclusivity and equal opportunity.
      3. Average Training Hours:
        • The average number of training hours per employee should be reported, along with a breakdown by gender. This metric helps gauge the depth of training initiatives and their alignment with promoting continuous professional growth.
      4. Impact on Employability and Skill Enhancement:
        • Companies should explain how their training programs contribute to upgrading employees’ skills and facilitate continued employability, aligning with broader career development goals.

      These disclosures are aimed at providing stakeholders with an understanding of how companies manage and invest in the development of their workforce, ensuring that employees are equipped to meet current and future challenges and that the organization places a high priority on continuous learning and skill enhancement.

      How are diversity and equal opportunity covered in ESRS S1?

      In the ESRS S1 Own Workforce, diversity and equal opportunity are addressed comprehensively, reflecting a strong emphasis on inclusivity and fairness within the workplace.

      Overview of how diversity and equal opportunity covered in ESRS S1:

      1. General Commitment to Equal Treatment and Opportunities:
        • Companies are required to disclose their approach to ensuring equal treatment and opportunities for all employees. This includes measures related to gender equality, equal pay for work of equal value, employment and inclusion of persons with disabilities, and actions against violence and harassment in the workplace.
      2. Specific Policies on Non-Discrimination:
        • Organizations must disclose whether they have specific policies aimed at eliminating discrimination and promoting equal opportunities. This includes whether their policies cover various grounds for discrimination such as racial and ethnic origin, gender, sexual orientation, disability, age, and other relevant factors.
      3. Implementation of Diversity Policies:
        • The standard requires companies to explain how these policies are implemented. This includes details on specific procedures used to prevent, mitigate, and act upon detected discrimination, as well as to advance overall diversity and inclusion.
      4. Diversity Metrics:
        • Companies must report on the gender distribution at top management levels and the age distribution among employees. These metrics help stakeholders understand the effectiveness of diversity policies in promoting a balanced representation within the company.
      5. Positive Actions and Inclusion:
        • Disclosure is also required on any policy commitments related to inclusion or positive action for people from groups at particular risk of vulnerability in the workforce, detailing what these commitments entail.
      6. Training and Development:
        • Companies should disclose how training and development opportunities are provided equitably across the workforce, including breaking down participation rates by gender and possibly other demographics, ensuring all groups have access to skills enhancement and career growth opportunities.

      These disclosure requirements ensure that companies not only adopt formal policies regarding diversity and equal opportunity but also actively implement and monitor these policies to promote a fair and inclusive workplace environment.

      How should labor relations be reported according to ESRS S1?

      Under ESRS S1 Own Workforce, labor relations should be reported with a focus on several key aspects, each aimed at providing a comprehensive view of how the undertaking manages and interacts with its workforce regarding collective bargaining, social dialogue, and related labor rights.

      Below is an overview of how labor relations should be reported according to the standard:

      1. Collective Bargaining Coverage:
        • Companies must disclose the percentage of their total employees covered by collective bargaining agreements. This includes providing specific data for each country within the European Economic Area (EEA) where the company has significant employment, defined as at least 50 employees or representing at least 10% of its total number of employees.
      2. Social Dialogue:
        • Disclosure on the extent to which employees are represented in social dialogue at the establishment and European level. This includes the existence of any agreements with European Works Councils (EWC), Societas Europaea (SE) Works Councils, or Societas Cooperativa Europaea (SCE) Works Councils.
        • Companies should also report the global percentage of employees covered by workers’ representatives, provided at the country level for each EEA country where the company has significant employment.
      3. Labor Rights in Operational Practices:
        • The standard requires that companies describe how they ensure that their practices do not cause or contribute to negative impacts on their workforce, particularly in relation to procurement, sales, and data use. It should cover how the company handles potential tensions between business pressures and the need to prevent or mitigate negative impacts on labor.
      4. Engagement with Workers and Workers’ Representatives:
        • Companies need to disclose their general processes for engaging with people in their workforce and workers’ representatives about actual and potential impacts on them. This should cover the stages at which engagement occurs, the type of engagement, the frequency, the most senior role within the company responsible for ensuring engagement, and the effectiveness of this engagement.
      5. Protection Against Retaliation:
        • Disclosure on whether the company has policies regarding the protection of individuals using grievance mechanisms or other channels to raise concerns, including workers’ representatives, against retaliation.
      6. Global Framework Agreements:
        • Where applicable, companies should disclose if they have Global Framework Agreements or other agreements related to respecting human rights of their workforce, and how these agreements enable the company to gain insights into the perspectives of its workforce.

      This approach to reporting on labor relations under ESRS S1 aims to ensure that companies provide detailed, actionable, and transparent information regarding their labor practices, which helps stakeholders assess the company’s commitment to fair and ethical labor practices.

      What is the role of management in ensuring compliance with ESRS S1?

      Under ESRS S1 Own Workforce, management plays a crucial role in ensuring compliance with the standard’s requirements through several key responsibilities:

      1. Policy Development and Implementation:
        • Management is responsible for developing and implementing policies that address the identification, assessment, management, and remediation of material impacts on the company’s own workforce. This includes ensuring that these policies are aligned with international and European human rights instruments and conventions.
      2. Engagement and Communication:
        • Management must ensure effective engagement with the workforce and workers’ representatives. This involves setting up processes for regular communication and consultations to discuss and address actual and potential impacts on the workforce. Management needs to ensure that these engagement processes are inclusive and effective.
      3. Monitoring and Evaluation:
        • Management is tasked with monitoring the effectiveness of the policies and practices related to the workforce. This includes assessing the effectiveness of engagement strategies, grievance mechanisms, and the overall impact of the company’s actions on its workforce.
      4. Reporting and Disclosure:
        • Management must oversee the preparation of disclosures related to the workforce as required by ESRS S1. This includes providing accurate and comprehensive information about collective bargaining, social dialogue, training and development, diversity and inclusion, health and safety, and other relevant aspects.
      5. Risk Management:
        • It is the responsibility of management to identify, assess, and manage risks associated with the company’s impact on its workforce. This involves integrating workforce considerations into the company’s broader risk management strategies to mitigate potential negative impacts and exploit positive opportunities.
      6. Compliance with Legal and Ethical Standards:
        • Management must ensure that the company’s practices comply with applicable labor laws, human rights standards, and ethical guidelines. This includes obligations under international frameworks such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.
      7. Resource Allocation:
        • Management is responsible for allocating the necessary resources (financial, human, technological) to effectively manage the company’s workforce impacts and to implement strategies that align with ESRS S1 requirements.
      8. Training and Capacity Building:
        • Management should ensure that personnel at all levels of the organization are trained and aware of their roles and responsibilities related to ESRS S1 compliance. This includes training on human rights, labor rights, and specific policies and procedures established by the company.

      In essence, management’s role is pivotal in embedding ESRS S1 principles into the company’s operations and culture, ensuring a proactive approach to managing workforce-related issues and reporting on them transparently.

      How can companies demonstrate continuous improvement in their ESRS S1 reporting?

      This question is have come in various ways and on specific ESRS topics and for ESRS in general. Here’s an attempt to try to answer this specific question comparing it with the disclosure requirements of ESRS S1 Own workforce:

      Companies can demonstrate continuous improvement in their ESRS S1 reporting on Own Workforce by adopting several strategic and operational measures that align with the disclosure requirements.

      1. Enhanced Data Collection and Analysis:
        • Continuously improve the quality, granularity, and scope of data collected regarding the workforce. This involves using advanced data analytics tools to gather comprehensive insights on workforce demographics, working conditions, and impacts of company policies.
      2. Regular Policy Review and Updates:
        • Regularly review and update policies related to the workforce to reflect changes in legal requirements, industry standards, and the evolving needs and expectations of employees. Incorporate feedback from stakeholders, including employees and labor representatives, to ensure policies remain relevant and effective.
      3. Expansion of Training Programs:
        • Expand and enhance training and development programs to cover new areas such as diversity and inclusion, human rights, and specific skills development. Track participation rates and effectiveness of training to ensure it meets the needs of employees and aligns with company goals.
      4. Strengthened Stakeholder Engagement:
        • Increase the frequency and depth of engagement with employees and their representatives. Use a variety of engagement methods, such as surveys, focus groups, and town hall meetings, to gather diverse perspectives on workforce-related issues.
      5. Advanced Reporting Mechanisms:
        • Develop and implement more sophisticated reporting mechanisms that allow for real-time monitoring and reporting of workforce metrics. This could include digital dashboards that track key performance indicators related to workforce management.
      6. Transparent Goal Setting and Progress Tracking:
        • Set clear, measurable targets for improving workforce outcomes, such as reducing turnover rates, increasing diversity, or enhancing safety standards. Publicly report on progress against these targets to demonstrate accountability and transparency.
      7. Investment in Technology:
        • Leverage technology to improve workforce management practices, such as using AI for predictive analytics in talent management or implementing robust HR information systems that facilitate better data management and reporting.
      8. Proactive Risk Management:
        • Enhance risk assessment procedures to identify emerging risks related to the workforce more effectively. Implement proactive strategies to mitigate these risks before they impact employees adversely.
      9. Benchmarking and Best Practices:
        • Regularly benchmark company practices against industry best practices and standards to identify areas for improvement. Participate in industry forums and collaborations to stay updated on the latest trends and innovations in workforce management.
      10. Regular Audits and Reviews:
        • Conduct regular internal and external audits of compliance with ESRS S1 requirements. Use audit findings to make informed improvements in both reporting practices and actual workforce management.

