Sustainability Reporting – one month to comment on new EFRAG guides

EFRAG

On December 23, 2023. The European Advisory Group for the European Union. The Financial Reporting Advisory Group (EFRAG) has published preliminary versions of three guides for implementing the European Sustainability Reporting Standards (ESRS). Interested parties have until February 2 this year. to submit their comments and suggestions. After the public consultation, the final shape of the documents will be determined.

New reporting in the EU

Under EU law, all large companies and listed companies are required to disclose information on the social and environmental impact of their operations. However, the reporting system to date appears to be flawed and makes it difficult for investors and consumers to make responsible decisions. In line with the Green Deal policy, EFRAG has therefore prepared new unified ESRS standards to ensure the completeness, transparency and comparability of data disclosed by companies. The rules for their reporting are included in three guides on materiality assessment, value chain implementation and detailed ESRS data points, respectively.

EGRAG IG 1: Assessing materiality in disclosure of information

The first of EFRAG’s guides deals with determining the impacts, risks and opportunities (IROs) associated with specific aspects of sustainable development. The principle of materiality of reports is intended to ensure that companies disclose all information that has an impact on the environment, society, human rights and corporate governance. The guide specifically addresses such aspects of reporting as marine resources, water consumption, wastewater discharge, staff working conditions, and the prevention and detection of bribery and corruption.

Each company subject to reporting is required to develop its own process for assessing the materiality of non-financial and financial data. It must take into account the identification of the entities affected by its activities. Any negative impact should be evaluated in terms of scale, scope and irreversibility of effects. Only a collective analysis of these factors makes it possible to diagnose whether a particular impact is relevant to ESRS. Comments on this guide can be submitted via an online survey.

EFRAG IG 2: Value Chain

In its second guide, EFRAG requires reporting companies to include in their reports the impacts, risks and opportunities arising from downstream and upstream participants. We are talking about business ties arising from supply, distribution, sales, subcontracting, etc., including not only contract partners. The reports do not have to include all value chain actors, negative impact generating entities and those related to sustainability opportunities and risks are sufficient.

Standards for operational control are included in the guide, including how to report levels of greenhouse gas emissions, impacts on ecosystems and biodiversity, and air, water and soil pollution. In addition, control also extends to the entire workforce in the value chain, the activities of suppliers and customers, but also to the units in which the subject company has invested.

Included in the document is a map defining the mutual relationships of business partners and how to measure their impact according to thematic standards. Also helping users is a Frequently Asked Questions (FAO) section that, among other things. defines the length of the supply chain and how to present information about it. EFRAG provides for the possibility of using estimated information in the absence of reliable data from partners. Comments on the guide can be brought under a separate questionnaire.

EFRAG IG 3: Data points

The last part of the guides includes an Excel file with a detailed list of all the information required for sustainability reporting. It is intended to enable companies to analyze possible information gaps in order to adjust the system to collect them. The interactive requirements table is accompanied by an explanatory note that clarifies how to use the form and the links between the data and ESRS standards.

The proposed report includes 176 mandatory data points and an additional 647, the completion of which should result from a properly conducted materiality analysis. The required information can be numerical, percentage, but also narrative, sometimes including dates. There is a three-year preparation period for companies or groups with fewer than 750 employees in a given fiscal year.

Also for this part you can until February 2 this year. submit comments in a special form. The invitation to participate in the consultation applies to companies covered by the ESRS obligation, entities using this reporting, but also to professional consultants, academia and civil society actors, including NGOs and trade unions.

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