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General Requirements

Author

Shel

ESRS 1 provides a general introduction to how the ESRS is organised and establishes the basic requirements that companies should follow when preparing and presenting sustainability information.

This standard contains 10 chapters, detailed below.

(Expand each chapter to view more details)

This chapter provides a brief overview of the three ESRS categories i.e.

  1. cross-cutting standards

  2. topical standards

  3. sector-specific standards.

The cross-cutting standards i.e ESRS 1 (General requirements) and ESRS 2 (General disclosures), apply to the sustainability matters covered by topical standards and sector-specific standards.

  • ESRS 1 describes the architecture of ESRS standards, explains drafting conventions and fundamental concepts, and sets out general requirements for preparing and presenting sustainability-related information.

  • ESRS 2 establishes Disclosure Requirements on the information that a company should provide at a general level across all material sustainability matters covering the following reporting areas: governance, strategy, impact, risk and opportunity management, and metrics and targets.

Topical ESRS cover a sustainability topic and are structured into topics and sub-topics, and where necessary sub-subtopics. For example, the main topic in ESRS 3 is ‘Water and marine resources’. It is divided into two topics i.e. Water and Marine resources. Each of these topics are further broken down into sub-topics. The sub-topics under ‘Water’ are water consumption, water withdrawals and water discharges. ‘Marine resources’ has only one sub-topic which is ‘extraction and use of marine resources’. A list of the topics and sub-topics under each standard can be found on page 27 of the regulation.

Sector-specific standards are applicable to all companies within a sector. They address impacts, risks and opportunities that are likely to be material for all companies in a specific sector and that are not covered, or not sufficiently covered, by topical standards. Sector-specific standards are multi-topical and cover the topics that are most relevant to the sector in question. They achieve a high degree of comparability.

Impacts are actual or potential, positive or negative sustainability-related effects of a company’s operations on the environment and society. Risks are uncertain environmental, social or governance matters with negative financial effects that may negatively affect the company’s financial position, financial performance, cash flows, access to finance or cost of capital in the short, medium or long term. Opportunities are sustainability-related opportunities with positive financial effects. They are potential positive impacts or benefits that a company can leverage or achieve by addressing sustainability-related challenges, risks, or trends. These opportunities often arise from shifting market demands, regulatory changes, or societal expectations around sustainability and can contribute to long-term business value, resilience, and growth. Impacts, risks and opportunities are collectively referred to as IROs.

The Disclosure Requirements (DRs) in ESRS 2, topical ESRS and in sector-specific ESRS are structured into the following reporting areas:

  1. Governance (GOV): the governance processes, controls and procedures used to monitor, manage and oversee IROs.

  2. Strategy (SBM): how the company’s strategy and business model interact with its material IROs, including how the company addresses them.

  3. Impact, risk and opportunity management (IRO): the process(es) by which the company identifies impacts, risks and opportunities and assesses their materiality and manages material sustainability matters through policies and actions.

  4. Metrics and targets (MT): the company’s performance, including targets it has set and progress towards meeting them.

ESRS 2 includes Minimum Disclosure Requirements (MDRs) regarding policies (MDR-P), actions (MDR-A), metrics (MDR-M) and targets (MDR-T). Companies should apply these MDRs together with the corresponding DRs in topical and sector-specific ESRS.

Companies should carry out a materiality assessment to identify their IROs. A materiality assessment is a process that helps a company determine which ESG issues are most important to its business and stakeholders. In the event that a company identifies an IRO as material but it is not sufficiently covered by the ESRS, it should disclose this IRO under ‘entity disclosures’.

When preparing sustainability reports using ESRS, companies should apply both fundamental and enhancing characteristics of information. The fundamental characteristics of information are relevance and faithful representation, while the enhancing characteristics are comparability, verifiability and understandability.

Relevance

Sustainability information is relevant if it is likely to make a difference in the decisions of users under a double materiality approach i.e. if it can influence decisions regarding both the company’s financial performance and the broader environmental or social impacts of its activities.

Sustainability information can impact decisions if it helps users predict future outcomes (predictive value) or confirms something they already believed (confirmatory value).

A company determines what is material based on how relevant the information is to its own situation.

Faithful representation

For information to be useful, it needs to accurately reflect what it is describing. Faithful representation means that the information must be complete, neutral and accurate.

A complete description of an IRO includes all the important details needed for users to fully understand it. This includes how the company has adjusted its strategy, risk management, and governance in response to the issue and the metrics used to set goals and track performance.