      ESRS S2 Workers in the Value Chain

      Here are some answers to Frequently Asked Questions about ESRS S2 Workers in the value chain.

      ESRS S2
      What is ESRS S2 Workers in the Value Chain and its main objective?

      The objective of ESRS S2 Workers in the Value Chain is to provide disclosure requirements that help users of sustainability statements understand the material impacts—both positive and negative—that a company has on workers in its value chain. This includes the company’s own operations and its broader value chain interactions through products, services, and business relationships. The standard aims to convey:

      1. Impact Identification: How the company affects value chain workers in terms of material actual or potential impacts.
      2. Action and Outcomes: The actions taken to prevent, mitigate, or remediate negative impacts on these workers, along with the results of such actions, and how the company addresses associated risks and opportunities.
      3. Risk and Opportunity Management: The nature, type, and extent of the company’s material risks and opportunities related to its impacts and dependencies on value chain workers.
      4. Financial Implications: The financial effects on the company over the short-, medium-, and long-term arising from these risks and opportunities.

      To meet this objective, the standard requires companies to explain their general approach to managing any material actual and potential impacts on value chain workers, specifically regarding:

      • Working Conditions: Including secure employment, adequate wages, social dialogue, and health and safety.
      • Equal Treatment and Opportunities: Covering aspects such as gender equality, training, disability inclusion, and measures against workplace violence.
      • Other Work-Related Rights: Addressing issues like child labor, forced labor, and privacy.

      The standard also necessitates an explanation of how impacts on value chain workers might present material impacts, risks or opportunities for the business, affecting everything from operational continuity to reputation and market expansion.

      How does ESRS S2 Workers in the Value Chain interact with other standards within ESRS?

      ESRS S2 Workers in the Value Chain is designed to integrate closely with several other standards within the ESRS framework to ensure comprehensive and coherent sustainability reporting.

      1. Materiality Assessment: ESRS S2 applies specifically when material impacts, risks, and opportunities related to value chain workers are identified through the materiality assessment process described in ESRS 2 General disclosures. This linkage ensures that the reporting on value chain workers is aligned with the broader strategic and risk management context of the undertaking.
      2. Integration with Other ESRS:
        • ESRS 1 General Requirements: ESRS S2 should be read in conjunction with the general requirements laid out in ESRS 1, which provide the foundational principles and guidelines for all sustainability disclosures under the ESRS framework.
        • ESRS 2 General Disclosures: ESRS S2 reporting should align with ESRS 2, particularly concerning the strategy and management of material impacts, risks, and opportunities. This includes ensuring that disclosures are presented coherently with those required under ESRS 2, particularly the strategy section (SBM).
        • ESRS S1 Own Workforce: There should be consistency and coherence in the reporting on the undertaking’s own workforce (covered under ESRS S1) and value chain workers (covered under ESRS S2). This ensures a holistic view of how workforce-related matters are managed across both direct operations and the value chain.
        • ESRS S3 Affected Communities and ESRS S4 Consumers and End-Users: The interaction with these standards highlights the broader social context within which the undertaking operates, linking workers’ conditions to community and consumer impacts.
      3. Coherence in Reporting: The disclosures under ESRS S2 should be consistent and coherent with those under ESRS S1, particularly when addressing similar themes such as labor practices, social dialogue, and health and safety. This alignment helps in providing a comprehensive understanding of labor practices across all areas of influence and responsibility of the undertaking.
      What are the disclosure requirements under ESRS S2 Workers in the Value Chain?

      ESRS S2 Workers in the Value Chain has a comprehensive set of disclosure requirements designed to provide clarity on how an undertaking impacts workers throughout its value chain. Here’s a condensed breakdown of these requirements:

      Strategy and Impact Management

      • General Disclosure Alignment: Disclosures under ESRS S2 must be read and presented in conjunction with ESRS 2, especially concerning strategy (SBM).
      • Impact on Value Chain Workers: Disclosures must detail how the undertaking’s activities impact value chain workers, particularly how these impacts influence the undertaking’s strategy and business model. This includes assessing both potential positive and negative impacts.

      Detailed Disclosures

      • Scope of Impact: The undertaking must describe the range of value chain workers potentially impacted by its operations. This includes workers not directly employed but who are part of the upstream and downstream activities, such as those in supply chains or distribution networks.
      • Material Risks and Opportunities: Information on specific risks and opportunities arising from the undertaking’s interaction with value chain workers, including geographical or commodity-specific risks like child labor or forced labor.
      • Human Rights and Engagement Policies: Disclosure of the undertaking’s policies regarding the human rights of value chain workers, including engagement strategies, the effectiveness of these policies, and alignment with international standards.
      • Remediation Processes: Description of mechanisms for addressing negative impacts on value chain workers, including grievance mechanisms and other forms of redress.
      • Action and Resource Allocation: Details on actions taken to mitigate negative impacts or capitalize on opportunities related to value chain workers, and the resources allocated to these actions.

      Metrics and Targets

      • Outcome-Oriented Targets: Disclosure of specific, measurable targets set by the undertaking to manage impacts on value chain workers, which should be time-bound and aimed at reducing negative impacts or enhancing positive impacts.
      • Monitoring and Evaluation: The undertaking should describe how it monitors and evaluates the effectiveness of actions and policies directed at value chain workers.

      These requirements ensure that stakeholders understand the breadth and depth of an undertaking’s influence on value chain workers and its efforts to manage associated risks and opportunities effectively.

      What types of actions, targets and metrics can companies use for ESRS S2 Workers in the Value Chain?

      Companies can utilize a variety of actions, targets, and metrics under ESRS S2 Workers in the Value Chain to effectively manage and report on their impacts related to workers throughout their supply chains. Here are some examples based on the disclosure requirements ESRS S2. Remember to have time horizons in mind when specifying actions, targets and metrics.

      Actions

      1. Supplier Audits and Assessments: Conducting regular audits and assessments of suppliers to ensure compliance with labor standards and human rights. This includes on-site inspections and third-party audits.
      2. Capacity Building Programs: Implementing training programs for suppliers and their workers on labor rights, health and safety practices, and environmental management.
      3. Implementation of Supplier Codes of Conduct: Developing and enforcing codes of conduct that include labor standards consistent with international human rights norms.
      4. Remediation Processes: Establishing clear procedures for remediation if labor abuses or non-compliance are found within the supply chain.
      5. Collaborative Actions: Working with industry peers, NGOs, or multi-stakeholder initiatives to improve labor practices across the sector.
      6. Enhanced Procurement Practices: Revising procurement practices to prioritize suppliers that adhere to labor standards and to include labor compliance in the supplier selection criteria.

      Targets

      1. Reduction of Child Labor: Setting specific, measurable targets for the reduction or elimination of child labor in specific regions or product lines within a set timeframe.
      2. Improvement in Health and Safety: Targets to decrease the incidence of workplace accidents and occupational diseases among value chain workers.
      3. Increase in Fair Wage Compliance: Setting goals to increase the percentage of value chain workers earning at least a living wage by a certain date.
      4. Enhanced Supplier Compliance: Targeting a specific percentage of suppliers to comply with the company’s code of conduct annually.
      5. Training Goals: Aiming to train a certain number of suppliers or their workers on human rights and labor standards each year.

      Metrics

      1. Audit Results: Reporting the number or percentage of suppliers audited annually and the compliance rates found during those audits.
      2. Incidents of Labor Violations: Tracking and reporting the number of incidents related to child labor, forced labor, and other labor violations discovered in the supply chain.
      3. Supplier Improvement: Measuring changes in supplier performance over time in terms of labor practices and compliance rates.
      4. Worker Engagement: Metrics on the frequency and outcomes of engagements with value chain workers or their representatives.
      5. Training Effectiveness: Reporting on the number of workers or suppliers receiving training and assessing the impact of these trainings on labor practices.

      Note! Remember to have time horizons in mind when specifying actions, targets and metrics.

      Give examples of actions, targets and metrics companies can use for ESRS S2 Workers in the Value Chain?

