If Appendix C of ESRS 1 allows companies under 750 employees to omit E4 and S1-4 for the first three years, why does ESRS 2 paragraph 17 then say that the information still needs to be disclosed if considered material? Is there a difference in granularity of information disclosed?

ESRS 1 Appendix C; ESRS 2 paragraph 17

ESRS 2 paragraph 17 states the following: ‘If an undertaking or group not exceeding on its balance sheet date the average number of 750 employees during the financial year decides to omit the information required by ESRS E4, ESRS S1, ESRS S2, ESRS S3 or ESRS S4 in accordance with Appendix C of ESRS 1, it shall nevertheless disclose whether the sustainability topics covered respectively by ESRS E4, ESRS S1, ESRS S2, ESRS S3 and ESRS S4 have been assessed to be material as a result of the undertaking’s materiality assessment. In addition, if one or more of these topics has been assessed to be material, the undertaking shall, for each material topic:

ESRS 1 paragraph 137 states: ‘Appendix C List of phase-in Disclosure Requirements in this Standard sets phase-in provisions for the Disclosure Requirements or datapoints of Disclosure Requirements in ESRS that may be omitted or that are not applicable in the first year(s) of preparation of the sustainability statement under the ESRS.’

Appendix C of ESRS 1 ‘List of phase-in Disclosure Requirements’ has the following table:

The transitional provisions apply to undertakings or groups not exceeding on their balance sheet dates the average number of 750 employees during the financial year (on a consolidated basis where applicable). The option is to omit the information required by all the disclosure requirements in the following topical standards: ESRS E4, ESRS S1, ESRS S2, ESRS S3 and ESRS S4.

The regime of these provisions varies depending on the topical standard. The transitional provisions on ESRS S1 only apply to the first year of preparation of the undertaking’s sustainability statement. For ESRS E4, ESRS S2, ESRS S3 and ESRS S4, the provisions apply to the first two years of preparation of the sustainability statement.

When information about a topic is omitted, the undertaking is nevertheless required to include the topic in the scope of the materiality assessment. When information required by one of these topical standards is omitted but the topic is assessed to be material, ‘de minimis’ disclosures shall be reported covering the material topic in question (ESRS 2 paragraph 17).

The materiality assessment covers the environmental, social and governance matters connected to the undertaking as established by the CSRD (i.e., a climate-first approach or an environmental only approach was not the intention of the co-legislators); the sustainability statement is to include a holistic view of sustainability matters regardless of whether social standards are subject to transitional provisions. Hence, the ESRS 2 paragraph 17 provision aims at ensuring that there is a certain level of ‘minimal disclosures’ that are required regardless of whether the undertaking chooses to apply the transitional provisions.

The transitional provisions allow undertakings to provide less granular information than what is required after the transition period. The information to be provided for the matters are more summarised (i.e., as briefly as referred to in the text) than the requirements set out in the five topical standards mentioned above. The main simplifications in paragraph 17 compared to paragraph 48 of ESRS 2 are the following:

ESRS 2 paragraph 17(b) to (e) provides de minimis information corresponding to disclosure requirements in topical standards in case an undertaking elects not to disclose topical information in the transition period. The transitional provision requires a summarised description of the policies, actions and targets and does not require to fulfil the detailed datapoints in MDR (P, T, A) in ESRS 2 and/or topical standards.

Finally, for metrics, the undertaking is to apply judgement to fulfil the requirements of metrics in topical standards. Such judgement relates to the number and nature of metrics disclosed (i.e., the undertaking may disclose a reduced number of metrics and not all the metrics that are material) and the level of granularity of the metric (for example, the metric may be presented at a global level without breakdowns).

What are concrete examples of potential entity-specific sustainability matters and any guidance related to finding and dealing with such?

ESRS 1 chapter 10.1 and paragraphs AR 4 and 5; ESRS IG 3 Materiality assessment paragraph 67.

ESRS 1 chapter 10.1 ‘Transitional provision related to entity-specific disclosures’ states in its paragraphs the following:

‘130. The extent to which sustainability matters are covered by ESRS is expected to evolve as further Disclosure Requirements are developed. Therefore, the need for entity-specific disclosures is likely to decrease over time, in particular as a result of the future adoption of sector specific standards.