A neutral depiction means that information is presented fairly, without any bias or manipulation. It shouldn’t be made to seem better or worse than it really is. The information should show both the good and bad sides, whether it’s about the positive or negative effects of the company’s actions, or the risks and opportunities it faces financially. If the company shares future goals or plans, it should also mention any challenges that could stop those goals from being met, so that the information is balanced and honest. Neutrality is supported by the exercise of prudence, which means that opportunities and risks should not be overstated or understated.

Accurate information implies that the company has implemented adequate processes and internal controls to avoid material errors or material misstatements. As such, estimates should be presented with a clear emphasis on their possible limitations and associated uncertainty.

Accuracy requires that:

  1. factual information is free of major errors,
  2. descriptions are clear and exact,
  3. estimates, approximations, and forecasts are clearly marked as such,
  4. methods used to develop estimates are correct, and the inputs are reasonable and supported,
  5. claims made are reasonable and based on good-quality information, and
  6. when making judgments about the future, those judgments reflect the reasoning behind them and the data used to form them.
Comparability

Sustainability information is considered comparable when it can be compared:

  1. over time i.e. with the information the company provided in past periods, and,
  2. across companies i.e. with information from other companies, especially those in the same industry or with similar activities.

Comparisons can be made against:

  1. targets i.e. goals set by the company,
  2. baselines i.e. starting points or previous performance,
  3. industry benchmarks i.e. standards or averages within the industry, or,
  4. information from other companies or internationally recognized organizations.

To achieve comparability, sustainability reporting should be consistent. This means that for a particular sustainability matter, the same approaches or methods should be used, from period to period.

Verifiability

Sustainability information should also be verifiable. This means that different knowledgeable and independent observers could agree that the information accurately represents the situation, even though they don’t fully agree on every detail.

To enhance the verifiability of sustainability information, the company can:

  1. include information that can be checked against other available data, such as from the business itself, others in the industry, or external sources,
  2. explain the methods and inputs used to create any estimates or approximations, or,
  3. provide information that has been reviewed and approved by the company’s management and supervisory bodies or their committees.

Some sustainability information might include explanations or future predictions. This information should be backed by facts, like the company’s strategies, plans, and risk assessments. To help users understand whether they can trust this information, the company should explain the assumptions and methods used to create it, as well as any other factors that show it reflects the company’s actual plans or decisions.

Understandability

Sustainability information is considered understandable when it is presented in a clear and concise way. This means that anyone with basic knowledge can easily grasp the information being shared.

For sustainability disclosures to be concise, they should:

  1. avoid generic or irrelevant information that isn’t specific to the company,
  2. avoid repeating information, especially if it’s already covered in the financial statements,
  3. use clear and well-organized language and structure, and,
  4. only include material information. Any additional information should not obscure the important points.

Clarity can be improved by clearly distinguishing between information about changes that happened during the reporting period and information that stays the same over time. For example, the company can separate descriptions of governance and risk management processes that have changed since the last report from those that have remained unchanged. This makes it easier for users to understand what is new and what remains consistent.

For sustainability disclosures to be coherent, they must be organized in a way that clearly explains how different pieces of information are connected. This helps users understand the context and see how the sustainability-related IROs are linked to the information in the company’s financial statements.

If the sustainability risks and opportunities mentioned in the financial statements impact sustainability reporting, the company must include the relevant information in the sustainability statement. This will help users understand these implications, with clear links to the financial statements. The information should be detailed enough to meet the needs of users, avoiding abbreviations, and ensuring that units of measure are clearly defined and disclosed.

Section 1: Materiality assessment

This the processes of identifying material IROs for the purposes of sustainability reporting.

No matter what the company determines to be most material to report, it must always include:

  1. all the required information in ESRS 2 (General Disclosures), covering general sustainability topics,
  2. specific information in topical ESRS about how the company identifies and assesses its key IROs (IRO-1), and,
  3. additional related requirements listed in ESRS 2 Appendix C, which connect the general disclosures in ESRS 2 with the specific requirements in topical ESRS.

If the company decides a sustainability issue is material based on its assessment:

  1. It must report details about that issue according to the specific rules in the relevant topical or sector-specific standards (ESRS).
  2. If the issue isn’t covered by the existing standards or the provided rules don’t go into enough detail, the company must add its own customized (entity-specific) information to ensure the issue is fully explained.

The company must disclose information when it determines that the information is material based on one or both of the following:

  1. The information is significant and truly helps explain or depict the sustainability issue it relates to.
  2. The information is useful for decision-making, particularly for those who rely on the company’s general financial reports or for users who are mainly interested in understanding the company’s sustainability impacts.