      For companies aiming to improve transparency and accountability in labor practices within their value chain as per the requirements of ESRS S2 Workers in the Value Chain, here are some summarized examples of actions, targets, and metrics:

      Actions

      1. Implementation of a Comprehensive Supplier Code of Conduct: Enforce a code of conduct that includes stringent labor standards, human rights protections, and environmental policies.
      2. Supplier Training Programs: Initiate training programs focused on labor rights and safety standards for all tier 1 and tier 2 suppliers.
      3. Establishment of a Grievance Mechanism: Set up a robust grievance mechanism that allows workers in the value chain to report violations anonymously.
      4. Partnership with Local NGOs: Collaborate with NGOs in regions where suppliers are based to enhance monitoring and support for workers’ rights.
      5. Advanced Traceability System: Develop a system to trace raw materials back to their sources, ensuring compliance with labor standards at all stages of the supply chain.

      Targets

      1. Zero Child Labor: Commit to eliminating child labor from all supply chains by 2030.
      2. 100% Supplier Auditing: Aim to audit 100% of direct suppliers annually by 2030 to ensure compliance with the company’s code of conduct.
      3. Increase in Living Wage Compliance: Target a 50% increase in suppliers paying a living wage by 2030.
      4. Training Completion: Ensure that 90% of suppliers have participated in labor rights training sessions by 2030.
      5. Reduction of Labor Violations: Reduce reported labor violations by 40% across the supply chain by 2028.

      Metrics

      1. Audit Compliance Rate: Report the percentage of suppliers who pass annual compliance audits with no major violations.
      2. Grievance Reports Processed: Measure and disclose the number of grievances reported and resolved through the new grievance mechanism each year.
      3. Training Participation Rate: Track the percentage of suppliers’ employees completing mandatory labor rights training annually.
      4. Incidents of Non-Compliance: Quantify incidents of non-compliance with labor standards identified through audits or other verification processes.
      5. Supplier Improvement Index: Develop an index to measure and report annual improvements in supplier practices based on audit outcomes, training participation, and grievance resolution effectiveness.
      How does ESRS S2 enhance transparency in labor practices within the value chain?

      ESRS S2 Workers in the Value Chain enhances transparency in labor practices within the value chain through several key disclosure requirements:

      Detailed Identification of Impacts

      The standard requires companies to disclose how their operations impact value chain workers, including both actual and potential positive and negative effects. This includes outlining the specific types of workers affected, from those on-site but not directly employed, to those in upstream and downstream activities.

      Comprehensive Coverage of Risks and Opportunities

      Companies must identify and report on the material risks and opportunities related to their impact on value chain workers. This includes risks associated with child labor, forced labor, and other critical labor issues across different geographies and commodities.

      Policy Disclosure

      ESRS S2 mandates that companies disclose their policies aimed at managing their impacts on value chain workers. This includes policies on human rights and labor rights, and how these policies are implemented and monitored for compliance with international standards like the UN Guiding Principles on Business and Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work.

      Engagement Practices

      The standard requires disclosure of how companies engage with value chain workers and their representatives or credible proxies to understand and address their concerns and needs. This includes the stages and frequency of engagement and the seniority of the roles involved in these processes.

      Remediation Processes

      Companies must describe the processes they have in place for remediation of negative impacts on value chain workers, including the availability and effectiveness of grievance mechanisms. This transparency helps stakeholders understand the company’s commitment to addressing labor issues and providing redress where needed.

      Action Plans and Effectiveness

      ESRS S2 requires companies to disclose the actions they have taken or plan to take to address identified impacts on value chain workers, and to evaluate the effectiveness of these actions. This includes detailing the resources allocated to manage these impacts and pursuing opportunities for positive outcomes.

      Target Setting and Performance Tracking

      Companies need to set specific, measurable, and time-bound targets to manage their impacts on value chain workers and to report on their progress towards these targets. This helps ensure that companies are not only aware of the issues but are actively working to improve their labor practices.

      By requiring detailed and structured disclosures on these aspects, ESRS S2 significantly enhances transparency in labor practices within the value chain, enabling stakeholders to better assess the social responsibility and ethical commitments of companies.

      What metrics should companies report under ESRS S2?

      ESRS S2 Workers in the Value Chain enhances transparency in labor practices within the value chain through several key disclosure requirements:

      1. Detailed Identification of Impacts: The standard requires companies to disclose how their operations impact value chain workers, including both actual and potential positive and negative effects. This includes outlining the specific types of workers affected, from those on-site but not directly employed, to those in upstream and downstream activities.
      2. Comprehensive Coverage of Risks and Opportunities: Companies must identify and report on the material risks and opportunities related to their impact on value chain workers. This includes risks associated with child labor, forced labor, and other critical labor issues across different geographies and commodities.
      3. Policy Disclosure: ESRS S2 mandates that companies disclose their policies aimed at managing their impacts on value chain workers. This includes policies on human rights and labor rights, and how these policies are implemented and monitored for compliance with international standards like the UN Guiding Principles on Business and Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work.
      4. Engagement Practices: The standard requires disclosure of how companies engage with value chain workers and their representatives or credible proxies to understand and address their concerns and needs. This includes the stages and frequency of engagement and the seniority of the roles involved in these processes.
      5. Remediation Processes: Companies must describe the processes they have in place for remediation of negative impacts on value chain workers, including the availability and effectiveness of grievance mechanisms. This transparency helps stakeholders understand the company’s commitment to addressing labor issues and providing redress where needed.
      6. Action Plans and Effectiveness: ESRS S2 requires companies to disclose the actions they have taken or plan to take to address identified impacts on value chain workers, and to evaluate the effectiveness of these actions. This includes detailing the resources allocated to manage these impacts and pursuing opportunities for positive outcomes.
      7. Target Setting and Performance Tracking: Companies need to set specific, measurable, and time-bound targets to manage their impacts on value chain workers and to report on their progress towards these targets. This helps ensure that companies are not only aware of the issues but are actively working to improve their labor practices.
      How should companies manage sensitive data regarding value chain workers under ESRS S2?

      Under ESRS S2 Workers in the Value Chain, companies are required to handle sensitive data regarding value chain workers with a high level of care, respecting privacy and adhering to legal restrictions on data collection. Here are key aspects of how companies can manage this sensitive data based on the disclosure requirements:

      1. Compliance with Privacy Laws: Companies must ensure that their data collection and reporting practices comply with applicable privacy laws and regulations. This includes laws in the jurisdictions where the data is collected and where the company operates.
      2. Data Minimization: Only data that is necessary and relevant to the specific disclosure requirements should be collected. Companies should avoid collecting excessive data that does not contribute to understanding the impacts on value chain workers.
      3. Transparency and Consent: Where possible, companies should inform value chain workers about the data being collected, the purpose of its collection, and how it will be used. Obtaining consent, where required by law, is crucial to maintaining ethical standards and trust.
      4. Anonymization and Aggregation: To protect the identity of individual workers, sensitive data should be anonymized or aggregated before reporting. This helps prevent any potential harm that could arise from the identification of individual workers in the reports.
      5. Secure Data Handling and Storage: Companies must implement robust security measures to protect sensitive data from unauthorized access, breaches, and other risks. This includes physical security measures for paper records and cybersecurity measures for digital data.
      6. Limitation of Access: Access to sensitive data should be restricted to authorized personnel only, and access controls should be enforced to ensure that only those with a legitimate need to handle the data can access it.
      7. Regular Review and Updates: The policies and practices for handling sensitive data should be regularly reviewed and updated to reflect changes in legal requirements, industry standards, and technological advancements.
      8. Stakeholder Engagement: Involving stakeholders, including value chain workers or their representatives, in the development and review of data management practices can help ensure that these practices are respectful of workers’ rights and well-being.
      What challenges might companies face when implementing ESRS S2?

