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Publication date: 05 Feb 2024
gx ESRS implementation Q&A Platform explanations 1/2024
ID 36 – Energy mix
Question asked
Does disclosure E1-37(b) refer to all forms of energy generated from nuclear sources, such as electricity? Does ESRS E1 paragraph 37(b) also encompass electricity mixes that include fractions of nuclear-generated electricity?
ESRS references
ESRS E1-5, ESRS E1 paragraph AR 34, ESRS E1 paragraph AR 35
Key words: Energy consumption and mix, nuclear source;
Background
ESRS E1 paragraphs 35-37 state:
‘35. The undertaking shall provide information on its energy consumption and mix.
36. The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s total energy consumption in absolute value, improvement in energy efficiency, exposure to coal, oil and gas-related activities, and the share of renewable energy in its overall energy mix.
37. The disclosure required by ESRS E1 paragraph 35 shall include the total energy consumption in MWh related to own operations disaggregated by
- total energy consumption from fossil sources;
- total energy consumption from nuclear sources; and
- total energy consumption from renewable sources disaggregated by
- fuel consumption for renewable sources, including biomass (also comprising industrial and municipal waste of biologic origin), biofuels, biogas, hydrogen from renewable sources, etc. . . .’
ESRS 2 MDR-M paragraph 77 requires the undertakings to disclose the significant assumptions behind the metric, including the limitations of the methodologies used.
Answer
ESRS E1 paragraph 37(b) requires the disclosure of total energy consumption from nuclear sources.
AR32(d) clarifies that the energy to be reported should refer to ‘final energy consumption’, which includes energy carriers such as electricity, heat and steam that can be and are frequently derived from nuclear sources.
A company disclosing on the basis of ESRS 1 paragraph 35 should thus report the final energy consumption taking into account its energy mix, which may involve proportions of nuclear- generated electricity, heat, steam, and cooling; fossil-fuel generated electricity, heat, steam, cooling and fuels; or renewable electricity, heat, steam, cooling and fuels.
This disclosure requires the undertaking to understand from its consumption of electricity which portions originate from nuclear, fossil or renewables sources. When electricity, heat and steam are purchased and the mix includes fractions of nuclear-generated electricity, heat, and steam, these fractions are to be included in the disclosures under ESRS E1 paragraph 37(b) on total energy consumption from nuclear sources. The undertaking should use the information available on the electricity, heat and steam mix to reflect its energy consumption breakdown according to ESRS E1 paragraph 35 accurately.
ID 43 - Scope 3 GHG emissions for insurance companies
Question asked
What is the scope of reporting scope 3 greenhouse gas emissions for insurance companies?
ESRS references
ESRS 1, section 3.2 (Material matters and material information).
ESRS E1 Disclosure Requirement E1-6 – Gross Scopes 1, 2, 3 and Total GHG emissions, as well as other paragraphs related to Scope 3, in particular: paragraphs: 44 (c), 45 (c), 46, 51, 52, as well as AR 39 (a) and AR 46 (b).
Principle of relevance, as defined in the “GHG Protocol Corporate Accounting and Reporting Standard” and further articulated in “relevance criteria” by the “GHG protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard”, as well as the “Technical Guidance for calculating Scope 3 Emissions”.
Key words: Materiality assessment, Materiality, Relevance; Scope 3 GHG emissions, insurance companies, financial investment.
Background
The determination of which categories of Scope 3 greenhouse gas emissions to include in the sustainability statement is driven by the materiality assessment of the company, namely in the scope of the analysis of ESRS 1 paragraph 31, which states that ‘The applicable information prescribed within a Disclosure Requirement, including its datapoints, or an entity-specific disclosure, shall be disclosed when the undertaking assesses, as part of its assessment of material information, that the information is relevant from one or more of the following perspectives: (a) the significance of the information in relation to the matter it purports to depict or explain; or (b) the capacity of such information to meet the users’ decision-making needs, including the needs of primary users of general-purpose financial reporting described in paragraph 48 and/or the needs of users whose principal interest is in information about the undertaking’s impacts.’