If a company decides that climate change is not material for its sustainability reporting and therefore doesn’t include any disclosures related to it (ESRS E1), it must:

  1. provide a detailed explanation of why it concluded that climate change is not material, including how it reached that decision (this is required by ESRS 2, IRO-2).
  2. include a forward-looking analysis, explaining the conditions or factors that could make climate change material in the future.

If the company decides that another sustainability topic other than climate change is not material and omits disclosures for that topic, it can briefly explain why it concluded that the topic is not material, without needing as much detail as for climate change.

When a company reports on its policies, actions, and targets related to a sustainability issue that it has determined to be material, it must:

  1. Disclose all the required information from both the topical/sector-specific ESRS and the Minimum Disclosure Requirements in ESRS 2 for that issue.
  2. If the company hasn’t yet adopted the necessary policies, taken the required actions, or set specific targets for that issue, it must clearly state that it hasn’t done so.
  3. The company can also mention a timeline or target date for when it plans to have these policies, actions, or targets in place.

Section 2: Stakeholders

Engagement with affected stakeholders is central to the company’s sustainability materiality assessment.

Stakeholders are those who can affect or be affected by the company. There are two main groups of stakeholders:

  1. affected stakeholders: these are individuals or groups whose interests are affected or could be affected, positively or negatively, by the company’s activities and its direct and indirect business relationships across its value chain; and

  2. users of sustainability statements: these are primary users of general-purpose financial reporting (existing and potential investors, lenders and other creditors, including asset managers, credit institutions, insurance undertakings), and other users of sustainability statements, including the company’s business partners, trade unions and social partners, civil society and non-governmental organisations, governments, analysts and academics.

Nature may be considered as a silent stakeholder. In this case, ecological data and data on the conservation of species may support the company’s materiality assessment.

The materiality assessment is informed by dialogue with affected stakeholders. The company may engage with affected stakeholders or their representatives (such as employees or trade unions), as well as users of sustainability reporting and other experts, to provide input or feedback on its conclusions regarding its material IROs.

Section 3: Double materiality

Double materiality considers two perspectives when assessing what information is important: impact materiality and financial materiality.

Impact materiality

A sustainability issue is considered material from an impact perspective if it involves the company’s positive or negative effects on people or the environment, either now or in the future. This includes impacts from the company’s own operations, as well as from its upstream (suppliers) and downstream (customers) value chain. It also includes impacts from the company’s business relationships, which are not limited to just contracts but also include broader connections in its supply chain and beyond. Impacts are considered important from the impact materiality perspective, regardless of whether or not they directly affect the company’s finances.

In assessing impact materiality and determining the material matters to be reported, the company should consider the following three steps:

  1. Understanding the context in relation to its impacts, including its activities, business relationships, and stakeholders;
  2. Identification of actual and potential impacts (both negative and positive), including through engagement with stakeholders and experts. In this step, the company may rely on scientific and analytical research on impacts related to sustainability matters;
  3. Assessment of the materiality of its actual and potential impacts and determination of the material matters. In this step, the company should set thresholds to decide which impacts will be included in its sustainability statement.

For actual negative impacts, materiality is based on the severity of the impact, while for potential negative impacts it is based on the severity and likelihood of the impact. The severity of an impact is determined by the following factors:

  1. scale: how serious the negative impact is or how beneficial the positive impact is for people or the environment;
  2. scope: how widespread the negative or positive impacts are. For environmental impacts, scope may refer to the extent of environmental damage or a geographical perimeter. For impacts on people, scope may refer to the number of people adversely affected;
  3. irremediable character: whether and to what extent the negative impacts can be remediated, i.e., whether the environment or affected people can be restored to their prior state.

In the case of a potential negative human rights impact, the severity of the impact takes precedence over its likelihood.

For positive impacts, materiality is based on:

  1. the scale and scope of the impact for actual impacts; and
  2. the scale, scope and likelihood of the impact for potential impacts.

Financial materiality

A sustainability issue is financially material if it has, or could have, a significant impact on the company’s finances. This can happen if the issue creates risks or opportunities that affect, or are likely to affect, the company’s financial health, performance, cash flow, access to finance, or cost of capital in the short, medium, or long term. These risks and opportunities can come from past events or future events. Financial materiality also includes risks and opportunities from business relationships outside the company’s immediate operations (beyond what’s included in the financial statements).

A sustainability impact can be financially significant from the beginning or might become financially important if it is likely to affect the company’s finances (such as profits, cash flow, or access to funding) in the short, medium, or long term.

Usually, the starting point is to assess impacts first, but there may also be risks or opportunities that matter to the company financially, even if they don’t directly relate to its environmental or social impacts.