      Implementing ESRS S2 Workers in the Value Chain presents several challenges for companies, primarily due to the complexity of monitoring and managing impacts across diverse and extensive supply chains. Here are some possible challenges:

      1. Complex Supply Chains: Many companies operate within global supply chains that are highly complex and involve multiple layers. Tracing the impacts on workers throughout these layers, especially in upstream activities (like raw material extraction or component manufacturing), can be highly challenging due to lack of transparency and control over the practices of suppliers and sub-suppliers.
      2. Data Collection and Management: Gathering accurate and comprehensive data about working conditions, labor practices, and impacts across the entire value chain can be daunting. This includes difficulties in collecting data from foreign suppliers, informal sectors, or regions with weak governance structures. Ensuring data accuracy and consistency, as well as handling sensitive information securely and ethically, adds another layer of complexity.
      3. Compliance and Enforcement: Ensuring that suppliers adhere to labor standards and human rights norms consistent with ESRS S2 requirements can be challenging, especially in regions with less stringent labor laws or enforcement. This may require significant resources to audit and monitor supplier practices and implement corrective actions where necessary.
      4. Cultural and Legal Differences: Companies must navigate varying labor laws, cultural norms, and enforcement levels across different countries. What is considered a fair working condition in one country might not be the same in another, complicating the establishment of universal standards within the supply chain.
      5. Risk Identification and Mitigation: Identifying and assessing risks related to labor practices in the value chain, especially those that are indirect or emerging, can be difficult. Companies must develop effective risk management strategies that are proactive and adaptable to changing conditions and new insights.
      6. Cost Implications: Implementing robust due diligence processes, improving supply chain transparency, and ensuring compliance with labor standards can entail significant costs. These include the costs of audits, developing and maintaining compliance systems, training staff and suppliers, and potentially higher procurement costs to ensure fair labor practices.
      7. Stakeholder Engagement: Effectively engaging with a diverse range of stakeholders—including suppliers, workers, NGOs, and industry groups—can be challenging but is critical to understand the full range of impacts and to develop effective responses. Building trust and cooperation across the value chain is necessary but not always easy to achieve.
      8. Aligning with Business Goals: Integrating social responsibility into core business strategies while still meeting profitability and shareholder expectations can present a conflict. Companies must balance these often competing interests while striving to enhance their social and ethical performance.
      9. Reputation Risks: Failures in supply chain management can lead to significant reputational damage if issues such as child labor, forced labor, or unsafe working conditions are exposed. Managing these risks proactively is crucial but challenging.

      Addressing these challenges requires a commitment to continuous improvement, significant investment in systems and capabilities, and a collaborative approach with all stakeholders involved in the value chain.

      Are there specific requirements for engaging with value chain workers and their representatives under ESRS S2?

      Yes, ESRS S2 requires companies to actively engage with workers and their representatives throughout their value chain, in addition to those already instructed in ESRS 1 when conducting the Double materiality assessment (See ESRS 1 General requirements).

      • Communication Channels: Establishing and maintaining clear, effective channels through which workers can communicate their concerns and feedback without fear of reprisal.
      • Grievance Mechanisms: Implementing accessible, transparent, and effective grievance mechanisms that allow workers to report violations or concerns anonymously and securely.
      • Feedback Integration: Demonstrating how feedback from workers is used to inform and improve labor practices and policies. Companies should regularly review and adapt their engagement strategies based on this feedback to ensure they remain effective and relevant.

      ESRS S3 Affected Communities

      Here are some answers to Frequently Asked Questions about ESRS S3 Affected communities.

      ESRS S3
      What is ESRS S3 Affected Communities and its main objective?

      The objective of ESRS S3 Affected Communities is to establish disclosure requirements that enable stakeholders to understand the material impacts, both positive and negative, that a company’s operations and value chain activities have on affected communities. This understanding extends to the actual and potential impacts connected through the company’s products, services, and business relationships. Key aspects of the disclosures include:

      • Impact Assessment: Detailing how the company affects communities where impacts are likely to be significant, both positively and negatively.
      • Action and Mitigation: Describing any measures taken to prevent, mitigate, or remedy negative impacts while also leveraging opportunities to support these communities.
      • Risk and Opportunity Management: Explaining the nature, type, and extent of risks and opportunities the company faces concerning its relationship with affected communities, and how these are managed.
      • Financial Implications: Outlining the short-term, medium-term, and long-term financial effects on the company arising from its interactions with affected communities.

      The standard emphasizes the importance of understanding how community rights—ranging from economic, social, and cultural rights to civil and political rights, including specific considerations for indigenous peoples—are impacted by the company’s activities. This includes, but is not limited to, issues like housing, food security, water and sanitation, and the right to participate in cultural and civic activities. Understanding and managing these impacts not only addresses potential risks but also identifies opportunities for positive engagement and mutual benefit, fostering operations that are stable and beneficial for both the company and the communities involved.

      How does ESRS S3 Affected Communities interact with other standards within ESRS?

      ESRS S3 Affected Communities is designed to be integrated with other standards within the ESRS to ensure a comprehensive understanding of a company’s sustainability impacts and practices.

      Description of how ESRS S3 Affected Communities interacts with other ESRS standards:

      1. Materiality Assessment Linkage: ESRS S3 applies specifically when material impacts on, or risks and opportunities related to, affected communities are identified through the materiality assessment process outlined in ESRS 2 General disclosures. This ensures that the issues addressed in ESRS S3 are those most significant to the company’s operations and stakeholders.
      2. Integration with General Requirements and Strategy:
        • ESRS 1 General Requirements: ESRS S3 should be read in conjunction with ESRS 1, which sets out the overarching principles and requirements that govern the ESRS framework. This helps ensure that the disclosures related to affected communities are consistent with the general principles of transparency, materiality, and stakeholder inclusiveness.
        • ESRS 2 General Disclosures: ESRS S3 should be aligned with the strategy disclosures required under ESRS 2, particularly those relating to how a company’s strategy and business model consider and integrate issues pertaining to affected communities. Companies have the option to present these disclosures alongside the topical disclosure related to material impacts, risks, and opportunities.
      3. Cross-Standard Coherence:
        • The standard requires coherence and consistency with related disclosures concerning the company’s own workforce (ESRS S1), value chain workers (ESRS S2), and consumers and end-users (ESRS S4). This ensures that the reporting entity provides a holistic view of how it engages with and impacts various stakeholder groups across its operations and value chain.
        • By linking disclosures across these standards, companies provide a clearer picture of how they manage interconnected impacts across different groups, enhancing transparency and enabling stakeholders to assess the sustainability and ethical dimensions of a company’s activities more effectively.
      What are the disclosure requirements under ESRS S3 Affected Communities?

      The disclosure requirements of ESRS S3 Affected Communities are designed to provide a comprehensive understanding of how a company’s operations and business relationships impact affected communities, and how these impacts relate to the company’s strategy, risk management, and overall sustainability goals. Below follows a brief summary of the key disclosure requirements:

      1. Strategy and Material Impacts:
        • Companies must disclose how the interests, rights, and human rights of affected communities, including indigenous peoples, inform their business strategy and model.
        • They should detail actual and potential impacts on affected communities, how these arise from their strategy and operations, and their relation to the company’s strategy and business model.
      2. Scope and Description of Affected Communities:
        • Detailed descriptions of the types of communities affected by the company’s operations and value chain should be provided. This includes geographical locations and specifics about whether impacts are systemic or related to specific incidents.
        • Companies must describe both negative and positive impacts, including the geographic and demographic specifics of impacted communities.
      3. Impact Management Policies:
        • Firms need to describe their policies for managing impacts on affected communities, particularly focusing on human rights and engagement practices.
        • These policies should align with internationally recognized standards and frameworks such as the UN Guiding Principles on Business and Human Rights.
      4. Engagement Processes:
        • Companies must detail their engagement processes with affected communities, including how and when engagement occurs, and the roles responsible for overseeing this engagement.
        • Effectiveness of engagement strategies, especially how they incorporate the views of marginalized or particularly vulnerable groups within communities, must also be disclosed.
      5. Remediation and Grievance Mechanisms:
        • Descriptions of mechanisms in place to address and remediate negative impacts on communities are required. This includes how these mechanisms are implemented and their effectiveness.
        • Companies must also ensure these mechanisms are accessible and trusted by the communities, with protections against retaliation for those who utilize them.
      6. Action Plans and Effectiveness:
        • Disclosures should include detailed action plans for addressing both negative impacts and capitalizing on opportunities to support affected communities.
        • The effectiveness of these actions in achieving intended outcomes needs to be assessed and reported.
      7. Metrics and Targets:
        • Companies should set clear, time-bound targets for reducing negative impacts and enhancing positive impacts on affected communities.
        • The process for setting these targets should involve direct engagement with the communities or their representatives and include mechanisms for tracking progress and making adjustments based on outcomes.
      How does ESRS S3 promote transparency in community relations?

      ESRS S3 Affected Communities promotes transparency in community relations by establishing comprehensive disclosure requirements that ensure companies systematically report on their impacts and engagement with affected communities.