131. When defining its entity-specific disclosures, the undertaking may adopt transitional measures for their preparation in the first three annual sustainability statements under which it may as a priority:

ESRS1 AR 4 and 5 state:

‘AR 4. When developing its entity-specific disclosures, the undertaking shall carefully consider: comparability between undertakings, while still ensuring relevance of the information provided, recognising that comparability may be limited for entity-specific disclosures. The undertaking shall consider whether the available and relevant frameworks, initiatives, reporting standards and benchmarks (such as technical material issued by the International Sustainability Standards Board or the Global Reporting Initiative) provide elements that can support comparability to the maximum extent possible.’

‘AR 5. Further guidance for developing entity-specific disclosures can be found by considering the information required under topical ESRS that addresses similar sustainability matters.’

At this stage, it is not possible to provide concrete examples as this will depends on facts and circumstances of the reporting undertaking, including the sector(s) it is operating in. Sector- specific sustainability matters will be addressed in the future sector standards still to be finalized.

When developing entity-specific disclosures (ESRS 1, paragraph 11), ESRS 1 points to ‘available and relevant frameworks, initiatives, standards, benchmarks’. Two examples are provided as possible sources of relevant entity-specific disclosures (see ESRS 1 paragraph 131(b)): the IFRS industry-based guidance and the GRI Sector Standards.

The IFRS industry-based guidance is the former SASB standards; they can be found here: https://sasb.org/standards/download/ and GRI Sector Standards can be downloaded from https://www.globalreporting.org/standards/sector-program/

These two sources offer examples of sector-specific information that could complement on an entity-specific basis the information required in sector-agnostic ESRS depending on the relevant sector.

In general, there are two types of instances that will give rise to entity-specific information:

The entity-specific information may relate to the description of a material impact, risk or opportunity (along the lines of ESRS 2 SBM 3), it may relate to policies, actions and targets that the undertaking has set, or it may relate to metrics.

If there is no additional guidance, then do the other disclosure requirements do not apply to the topical standard (meaning Gov 1 and Gov 2 do not apply)? Or do they all still apply, but there is just more guidance to follow (such that there is more specific guidance for Gov 3 specifically when reporting on E1)?

The question has been reworded as follows to be clearer:

ESRS 2 GOV 1 to GOV 5; ESRS 1 paragraph 29; ESRS E1 paragraph 13.

In the architecture of the ESRS, the two cross-cutting standards ESRS 1 General Requirements and ESRS 2 General Disclosures are complemented by ten topical standards (E, S and G).

ESRS 2 disclosure requirements are ‘cross-cutting in nature’, so they do not refer to a specific topic, but some of them also have topical specifications in the topical standards as explained in ESRS 2 Appendix C. An example is ESRS 2 GOV-3 ‘Integration of sustainability-related performance in incentive schemes’: this disclosure requirement (paragraphs 27-29) has a specification in the climate topical standard ESRS E1 paragraph 13.

A basic principle is that the requirements in the topical standards should be read and applied in conjunction with the cross-cutting standards.

Furthermore, all topical standards are subject to materiality assessment.

Disclosure Requirements (DRs), including their datapoints, in the cross-cutting standard ESRS 2 General Disclosures are to be reported irrespective of the outcome of the materiality assessment (for example, GOV-1, GOV-2, GOV-3, GOV-4, and GOV-5), see ESRS 1 paragraph 29. The content of ESRS 2 (with the exception of MDR – P, A, T) is not intended to provide a content to be followed in each and every topic, but it provides content that is to be provided at corporate/general level (across all the topics).

All topical standards should be read in conjunction with the cross-cutting standards ESRS 1 and ESRS 2, as these apply to the sustainability statement as a whole.

There are datapoints related to the ESRS 2 DRs in some of the topical standards. These are outlined in the table in ESRS 2 Appendix C, Disclosure and Application Requirements in Topical ESRS that are applicable in conjunction with ESRS 2 General disclosures. They include GOV-1 in ESRS G1 ‘Business conduct’, paragraph 5, and GOV-3 in ESRS E1 ‘Climate change’, paragraph 13. The topical specifications of ESRS 2 DRs listed in Appendix C of ESRS 2 provide additional datapoints that shall be included and/or additional considerations that the undertaking has to take into account when preparing the respective ESRS 2 DRs.

In terms of the scope of the materiality assessment:

When a Disclosure Requirement in ESRS 2 does not have topical specifications, ESRS 2 has to be applied as specified in ESRS 2 disclosure requirement. No additional datapoints to those in ESRS 2 or considerations at topical level apply in these cases. If ESRS 2 does not set topical specifications for a given topic, ESRS SBM 3 requires nevertheless to disclose material impacts, risks and opportunities for that material topic.