When a company is assessing the IROs in its value chain, it should focus on the areas where these are most likely to occur. This means looking at things like the nature of the activities, the business relationships, the locations, and other factors that could lead to impacts, risks, or opportunities.

A company’s main IROs are the same as the material ones identified using the double materiality principle. These are the important factors that the company must report on in its sustainability statement.

The company’s dependence on natural, human, and social resources can create financial risks or opportunities. These dependencies can have two main effects:

  1. They might impact the company’s ability to keep using or getting the resources it needs for its operations, and also affect the quality and price of those resources.
  2. They might influence the company’s ability to depend on key business relationships (like suppliers or partners) on terms that are acceptable for the company.

The materiality of risks and opportunities is determined by looking at two things:

  1. The likelihood that the risk or opportunity will happen.
  2. The potential impact it could have on the company’s finances if it does happen.

Section 4: Material impacts or risks arising from actions to address sustainability matters

The company’s materiality assessment might reveal situations where its actions to address certain sustainability issues could create negative impacts or risks related to other sustainability issues. For example:

  1. A plan to reduce carbon emissions by stopping certain products might negatively affect the company’s workforce (e.g., through job losses) and lead to financial risks, like paying redundancy costs.
  2. A supplier focused on producing electric vehicles might face financial risks if their investments in parts for traditional vehicles become obsolete and cannot be used.

In these situations, the company must:

  1. Disclose any material negative impacts or material risks, along with the actions that caused them, and provide a reference to the relevant sustainability topic.
  2. Explain how the company is addressing these negative impacts or risks within the related sustainability area.

Section 5: Level of disaggregation

To help understand its material IROs, the company must break down the reported information:

  1. by country, if there are big differences in IROs across countries and presenting the information in a more general way would hide important details.
  2. by site or asset, if the IROs are mainly tied to a specific location or asset.

When deciding how detailed the reported information should be, the company must consider how it broke down the information in its materiality assessment. Based on its specific situation, it may be necessary to disaggregate the information by subsidiary (individual company branches or units).

When the company combines data from different levels or locations, it must make sure that this combined data doesn’t hide important details or context needed to understand the information. The company should not mix together material items that are different in nature.

When the company presents information broken down by sectors, it must use the ESRS sector classification, which will be set out in a delegated act by the European Commission.

If a topical or sector-specific ESRS requires a certain level of detail for a specific piece of information, the rules in those standards must be followed, even if they differ from the general sector classification.

Due diligence is the process where companies identify, prevent, reduce, and explain how they address the negative impacts their business activities may have on the environment and people. These impacts can come from the company’s operations, its supply chain, the products or services it offers, and its business relationships.

Due diligence is an ongoing process that may lead the company to make changes in its strategy, business model, activities, or relationships. The process follows guidelines set by the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

The international guidelines outline several steps for due diligence, including identifying and assessing the negative impacts the company causes through its operations, supply chain, products or services, and business relationships.

If the company cannot address all the impacts at once, the due diligence process helps prioritize actions based on how severe and likely the impacts are to occur. The results of this process help the company assess its material IROs.

The ESRS standards do not require the company to follow specific actions for due diligence. Additionally, they do not change the responsibilities of the company’s management or supervisory bodies when it comes to conducting due diligence.

Section 1: Reporting undertaking and value chain

The sustainability statement should cover the same company or group of companies that the financial statements cover. For example, if a parent company is required to prepare financial statements for the entire group of companies (consolidated financial statements), the sustainability statement should also apply to that same group.

However, this rule doesn’t apply if:

  1. the reporting company isn’t required to prepare financial statements.
  2. the company is preparing consolidated sustainability reporting based on specific EU regulations (Article 48i of Directive 2013/34/EU).

The sustainability statement must not only cover the direct activities of the reporting company but also include information about its business relationships along its upstream (suppliers) and downstream (customers, distributors) value chains. The company should include this information in order to help the readers (users) of the sustainability statement understand the company’s material IROs. This gives a full picture of how the company’s value chain affects sustainability.

The company must include this value chain information if it relates to material IROs that are significant for the company, as identified in:

  1. the due diligence process, which involves identifying the risks or impacts on the company from its value chain.
  2. the materiality assessment, where the company decides which IROs are significant enough to be included in the report.

The regulation doesn’t require the company to report on every single actor or business partner in its value chain. Different sustainability matters might be material to different parts of the value chain. For example, supply chain emissions might be material to a company’s upstream (suppliers), while product waste could be material to its downstream (customers or end users). The company should focus on information only for those parts of the value chain where the sustainability matter is truly significant.