      1. Detailed Impact Assessments: Companies are required to disclose both the positive and negative impacts their operations and value chain have on affected communities. This includes detailing how these impacts are connected to their business strategies and models. By providing a clear picture of how community impacts arise from their activities, companies make their operations more transparent to stakeholders.
      2. Policy Disclosure: ESRS S3 mandates companies to describe their policies aimed at managing impacts on communities, including specific policies related to human rights and indigenous peoples. This requirement ensures that companies communicate their commitment to ethical practices and human rights, making their policies and their adherence to international standards transparent.
      3. Engagement Practices: The standard requires firms to disclose their processes for engaging with communities, including the methods and frequency of engagement, and the roles responsible for these activities. This shows stakeholders how companies listen to and incorporate community feedback into their operations, thereby enhancing trust and transparency.
      4. Grievance Mechanisms: Companies must describe the grievance mechanisms available to communities to report concerns or harms caused by business activities. This not only makes the process of redress and remedy transparent but also holds companies accountable to respond effectively and ethically to community grievances.
      5. Reporting on Remediation: ESRS S3 requires companies to report on their efforts to remediate any negative impacts they have on communities. This includes detailing the effectiveness of these efforts and any ongoing or planned actions to mitigate harm. Such disclosures ensure that companies are transparent about their accountability and responsiveness to community needs.
      6. Clear Targets and Metrics: The setting of clear, measurable, and time-bound targets related to community impacts is another pillar of transparency under ESRS S3. Companies must disclose how these targets were set, their engagement with the community in setting these targets, and their performance against these targets. This not only measures progress but also clearly communicates it to external stakeholders.
      7. Protection and Inclusion: ESRS S3 emphasizes the importance of including vulnerable groups within communities and protecting those who engage with companies from retaliation. Disclosing how these protections are implemented further enhances transparency about the company’s responsibility towards ethical conduct.
      How should companies manage sensitive information about affected communities under ESRS S3?

      Under ESRS S3 Affected Communities, managing sensitive information about affected communities involves careful consideration of privacy, ethical concerns, and the potential impacts of disclosure.

      1. Respect for Privacy and Confidentiality: Companies must ensure that any personal or sensitive information collected about individuals in affected communities is handled with the highest level of confidentiality. This includes adhering to applicable data protection laws and regulations to safeguard personal data against unauthorized access or disclosure.
      2. Consent and Transparency: When gathering data from affected communities, companies should obtain informed consent from individuals or community representatives. This involves clearly communicating the purpose of data collection, how it will be used, and who will have access to it. Transparency about data handling practices is crucial to maintaining trust.
      3. Limitation of Scope: Sensitive information should be collected and disclosed only to the extent that it is necessary for the purposes of addressing and reporting on the impacts on affected communities as outlined by the ESRS S3 requirements. Unnecessary or excessive collection of data should be avoided.
      4. Anonymization and Aggregation: To protect individual identities, sensitive data should be anonymized or aggregated before reporting. This helps prevent the identification of specific individuals or sub-groups within a community, thereby reducing the risk of harm or stigmatization.
      5. Secure Data Storage and Handling: Implement robust security measures to protect data storage and handling processes. This includes physical, administrative, and technical controls to prevent data breaches and ensure that only authorized personnel have access to sensitive information.
      6. Stakeholder Engagement: Regularly engage with affected communities to discuss data management practices and address any concerns about privacy or data use. This engagement should be an ongoing process that reflects a commitment to responsiveness and adaptability in managing community relations.
      7. Policy and Procedure Documentation: Develop and maintain comprehensive policies and procedures for handling sensitive information. These policies should be clearly documented and accessible to relevant stakeholders, ensuring that all employees and contractors understand their roles and responsibilities in safeguarding sensitive data.
      8. Review and Reporting: Regularly review data management practices to ensure they remain appropriate and effective given the changing regulatory landscape and community expectations. Reporting on these practices as part of ESRS S3 disclosures can further enhance transparency and accountability.
      What challenges might companies face when implementing ESRS S3?

      Implementing ESRS S3 Affected Communities can pose several challenges for companies, primarily due to the complexities involved in engaging with diverse community groups and managing the broad scope of potential impacts. Here are some of the key challenges companies might face:

      1. Identifying and Engaging All Relevant Communities: Identifying all the communities that are materially affected by a company’s operations can be challenging, especially in regions with high population density or significant geographic spread. Engaging effectively with these communities, which may have diverse interests, languages, and cultural practices, adds another layer of complexity.
      2. Data Collection and Management: Collecting accurate and relevant data about the impacts on affected communities involves significant logistical challenges, particularly in remote or less accessible areas. Ensuring the data is reliable and handled ethically, while also maintaining privacy and security, can be resource-intensive.
      3. Cultural Sensitivity and Local Norms: Companies must navigate local cultural norms and practices sensitively to avoid misunderstandings and potential conflicts. This requires a deep understanding of local contexts, which may be difficult for external stakeholders or new entrants to acquire.
      4. Resource Allocation: Devoting sufficient resources, including time, personnel, and financial investment, to properly implement the policies and engagement strategies required by ESRS S3 can be a major challenge, especially for smaller companies or those with tight budgets.
      5. Complexity of Supply Chains: For companies with extensive supply chains, tracing and managing the impacts on communities at different stages of the supply chain can be exceedingly complex. This complexity is compounded when suppliers are located in different legal jurisdictions with varying standards and regulations.
      6. Free, Prior, and Informed Consent (FPIC): Obtaining FPIC from indigenous peoples is a requirement under ESRS S3 that can be particularly challenging. This process must be handled with a deep respect for the rights and customs of indigenous communities, and it often requires lengthy consultations and negotiations.
      7. Conflict Resolution: Resolving conflicts that arise from negative impacts on communities involves careful handling to maintain corporate reputation and community relationships. Effective conflict resolution mechanisms must be in place, which can be difficult to design and implement.
      8. Regulatory Compliance: Ensuring compliance with both local regulations and international standards regarding community rights and environmental impacts requires comprehensive legal and regulatory expertise, which can be a significant hurdle.
      9. Monitoring and Reporting: Continuously monitoring the effectiveness of community engagement strategies and impact mitigation measures, and then accurately reporting these in the sustainability statement, demands robust systems and processes.

      In Mentcon model app companies find what to report based on materiality and how to report. Templates and examples of how to disclose all disclosure requirements in ESRS S3 Affected Communities are included in the Mentcon model App.

      ESRS S4 Consumers and End-Users

      Here are some answers to Frequently Asked Questions about ESRS S4 Consumers and end-users.

      ESRS S3
      What is ESRS S4 Consumers and End-users and its main objective

      ESRS S4 Consumers and End-users is a standard that outlines the disclosure requirements for companies to report on the impacts of their operations and value chain on consumers and end-users of their products and services. The standard aims to provide transparency on how a company affects consumers and end-users, both positively and negatively, and covers the actions taken to address these impacts as well as the management of related risks and opportunities.

      Key aspects of the ESRS S4:

      1. Impact Assessment: Companies must disclose how their products and services impact consumers and end-users, including potential or actual positive and negative effects.
      2. Action and Mitigation: Details on actions taken to prevent, mitigate, or remedy negative impacts must be disclosed, along with efforts to capitalize on opportunities to enhance positive impacts.
      3. Risk and Opportunity Management: The nature, type, and extent of risks and opportunities arising from the company’s relationships with consumers and end-users must be explained, as well as how these are managed.
      4. Financial Effects: Companies need to report on how these impacts, risks, and opportunities potentially affect their financial status over the short, medium, and long term.

      The standard also requires companies to describe their approach to identifying and managing impacts related to:

      • Information-related impacts: Issues like privacy, freedom of expression, and access to quality information.
      • Personal safety: Including health, safety, and security of consumers, as well as child protection.
      • Social inclusion: Addressing non-discrimination, access to products and services, and responsible marketing practices.
      How does ESRS S4 Consumers and End-users interact with other standards within ESRS?

      ESRS S4 Consumers and End-users interacts with other European Sustainability Reporting Standards (ESRS) through several integrated frameworks, ensuring that disclosure across standards is coherent and comprehensive.

      1. Integration with ESRS 2 General Disclosures:
        • ESRS S4 should be applied when a materiality assessment (as outlined in ESRS 2) identifies significant impacts, risks, and opportunities concerning consumers and end-users. This ensures that the standard’s application is specifically targeted and relevant.
        • The disclosures concerning the strategy of the undertaking (SBM-3) under ESRS 2 can be aligned with or presented alongside the disclosures required by ESRS S4. This allows companies to show how consumer and end-user impacts integrate into their broader business strategy, enhancing transparency on how these impacts influence strategic decisions and business models.
      2. Relationship with ESRS 1 General Requirements:
        • ESRS S4 follows the general requirements outlined in ESRS 1, which provides the foundational principles for preparing and presenting sustainability information. This relationship ensures that disclosures are consistent with the overarching sustainability framework, applying the same qualitative characteristics and compliance standards.
      3. Connection with Other Specific Standards:
        • ESRS S4 is to be read in conjunction with ESRS S1 Own Workforce, ESRS S2 Workers in the Value Chain, and ESRS S3 Affected Communities. This comprehensive approach ensures that disclosures reflect the interdependencies between how an undertaking impacts various stakeholders, including employees, value chain workers, communities, and now consumers and end-users. By considering these standards together, companies can present a more holistic view of their operational impacts, risks, and opportunities.
        • For instance, the interaction between how a company treats its workforce (S1), interacts with its value chain workers (S2), affects communities (S3), and impacts consumers (S4) can be interrelated. Actions in one area can affect outcomes in another, highlighting the importance of integrated reporting across different stakeholder groups.
      What are the disclosure requirements under ESRS S4 Consumers and End-users?