If climate change is considered a material topic by the undertaking, insurance companies are required by ESRS E1 paragraphs 44 and 51 to disclose their gross Scope 3 greenhouse gas (GHG) emissions for each of the Scope 3 categories that they assess to be ‘significant’, encompassing emissions within their upstream and downstream value chain. This includes emissions over which the company does not have direct control but that may have a significant impact on its overall carbon footprint and transition risks, as outlined in ESRS E1 paragraph 45.
In making its evaluation of the ‘significant Scope 3 categories’, the company shall consider, in accordance with ESRS E1 AR39(a), the principles, requirements and guidance of the GHG Protocol Corporate Standard. The GHG Protocol also includes a supplement ‘GHG protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard’ (also referred to in this document as ‘GHGP Scope 3 standard’), which makes reference as well to the GHG Protocol ‘Technical Guidance for calculating Scope 3 Emissions’ (v1.0), a supplement to the GHGP Scope 3 standard.
The GHG Protocol Scope 3 Category 15 is specifically tailored to financial institutions – which includes insurance undertakings – and the following financial investments and services are required to be reported (under the GHG Scope 3 standard, Table 5.9, pp.52): equity investments, debt investments and project finance.
ESRS E1 paragraph AR 46 states that the financial institution shall consider the GHG Accounting and Reporting Standard for the Financial Industry from the Partnership for Carbon Accounting Financial (PCAF), specifically part A ‘Financed Emissions’ (version December 2022).
Supporting material
Answer
When reporting on their gross Scope 3 greenhouse gas (GHG) emissions, the undertaking discloses the amounts corresponding to the Scope 3 categories that it considers significant. For investments, this will factor in the scale of the investments and the associated indirect GHG emissions. The company should follow the principles, requirements and guidance laid out in the GHG Protocol Corporate Standard, the GHGP Scope 3 standard as well as the associated Scope 3 calculation guidance. Moreover, as stated in ESRS E1 paragraph AR 46(b), financial institutions shall consider the GHG Accounting and Reporting Standard for the Financial Industry from the Partnership for Carbon Accounting Financial (PCAF), specifically part A ‘Financed Emissions’ (version December 2022).
ID 81 – Subsidiaries, holding company – alignment for GHG protocol
Question asked
Should the companies of a holding company use the same criteria and methodology for GHG emissions?
The question has been reworded as follows to be clearer:
Should all the subsidiaries and the parent company in a consolidated sustainability statement use the same criteria and methodology for GHG emissions?
ESRS references
ESRS 2, paragraph 77(a);
Key words: GHG protocol, holding companies, alignment in methodology;
Background
ESRS 1 Appendix B, qualitative characteristics of information shall be applied in the preparation of the ESRS sustainability statement.
ESRS 2 paragraph 77(a) requires the disclosure of methodologies and significant assumptions behind metrics; ESRS E1 paragraph AR 39(b) requires the undertaking to disclose the methodologies, significant assumptions and emissions factors used to calculate or measure GHG emissions; ESRS E1 paragraph AR46(h), on Scope 3 emissions, requires clarity on the boundaries considered and the methods used for estimating emissions. All these requirements point to the advantages of using a uniform approach for ease of understanding and transparency.
Answer
All subsidiaries and their parent undertaking shall apply the requirements of ESRS, including the qualitative characteristics of information in ESRS 1 Appendix B. The GHG Protocol is the reference for the calculation of GHG emissions following ESRS E1. The sustainability statement shall include the methodology and the significant assumptions made by the parent and subsidiaries regarding GHG emissions, as stated in ESRS E1 paragraph AR 39.
ESRS does not exclude flexibility in the methodologies used by different undertakings in the same group, provided that the qualitative characteristics of information are met.
A standardised approach from the onset is advantageous for its consistency, comparability, transparency and the overall integrity of reported GHG emissions.
Deviations from a common methodology can be accepted but should be disclosed, along with the rationale for their use, to meet the transparency requirements set forth by the ESRS.
Using diverging methodologies for similar or comparable fact patterns can result in information that may not comply with the qualitative characteristics of information required by the ESRS (ESRS 1, Appendix B).