Is there a minimum number of material sustainability matters to be disclosed in the sustainability statement of the undertaking?

ESRS 1 chapter 3

Key words: Minimum number of material sustainability matters

ESRS 1 paragraph 28 states: ‘A sustainability matter is “material” when it meets the criteria defined for impact materiality . . . or financial materiality . . . or both.’

[draft] ESRS IG 1 paragraph 1 states: ‘The materiality assessment is the process by which the undertaking determines material information on sustainability impacts, risks and opportunities. This is achieved by the determination of material matters and material information to be reported in the undertaking’s sustainability statement. The performance of a materiality assessment based on objective criteria is pivotal to sustainability reporting which shall include relevant and faithful information about all impacts, risks and opportunities (IROs) across environmental, social and governance matters determined to be material from the impact materiality perspective or the financial materiality perspective or both. The undertaking will use judgement when applying the criteria and the related explanations are expected to aim at enhanced transparency from the undertaking to the users of the sustainability statement.’

The Application Requirements in Appendix A of ESRS include a list of sustainability matters covered in ESRS.

There is no minimum (or maximum) number of material sustainability matters required by ESRS, as materiality is based on the undertaking’s specific facts and circumstances.

Materiality is a principles-based concept. [draft] ESRS IG 1 – Materiality assessment provides non- authoritative guidance on how to conduct the materiality assessment. Materiality of a sustainability matter for an undertaking depends on the specific facts and circumstances related to its strategy, business model, own operations and value chain. Based on those specific facts and circumstances, a number of material impacts, risks and opportunities will be identified as a result of the materiality assessment.

Is there a difference between the time horizon as defined in ESRS 1 for impact materiality and for financial materiality?

ESRS 1 chapter 6.4.

Key words: Difference between time horizon for impact and for financial materiality.

ESRS 1 paragraph 77 states: ‘When preparing its sustainability statement, the undertaking shall adopt the following time intervals as of the end of the reporting period:

ESRS 1 paragraph 80 states: ‘There may be circumstances where the use of the medium- or long- term time horizons defined in paragraph 77 results in non-relevant information, as the undertaking uses a different definition for (i) its processes of identification and management of material impacts, risks and opportunities or (ii)the definition of its actions and setting targets. These circumstances may be due to industry-specific characteristics, such as cash flow and business cycles, the expected duration of capital investments, the time horizons over which the users of sustainability statements conduct their assessments or the planning horizons typically used in the undertaking’s industry for decision-making. In these circumstances, the undertaking may adopt a different definition of medium- and/or long-term time horizons (see ESRS 2 BP-2, paragraph 9).’

ESRS 1 Basis of Conclusions paragraph 124 states: ‘The SRB discussed whether to prescribe mandatory time horizons for short-, medium- and long-term for reporting purposes or whether they should be entity-specific based on its business model, industry-characteristics, and its planning horizon. Feedback from public consultation in that respect was ambiguous. Preparers generally preferred an entity-specific approach to be able to use already existing data consistent with their managerial processes, whereas users a more standardized approach for better comparability across undertakings. Noticing that many of the forthcoming first-time sustainability reporters need guidance, to increase comparability the SRB decided to prescribe conventional time periods but to allow deviations from the medium- and long- term time horizons based on entity-specific circumstances, acknowledging also that – depending on the sustainability matter and sector concerned – other time horizons within the long-term horizon might be useful and therefore prevail at topical level.’

Time horizons are defined in ESRS 1 chapter 6.4, setting fixed time horizons for the short-, medium- and long-term with no distinction being made between impact and financial materiality.

However, ESRS 1 paragraph 80 acknowledges that there may be circumstances in which the undertaking uses a different definition of its time horizons compared to the fixed time horizons set in ESRS 1 paragraph 77. This exception to the general rule has been granted to take into account entity-specific circumstances to manage sustainability-related impacts, risks and opportunities.

When applying either the predefined time horizons or when the exception is used and as a result another entity-specific time horizon is used instead of the predefined time horizon, potential or actual impacts may have a different time horizon than risks or opportunities arising from the same sustainability matter (and their related financial effects). Similarly, actions put in place to address impacts may have a different time horizon than actions put in place to address risks or opportunities. Transparency about time horizons is required in connection with impacts and anticipated financial effects, as stated in ESRS 2 SBM-3 paragraph 48 (c) and (e).