      ESRS S4 Consumers and End-users sets out detailed disclosure requirements for organizations to report on their interactions with consumers and end-users, focusing on both positive and negative impacts, and how these are managed within the strategic framework of the business.

      Overview of ESRS S4 requirements:

      Strategy and Impact Disclosure

      • Strategy Influence: Companies must disclose how consumer/end-user interests and rights shape their business strategies and models, reflecting how such engagements influence operational decisions.
      • Impact Assessment: Disclosure must include how potential and actual impacts on consumers/end-users relate to the company’s strategy and operations. This includes detailing specific consumer groups affected by the company’s products or services, such as those impacted by privacy concerns, health risks, or targeted marketing practices.

      Risk and Opportunity Management

      • Policies and Practices: Organizations are required to describe policies aimed at managing their impacts on consumers and end-users, including how these policies address associated risks and opportunities.
      • Engagement Processes: The disclosure should outline how the company engages with consumers/end-users to discuss impacts and integrate their feedback into business processes.
      • Remediation Processes: Companies must detail mechanisms in place for addressing grievances and negative impacts, ensuring these processes are effective and accessible.

      Metrics and Targets

      • Setting Targets: Companies should set clear, time-bound targets aimed at reducing negative impacts and enhancing positive effects on consumers and end-users, with a process for engagement in target setting described.
      • Performance Tracking: There should be a clear description of how the effectiveness of actions and policies is assessed against set targets.

      Comprehensive Coverage

      • The disclosures should ensure that all consumers/end-users likely to be materially impacted are included, with a clear explanation of the types of impacts and the specific groups affected.
      • Companies are encouraged to describe any specific incidents or systemic issues that have led to significant impacts on consumers/end-users, and the actions taken in response.
      What types of actions, targets and metrics can companies use for ESRS S4 Consumers and End-users?

      Under ESRS S4, which focuses on Consumers and End-users, companies are expected to implement and report various actions, establish specific targets, and use precise metrics to manage and report on the material impacts of their products and services on consumers. Here are some examples of actions, targets and metrics for ESRS S4:

      Actions

      1. Enhanced Product Safety Measures: Implementing advanced safety features in products to prevent injuries or mishaps.
      2. Improved Data Protection: Upgrading data security measures to protect consumer privacy and personal data.
      3. Responsible Marketing Practices: Adopting marketing strategies that avoid misleading claims and respect consumer rights.
      4. Accessibility Enhancements: Modifying products or services to be more accessible to people with disabilities.
      5. Consumer Education Programs: Initiating educational campaigns to help consumers understand product use, safety, and maintenance properly.

      Targets

      1. Reduction in Consumer Complaints: Setting targets to reduce the number of consumer complaints related to product safety or misleading information by a certain percentage annually.
      2. Increase in Consumer Satisfaction: Aiming to improve consumer satisfaction scores by enhancing service quality or product reliability over a set period.
      3. Data Breach Reduction: Setting quantifiable goals to minimize data breaches or unauthorized access to consumer data.
      4. Accessibility Compliance: Targeting full compliance with accessibility standards for all products within a defined timeframe.
      5. Ethical Marketing Compliance: Ensuring that all marketing campaigns are vetted for ethical standards compliance by a specific date.

      Metrics

      1. Consumer Safety Incidents: Tracking the number of safety incidents reported by consumers related to product use.
      2. Data Security Breaches: Monitoring incidents of data breaches and the number of consumers affected.
      3. Consumer Feedback Scores: Using consumer feedback scores and surveys to gauge satisfaction and identify areas for improvement.
      4. Product Returns Due to Safety Concerns: Measuring the rate of product returns specifically due to safety concerns or defects.
      5. Accessibility Features Adoption Rate: Evaluating the percentage of products that incorporate recommended accessibility features compared to total products offered.
      Give examples of actions, targets and metrics companies can use for ESRS S4 Consumers and End-users?

      For companies looking to align with the disclosure requirements of ESRS S4 Consumers and End-users, here are some fictive examples of actions, targets, and metrics that they could employ to manage their impacts on consumers effectively. Consider the short-term, medium-term and long-term time horizons when taking company specific actions and setting targets.

      Actions

      1. Implementing a Transparent Pricing Model: Introducing clear, straightforward pricing without hidden fees to enhance trust and clarity for consumers.
      2. Developing Secure Payment Gateways: Upgrading technology to secure payment systems to protect consumer financial data against breaches.
      3. Launching Consumer Awareness Campaigns: Running educational campaigns about the safe and effective use of products, particularly for health-related items.
      4. Enhancing User Experience Design: Redesigning apps or websites to ensure they are user-friendly and accessible to all users, including those with disabilities.
      5. Eco-friendly Packaging Initiatives: Switching to sustainable packaging materials to minimize environmental impact and cater to environmentally conscious consumers.

      Targets

      1. Customer Satisfaction Improvement: Aiming to increase customer satisfaction ratings by 20% within two years through enhanced service delivery and product quality.
      2. Reduction in Privacy Complaints: Targeting a 30% reduction in consumer complaints related to data privacy issues by the next fiscal year through improved data handling practices.
      3. Accessibility Milestone: Achieving 100% compliance with international accessibility standards in digital consumer interfaces by the end of the calendar year.
      4. Decrease in Product Return Rates: Setting a target to reduce product return rates by 15% in three years through better quality control and consumer education.
      5. Increase in Positive Feedback: Aiming to double the amount of positive consumer feedback received online regarding responsiveness and transparency by the next review period.

      Metrics

      1. Net Promoter Score (NPS): Measuring consumer loyalty and overall satisfaction with a net promoter score to gauge how likely consumers are to recommend the company’s products to others.
      2. Data Breach Frequency: Tracking the frequency and scope of data breaches involving consumer information to monitor improvements in cybersecurity measures.
      3. Product Safety Incident Reports: Monitoring the number of reported incidents where consumers have been adversely affected by product safety issues.
      4. Consumer Engagement Levels: Analyzing engagement levels through social media interactions, customer service inquiries, and website usage statistics to assess consumer interest and satisfaction.
      5. Accessibility Compliance Rate: Measuring the percentage of products or services that meet specified accessibility standards, tracking improvements over time.
      How does ESRS S4 Consumers and End-users enhance consumer protection?

      ESRS S4 Consumers and End-users enhances consumer protection by mandating comprehensive disclosures that require companies to actively consider, manage, and report on the impacts of their operations and business relationships on consumers and end-users. Summary of how ESRS S4 enhance consumer protection:

      1. Identification and Disclosure of Impacts
      • Detailed Impact Assessment: Companies must disclose both positive and negative impacts of their products or services on consumers. This includes potential risks such as privacy violations, health hazards, or discriminatory practices.
      • Specific Group Identification: The standard requires companies to identify specific consumer groups that are significantly impacted, such as vulnerable populations like children or financially vulnerable individuals. This focus helps ensure that measures are tailored to protect these groups effectively.
      1. Mitigation and Remediation Actions
      • Action Plans: Companies must outline actions taken to mitigate negative impacts on consumers. This includes designing products that enhance safety or accessibility and improving information transparency.
      • Remediation Processes: Companies need to have mechanisms in place to address and remediate any negative impacts that occur, ensuring that consumers can have their grievances addressed effectively.
      1. Policy Implementation and Compliance
      • Policies for Consumer Protection: Organizations are required to develop and describe policies specifically aimed at managing their impact on consumers, including how these policies are implemented and monitored for compliance with international standards such as the UN Guiding Principles on Business and Human Rights.
      1. Engagement and Transparency
      • Consumer Engagement: ESRS S4 emphasizes the importance of engaging with consumers to understand their perspectives and experiences, ensuring that consumer protection measures are relevant and effectively address actual needs and concerns.
      • Disclosure of Engagement Effectiveness: Companies must not only disclose their engagement practices but also the effectiveness of these engagements in terms of addressing consumer concerns and improving business practices.
      1. Setting and Tracking Targets
      • Clear Targets: Companies are encouraged to set clear, measurable targets aimed at reducing negative impacts and promoting positive outcomes for consumers.
      • Tracking and Reporting: Regular tracking and reporting on these targets help ensure that companies are held accountable for their consumer protection efforts, providing transparency and fostering trust.
      How should companies handle sensitive consumer data under ESRS S4 Consumers and End-users?