ID 109 – Disclosure Requirement E1-6
Question asked
Is the ‘bolded paragraph’ following each ESRS Disclosure Requirement a disclosure that the undertaking has to respond to? Or is it simply a ‘headline’ that prescribes what the paragraph will contain once all the individual datapoints are completed? Reference is made to ESRS E1-6.
ESRS references
ESRS 2 and all topical ESRS, and Disclosure Requirement E1-6
Key words: bold text in Disclosure requirements
Background
In ESRS 2 and in the topical ESRS, Disclosure Requirements are generally followed by a ‘bold paragraph’ stating ‘The undertaking shall disclose . . .’ with a general statement of the information that needs to be disclosed under the respective Disclosure Requirement.
The ‘bold paragraph’ is followed by an objective paragraph, which is followed by more detailed paragraphs containing the datapoints that must be disclosed under the respective Disclosure Requirement and further specifications of the information being requested.
In the case of ESRS E1-6, this is as follows:
ESRS E1 paragraph 44 provides a ‘bold paragraph’ with the general statement of the requirement that needs to be satisfied under DR E1-6;
ESRS E1 paragraph 45 outlines the objective of the disclosure requirement; and
ESRS E1 paragraphs 46-52 further specify information to be included when disclosing on ESRS E1 paragraph 44.
This is illustrated as follows:
Answer
The ‘bold paragraph’ that introduces each Disclosure Requirement is not simply a headline. It is a general statement of what needs to be disclosed under the respective Disclosure Requirement.
The information provided under a Disclosure Requirement should satisfy the overall objective of it, as stated in the paragraph following the bold paragraph (‘the objective of this Disclosure Requirement is . . .’).
The subsequent paragraphs include a list of datapoints (‘the disclosure provided under paragraph XXX shall include . . .’). This list is generally sufficient to meet the disclosure requirements; however, such a list cannot be assumed to be exhaustive, as meeting the disclosure requirement takes precedent over the list of datapoints.
In providing the disclosure that corresponds to the list of individual datapoints (if applicable per the related Application Requirements), it is assumed that both the following are met:
- requirements of the ‘bold paragraph’; and
- objective as stated in the subsequent paragraph.
The ‘bold paragraph’ of ESRS E1-6 (i.e., ESRS E1 paragraph 44) covers Scope 1, 2 and 3 and total GHG emissions. The objective of the Disclosure Requirements also covers Scope 1, 2 and 3 and total GHG emissions. ESRS E1-6 paragraph 52 mentions the total GHG emissions. The total GHG emissions shall be reported as it is included in both the bold paragraph and the objective.
ID 167 - GHG Protocol Scope 3; Sector
Question asked
Is there a requirement for, or guidance around, the methods allowed to calculate Scope 3 emissions from shipping?
ESRS references
Background
ESRS 1 Annex B, on qualitative characteristics of information, provides important principles and criteria to apply in the assessment of which calculation methodologies and which input data to use in the preparation of ESRS disclosures.
ESRS E1 paragraph 44 requires the disclosure of gross Scope 3 GHG emissions, and ESRS E1 AR39(a) states that the undertaking shall consider the principles, requirements and guidance provided in the GHG Protocol Corporate Standard (version 2004), which in this case also includes the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011 mentioned in ESRS E1 AR 46(a)) as well as the ‘Technical guidance for calculating Scope 3 emissions’ (version 1.0).
ESRS E1 paragraph AR 46 details other requirements related to the reporting of Scope 3 GHG emissions. In particular, ESRS E1 paragraph AR 46(g) highlights the need to disclose the percentage of emissions calculated using primary data obtained from suppliers or other value chain partners.
Other methodological details that go beyond the provisions included in the ‘Technical guidance for calculating Scope 3 emissions’ (version 1.0) are not provided within the ESRS. Additional provisions may be envisaged as part of future ESRS sector standards.
Answer
The ESRS set reporting standards but do not prescribe detailed calculation methodologies. However, when determining the methodology and input to be used, the undertaking shall apply the criteria defined under ESRS 1 Annex B, qualitative characteristics of information, as well as requirements to consider the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011 mentioned in ESRS E1 AR 46(a)) and the ‘Technical guidance for calculating Scope 3 emissions’ (version 1.0). Additional provisions may be envisaged as part of future ESRS sector standards.
EFRAG
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