The Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal of the European Union almost exactly one year ago. We wrote about how water-related topics are potentially embedded in it in the first issue of “Water Matters” in the section of information coming from the European Commission. Twelve months later, we know much more about the reporting rules. Although after a year we still have not implemented the CSRD into national law (we still have six months to do so – as a member state), we know the final shape of the European Commission’s adopted reporting standards (ESRS), including those for water.

So what and how do you need to, according to the ESRS, report on water?

Two key analyses are required before we can break down the various ESRS into their parts. The first is about defining the value chain for a given company. This term includes the supply chain – suppliers, subcontractors, service providers and an equally important element, namely customers and end users of the services or products provided by the entity. Sometimes the value chain can be very extensive – for example, in the construction industry, with large infrastructure projects, it can involve dozens or even hundreds of companies and a wide range of customers and users of the built facilities.

Properly mapping the value chain will allow for the second key analysis for ESRS reporting – assessing dual materiality. This element of preparation for reporting is of great importance for the scope of the report. In accordance with the provisions of the CSRD and the regulation implementing the ESRS, information related to topics deemed relevant to the company should be disclosed. Points – the so-called. datapoints – for which requirements are specified in the ESRS – are more than 1,100. Not all are appropriate for all types of business. The materiality assessment is meant to indicate which areas are most important to the company.

What is this materiality and how to evaluate it? A clear answer to this question is not yet available. Some hints are The documents developed by the European Advisory Group on the Future of the European Union. Financial Reporting Advisory Group (EFRAG). It should be analyzed, for example, whether the company, in connection with its operations, affects the quantity and quality of surface water, groundwater and marine waters. The materiality assessment should apply to both the company’s own operations and the value chain. It is also assumed to assess the impact on the company of risks related to, among other things. With water scarcity. Such analysis should be conducted through a financial prism. The extent to which a given threat will affect the economic stability of a company should be assessed. Reporting, according to the ESRS, should address those topics that have been deemed important and relevant to the business as a result of a materiality assessment.

So what if water is considered a relevant topic?

The ESRS dedicated to water appears under the name E-3. In the Polish version of Annex 1 to the regulation introducing the ESRS, the standard for water begins on page 133. Interestingly, it’s the shortest standard in terms of the number of so-called “short” standards. datapoints. It contains only 48 points, of which 30 are mandatory and the rest can be disclosed voluntarily.

It should be emphasized that ESRS E-3 must be disclosed in close conjunction with ESRS 2, which deals with general sustainability statements. In my opinion, this construction of the reporting standards, while reasonable and quite logical, makes the reception of the ESRS for those beginning to analyze the content of the regulation difficult. The cross-references and abbreviations introduced (MRD, IRO, etc.) make determining the extent of the information needed a challenging task and requires detailed analysis.

For water, as for all other ESRS, there is a logic that begins reporting by disclosing how company policies and strategies capture water management issues – consumption, treatment, retention. Importantly, strategies must also be reported in the context of doing business in deficit areas. For the most part, water management policies should relate to both the company’s operations and its value chain.

Another element of ESRS E-3 reporting is the actions taken. The information is presented in descriptive form. Importantly, the activities undertaken in the company should be attributed to specific types:

  • Avoiding the use of water and marine resources;
  • Reducing the use of water and marine resources, such as through efficiency measures;
  • Water recovery and reuse;
  • Restoration and regeneration of the aquatic ecosystem and water body.

It is mandatory to disclose activities for areas exposed to water risks, including those with significant deficits. Reporting also includes targets set for, among other things. Reducing water consumption, improving water quality, managing risks. For the purposes established, it is also necessary to indicate whether they are a voluntary commitment or an obligation. Interestingly, ESRS E-3 also points to the need to disclose the environmental thresholds adopted and the methodologies for setting them.

The ESRS for water also provides space for reporting quantitative information on:

  • of total water consumption, including in water-risk areas;
  • volume recycled or reused;
  • The total volume of stored water;
  • Changes in the volume of stored water;
  • Water intensity expressed in percent. consumption at 1 million euros.

The figures relate only to the company’s operating activities. There is no need to disclose water consumption in the supply chain. You can voluntarily submit intakes by sector of activity. It is also optional to report the amount of water intake and discharge. We also report on the methodology and results of materiality assessments, including financial materiality, in the absence of actions taken to mitigate the impact of identified risks. It is mandatory to report information on water risk assessment for services and products, as well as the time horizon over which the materiality assessment was conducted.

In summary, although the ESRS E-3 for water is relatively short, it requires a lot of analysis and specific data collection. Assessing materiality, but also examining the links between operations and areas related to water risk, including water scarcity, requires information not only about the company’s operations, but also data about the environment. In order to link targets to environmental thresholds, data is needed on how to set location-appropriate thresholds and how to design effective measures and measure their progress. These are not obvious and “off-the-shelf” data. However, such information will be published in Water Matters in the near future.

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