      Under the ESRS S4 Consumers and End-users, companies are required to adopt stringent measures to handle sensitive consumer data responsibly, ensuring the protection of consumer rights, particularly in relation to privacy and data protection. Here are the key aspects outlined in the standard ESRS S4 for handling sensitive consumer data:

      1. Policy Implementation
      • Development of Privacy Policies: Companies must establish comprehensive privacy policies that are specifically designed to protect consumer data. These policies should align with international standards such as the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, or the OECD Guidelines for Multinational Enterprises.
      • Clear Disclosure: The policies related to consumer data must be clearly articulated in the company’s sustainability disclosures, indicating how these policies address the collection, storage, processing, and sharing of consumer data.
      1. Risk Management
      • Assessment of Data Risks: Companies need to regularly assess risks associated with consumer data, including risks of breaches, unauthorized access, and other vulnerabilities that could compromise consumer privacy.
      • Disclosure of Risk Management Strategies: It is essential for companies to disclose how they manage risks identified during assessments, including the implementation of technological and organizational measures to secure consumer data.
      1. Consumer Engagement
      • Informed Consent: Companies should ensure that they engage with consumers transparently, providing them with clear information about how their data will be used and obtaining their informed consent.
      • Feedback Mechanisms: Establishing channels through which consumers can raise concerns about data usage and privacy, and ensuring that these mechanisms are effective and respected.
      1. Compliance and Monitoring
      • Regulatory Compliance: Adherence to local and international data protection laws and regulations must be a priority. Companies should demonstrate compliance within their sustainability reporting.
      • Monitoring and Reporting: Continuous monitoring of data handling practices should be conducted to ensure ongoing compliance with policies and regulations. Companies should report on these activities, including any breaches or incidents, their impact on consumers, and the actions taken in response.
      1. Remediation
      • Remediation Processes: In case of data breaches or non-compliance, companies must have effective remediation processes in place to address any negative impacts on consumers. This includes notifying affected consumers and regulatory bodies as appropriate and taking swift action to mitigate any damage.
      What challenges might companies face when implementing ESRS S4?

      Implementing ESRS S4 (Consumers and End-users) can present several challenges for companies, particularly due to the comprehensive disclosure requirements and the need for a thorough understanding of consumer impacts. Here are some of the potential challenges:

      1. Data Collection and Quality Issues
      • Comprehensive Data Collection: Gathering accurate and comprehensive data on how products or services affect consumers can be difficult, especially if the data is sourced across multiple regions and systems.
      • Data Quality: Ensuring the quality and consistency of data collected across different business units and value chains may require significant standardization efforts.
      1. Materiality Assessment
      • Identifying Material Impacts: Determining which consumer impacts are materially significant may require a detailed understanding of the market, societal trends, and diverse consumer groups.
      • Balancing Positive and Negative Impacts: Discerning between positive and negative impacts, especially where certain products or services have both types of effects, is challenging.
      1. Stakeholder Engagement
      • Consumer Engagement: Engaging consumers and end-users directly or through representatives requires thoughtful planning to ensure effective participation, particularly when considering vulnerable or marginalized consumer groups.
      • Proxy Data Sources: Identifying credible proxies for consumer perspectives where direct engagement is impractical can be complex.
      1. Policy Development and Alignment
      • Creating Tailored Policies: Developing detailed policies to cover consumer data privacy, health, safety, and marketing practices is resource-intensive.
      • Aligning with International Guidelines: Ensuring that policies comply with international standards like the UN Guiding Principles or the OECD Guidelines requires ongoing review and alignment.
      1. Risk Management and Mitigation
      • Dynamic Consumer Preferences: As consumer preferences and expectations evolve rapidly, identifying emerging risks related to consumer safety, privacy, and marketing becomes challenging.
      • Addressing Diverse Consumer Groups: Developing risk management strategies that are suitable for various consumer groups with unique vulnerabilities necessitates careful customization.
      1. Remediation and Accountability
      • Grievance Mechanisms: Establishing effective grievance mechanisms that can adequately capture and address consumer concerns requires investment in systems and processes.
      • Remediation Efforts: Implementing effective remediation actions after adverse consumer impacts occur requires robust planning and resources.
      1. Reporting and Compliance
      • Comprehensive Reporting: Preparing the extensive disclosures required by ESRS S4, particularly on actions, policies, and metrics related to consumer impacts, can be complex and time-consuming.
      • Global Compliance: Maintaining compliance with global and regional consumer protection regulations while adhering to ESRS S4 may necessitate specialized legal and compliance knowledge.

      ESRS G1 Business Conduct

      Here are some answers to Frequently Asked Questions about ESRS G1 Business conduct.

      ESRS S3
      What is the objective and scope of ESRS G1 Business Conduct?

      The objective of ESRS G1 Business Conduct is to set forth specific disclosure requirements that enable users of a company’s sustainability statements to thoroughly understand the company’s strategies, approaches, and performance concerning business conduct. This standard is crucial for ensuring transparency and accountability in how a company manages its ethical behavior and governance across several core areas.

      Core Focus Areas of ESRS G1 Business Conduct:

      1. Business Ethics and Corporate Culture:
        • This includes a company’s commitment to promoting ethical behavior within its operations. Key aspects like anti-corruption and anti-bribery measures are covered, ensuring companies disclose how they prevent unethical practices. Protection for whistleblowers is also emphasized, ensuring that individuals who report wrongdoing are safeguarded against retaliation. Additionally, the standard addresses the company’s stance and practices regarding animal welfare, ensuring ethical considerations are extended beyond human interactions.
      2. Supplier Relationship Management:
        • ESRS G1 places a significant emphasis on how a company manages its relationships with suppliers, particularly focusing on payment practices. This is especially important regarding how timely payments are made to small and medium-sized enterprises (SMEs), which can be critically affected by delays and can reflect the company’s fairness and integrity in managing business relationships.
      3. Political Influence and Lobbying Activities:
        • The standard requires companies to disclose their activities and commitments related to political influence, including lobbying. This disclosure is vital for stakeholders to assess the extent to which the company may be seeking to influence public policy and regulatory matters in ways that could affect not only the business environment but also broader societal interests.

      By detailing these requirements, ESRS G1 Business Conduct aims to provide stakeholders with a clear and comprehensive view of how a company conducts itself in critical ethical areas that impact its operations and societal role. This transparency helps stakeholders make informed decisions regarding their investments, partnerships, and support for the company.

      How does ESRS G1 interact with other standards within ESRS?

      ESRS G1 Business Conduct is designed to integrate with and complement other standards within the European Sustainability Reporting Standards (ESRS) framework, ensuring a holistic approach to sustainability and governance reporting.

      Integration with ESRS General Principles and Requirements

      1. General Principles (ESRS 1):
        • ESRS G1 should be read and applied in conjunction with ESRS 1, which outlines the general principles for sustainability reporting. These principles set the foundation for all other standards, ensuring consistency and coherence across various reporting areas. The principles help define the approach to transparency, materiality, comparability, and balance in reporting, which are crucial for effective disclosure under ESRS G1.
      2. General Requirements (ESRS 2):
        • ESRS G1 also closely interacts with ESRS 2, which provides general requirements for sustainability reporting. This includes guidelines on how organizations should manage and disclose information about their governance, strategy, and management of impacts, risks, and opportunities. By aligning with these requirements, ESRS G1 ensures that disclosures on business conduct are comprehensive and adequately reflect the company’s broader sustainability context.

      Conjunction with Specific Sections of ESRS 2

      1. Governance (GOV):
        • The disclosures required by ESRS G1 on the role of governance bodies in overseeing business conduct should be aligned with the governance disclosures outlined in ESRS 2. This includes detailing the responsibilities of administrative, management, and supervisory bodies in establishing and maintaining ethical standards, overseeing anti-corruption measures, and ensuring the protection of whistleblowers.
      2. Strategy (SBM):
        • ESRS G1 interacts with the strategy disclosures required under ESRS 2 by requiring companies to explain how business conduct issues influence their strategic planning and business model. This includes how a company’s approach to ethics and compliance is integrated into its strategic objectives and how it addresses risks and opportunities related to business conduct.
      3. Management of Impacts, Risks, and Opportunities (IRO):
        • The management of business conduct-related impacts, risks, and opportunities under ESRS G1 should be reported in conjunction with the similar disclosures under ESRS 2. This ensures that companies provide a comprehensive view of how they identify, assess, and manage business conduct matters across their operations and value chain.
      What are the disclosure requirements of ESRS G1 Business conduct?

      The disclosure requirements of ESRS G1 Business Conduct are designed to provide transparency and insight into a company’s governance, risk management, and operational integrity concerning business conduct.

      Summary of ESRS G1 Business Conduct disclosure requirements:

      Governance and Oversight

      • Roles of Governing Bodies: Companies must disclose the role of their administrative, management, and supervisory bodies in relation to business conduct, including their expertise in handling business conduct matters. This ensures accountability at the highest levels and promotes ethical leadership.

