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.

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).

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.

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

Structure of the ESRS sustainability statement

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.

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 😊

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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

A template is available in Mentcon model for ESRS web-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 the web-app the information about the value chain is automatically inserted in the equivalent Data points when generating the structure of the Sustainability statement.

In Mentcon model an example is also available to see how another company has described their value chain.

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.

“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 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 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 will explain why the situation is confusing and provide information that helps to understand this, to facilitate reasoning with the consultants who will support you.

The Definition 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 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.

Reasons for confusion

• 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.

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!

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.

Summary of 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 process this will be described with pre-written text inserted automatically in the corresponding Data points.

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 34 a-d.

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.

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.

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.

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 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 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.

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.

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.

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.

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.

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

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. 

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.

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.

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.

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.

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 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).

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.

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.

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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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 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.

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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

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.

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.

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.

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.

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.

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.

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 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.

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.

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.

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.

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 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.

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.

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.

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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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 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.

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.

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.

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.