      Impact, Risk, and Opportunity Management

      • Identification and Assessment of Impacts: Companies need to detail the processes they use to identify and assess material impacts, risks, and opportunities related to business conduct. This includes considering factors like location, activity, sector, and transaction structure.
      • Business Conduct Policies and Corporate Culture: Companies are required to disclose their policies related to business ethics, including anti-corruption and anti-bribery measures, and how these policies foster a responsible corporate culture. This encompasses mechanisms for reporting unethical behavior, protecting whistleblowers, managing incidents of corruption and bribery, and ensuring all forms of business conduct are aligned with international standards.

      Supplier Relationships

      • Management of Supplier Relationships: Disclosure includes how companies manage their relationships with suppliers, focusing on fair treatment and ethical practices such as timely payments, especially to SMEs. This section also covers the integration of social and environmental criteria in supplier selection.

      Corruption and Bribery Prevention

      • Prevention and Detection Systems: Companies must describe their systems to prevent, detect, and respond to corruption and bribery, including training provided to workers and information on how policies are communicated internally and to suppliers.

      Political Influence and Lobbying

      • Disclosure on Political Influence: Companies should provide information about their political influence activities, including lobbying efforts, financial and in-kind political contributions, and the main topics covered by their lobbying activities. This includes oversight by governing bodies and how these activities align with the company’s material impacts, risks, and opportunities.

      Payment Practices

      • Payment Practices to SMEs: Companies are to report on their payment practices, particularly focusing on their performance in making timely payments to SMEs. This includes average payment times, standard payment terms, and any legal proceedings related to late payments.

      Metrics and Targets

      • Incidents of Corruption or Bribery: Detailed information on incidents of corruption or bribery during the reporting period is required, including the number of legal actions and outcomes related to anti-corruption and anti-bribery violations.

      These disclosures are intended to ensure that companies are operating ethically and transparently, with robust systems in place to manage risks and enhance business conduct across all areas of their operations.

      What are the disclosure requirements for management of relationships with suppliers under ESRS G1?

      Under ESRS G1 Business Conduct, the disclosure requirements for the management of relationships with suppliers are designed to ensure transparency and accountability in how companies interact with their suppliers, particularly focusing on ethical practices and fair treatment.

      Management of Relationships with Suppliers

      1. General Management of Supplier Relationships:
        • Companies are required to provide information on how they manage their relationships with suppliers. This encompasses the entire procurement process and aims to highlight practices that ensure fairness and integrity.
        • Companies must disclose their approach to managing risks related to their supply chain and the impacts on sustainability matters. This includes how they assess and mitigate risks associated with their suppliers and the supply chain at large.
      2. Fair Treatment and Ethical Practices:
        • The disclosure must detail the company’s policies and practices to prevent unfair treatment of suppliers. This is especially important for small and medium-sized enterprises (SMEs) that might be more vulnerable to late payments or other unfair practices.
        • Companies should describe their policy to prevent late payments and their performance in adhering to this policy. This includes disclosing the average time taken to pay suppliers from the date an invoice is received or the payment is due.
      3. Social and Environmental Criteria in Supplier Selection:
        • Companies need to disclose whether and how they incorporate social and environmental criteria into the selection of suppliers. This reflects the company’s commitment to not only ethical business practices but also sustainability in its broader business operations.
      4. Detailed Reporting Requirements:
        • The required disclosure includes a description of the company’s standard payment terms and how these are applied across different categories of suppliers.
        • Information on the number of legal proceedings currently outstanding for late payments should also be disclosed, providing a clear view of any issues in the payment practices.
        • Companies are encouraged to provide any additional information necessary to give sufficient context to their disclosed practices, helping stakeholders understand the full scope of the company’s supplier relationship management.

      By fulfilling these disclosure requirements, companies demonstrate their commitment to ethical supply chain management and show their support for fair business practices. These disclosures also help stakeholders assess the company’s risk management strategies and the robustness of its operations in relation to its suppliers.

      How should companies handle disclosures concerning political engagement and lobbying in ESRS G1?

      ESRS G1 requires transparent reporting on political engagement and lobbying activities to ensure that stakeholders understand the company’s influence on public and regulatory policies. This is a summary. Details and templates of how to disclose is available in Mentcon model and its web-application.

      Political Engagement and Lobbying

      1. Transparency in Political Activities:
        • Companies are required to disclose comprehensive information about their activities and commitments related to exerting political influence, including lobbying. This ensures stakeholders understand the scope and nature of the company’s political engagements.
        • Disclosures must include the types of lobbying activities, the main topics covered by the lobbying efforts, and the company’s principal positions on these topics.
      2. Oversight and Governance:
        • It is crucial for companies to disclose who in the administrative, management, and supervisory bodies has oversight of these activities. This includes specifying any representatives responsible for overseeing political influence efforts.
      3. Financial and In-kind Contributions:
        • Companies should report the total monetary value of financial and in-kind political contributions made, broken down by country or geographical area and type of recipient/beneficiary. The method of estimating the value of in-kind contributions should also be transparent.
      4. Registration and Compliance:
        • If the company is registered in the EU Transparency Register or an equivalent transparency register, the disclosure should include the name of the register and its identification number. This adds a layer of accountability and transparency to the company’s political engagement activities.
      What are the expectations for reporting on whistleblower protections in ESRS G1?

      ESRS G1 requires companies to disclose their whistleblower protection policies and practices to ensure that they provide safe channels for employees and other stakeholders to report unethical or illegal activities without fear of retaliation.

      1. Policies and Procedures:
        • Companies must disclose their policies for protecting whistleblowers. This includes describing the mechanisms in place for reporting unlawful behavior or behavior contrary to the company’s code of conduct.
        • The disclosure should detail how the company accommodates reports from both internal and external stakeholders and the protections provided to whistleblowers against retaliation.
      2. Training and Awareness:
        • Companies should disclose information about the training provided to workers regarding the whistleblower policies and the training of staff responsible for receiving reports. This helps ensure that the policies are effectively implemented and that staff are prepared to handle reports confidentially and professionally.
      3. Effectiveness of Whistleblower Protections:
        • Companies are expected to describe the follow-up procedures on whistleblower reports, including how these are investigated promptly, independently, and objectively. The effectiveness of these procedures in providing remedies and addressing the issues raised by whistleblowers should also be reported.
      4. Legal Compliance:
        • If the company is subject to legal requirements concerning whistleblower protections (such as those arising from Directive (EU) 2019/1937), the disclosure should state compliance with these legal requirements. Companies should also outline any plans to enhance their whistleblower policies, including timelines for implementation.
      What are the specific requirements for transparency and accountability in ESRS G1 disclosures?

      Under ESRS G1 Business Conduct, there are specific requirements designed to ensure transparency and accountability in disclosures. These requirements help stakeholders gain a clear understanding of a company’s practices regarding business conduct.

      Comprehensive Coverage

      Companies are required to provide a full and transparent account of their business conduct, covering areas such as business ethics, corporate culture, anti-corruption and anti-bribery measures, management of supplier relationships, and political engagement. This includes both positive actions and areas where improvements are necessary.

      Detailed Reporting on Policies and Practices

      ESRS G1 mandates that companies disclose their policies on significant issues like corruption, bribery, whistleblower protection, and political contributions. This should include the mechanisms for identifying, reporting, and investigating unethical behavior, as well as how these policies are communicated within the organization.

      Outcome and Impact Descriptions

      Companies should not only list their policies but also describe the outcomes and impacts of these policies. This includes how the policies contribute to the prevention of unethical practices and the promotion of a strong corporate culture.

      Governance and Oversight

      Transparency about the role and involvement of governance bodies (administrative, management, and supervisory) in overseeing business conduct matters is crucial. Companies must disclose how these bodies are involved in formulating, implementing, and monitoring compliance with business conduct policies.

      How does ESRS G1 address issues of corruption and bribery?

      ESRS G1 requires companies to explicitly address how they manage impacts, risks and opportunities related to corruption and bribery. This includes detailing the policies, procedures, and controls they have in place to prevent, detect, and respond to such unethical behaviors:

      • Anti-Corruption Policies: Information on the specific policies that guide the prevention of corruption and bribery, including how these policies are communicated and enforced throughout the organization.
      • Training Programs: Descriptions of training and awareness programs aimed at educating employees about the risks of corruption and bribery and their responsibilities under company policies and the law.
      • Monitoring and Enforcement: Details on how the company monitors compliance with its anti-corruption policies and the mechanisms in place to enforce them, including disciplinary actions for policy violations.
      • Reporting Mechanisms: Information on the systems available for employees and external stakeholders to report suspected corruption or bribery, such as anonymous hotlines or ombudsman services, and how these reports are investigated and managed.