When the company decides where a material sustainability matter happens, either in its own operations or in its upstream (suppliers) or downstream (customers) value chain, it must base this decision on its IRO assessment, following the double materiality principle i.e. it should consider both how the matter affects the business (financial materiality) and how the business affects people and the environment (impact materiality).

If the company has associates or joint ventures (i.e. businesses it is involved with) that are part of its value chain (like suppliers), it must include information about these businesses in the sustainability report, just like it does for other business relationships. Even if the company only holds a share of these associates or joint ventures (e.g., through equity), it should consider all the impacts connected to its products or services, not just the part it owns. This means looking at the full impact of the business relationship, not just the company’s percentage stake.

The company should ensure that the value chain information meets the quality standards outlined in this regulation (see chapter 2 above). This means that the information should be relevant, reliable, comparable, verifiable and understandable.

Section 2: Estimation using sector averages and proxies

A company’s ability to gather information about its supply chain (upstream) or distribution chain (downstream) can depend on several factors e.g.

  1. contractual arrangements i.e. whether the company has agreements in place that require its partners to provide information.
  2. level of control i.e. much influence or authority the company has over operations outside its own organization.
  3. buying power i.e. how much leverage the company has over its suppliers or partners due to its purchasing strength.

If the company has less control or influence over its partners’ activities, it may find it harder to collect the necessary information about its value chain. In such cases, the company must estimate the missing information using reliable sources, like sector-average data and other proxies. The company should estimate the information to be reported using all reasonable and supportable information that is available to the company at the reporting date without undue cost or effort. This includes, but is not limited to, internal and external information such as:

  1. data from indirect sources,
  2. sector-average data,
  3. sample analyses,
  4. market and peer groups data,
  5. other proxies or spend-based data.

These estimations should be based on the best available data and methodologies to ensure the information is as accurate and reliable as possible within the given constraints.

When reporting on policies, actions, and targets, the company must include information about its upstream and downstream value chain if those policies, actions, and targets involve actors in the value chain. For metrics, particularly in environmental matters where proxy data is available, the company can often meet reporting requirements without directly collecting data from its value chain actors. This is especially true for SMEs, such as when calculating the company’s Scope 3 greenhouse gas (GHG) emissions.

When using estimates based on sector averages or other proxies, the information provided must still meet the required quality standards, such as being accurate, reliable, and useful.

The reporting period for the company’s sustainability statement should be consistent with that of its financial statements. The company should also connect past information with future-focused details in its sustainability statement, where applicable, to help users understand how historical data aligns with future plans and projections.

When preparing the sustainability statement, progress should be reported against a base year. This is the historical reference date or period for which information is available and against which subsequent information can be compared over time. The company must provide comparative data from the base year alongside the current reporting period when showing progress toward a target, unless specific reporting guidelines already outline how to present such progress. The company may also include past milestones achieved between the base year and the current period, if this information is relevant.

The company should use the following time intervals based on the end of the reporting period:

  1. short-term horizon: this should be the same period as the reporting period in its financial statements.
  2. medium-term horizon: this should be the period starting after the short-term reporting period and lasting up to 5 years.
  3. long-term horizon: this is any period beyond 5 years.

These time intervals should be used in the sustainability statement, unless different definitions are required for specific items of disclosure in other ESRS, in which case the definitions in those ESRS should prevail.

The company should provide an additional breakdown for the long-term time horizon if impacts or actions are expected to occur after more than 5 years. This breakdown is required if it helps provide relevant information to users of the sustainability statements.

In some cases, using the medium- or long-term time horizons as defined above might result in irrelevant information. This could happen if the company uses a different time frame for its processes of identifying and managing material IROs, or for defining its actions and setting targets. These situations may arise due to industry-specific factors like cash flow cycles, business cycles, the duration of capital investments, or the planning horizons typically used in the industry for decision-making. In such cases, the company is allowed to use a different definition for the time horizons to provide more relevant information.

This chapter provides general requirements to be applied when preparing and presenting sustainability information.

Section 1: Presenting comparative information

The company should provide quantitative metrics and monetary amounts from the previous period along with the current period’s data. If it helps to understand the current sustainability report, the company should also include past details in its narrative disclosures.

When the company reports comparative information that differs from the information reported in the previous period, it should disclose the difference between the figure reported in the previous period and the revised comparative figure and the reasons for the revision of the figure.

Sometimes, it is not possible to adjust past information to align with the current period. For example, data from previous periods might not have been collected in a way that allows applying a new definition or correcting past errors, and recreating the missing data may not be feasible. In such cases, the company should disclose that the information could not be adjusted.

When an ESRS requires the company to present data for more than one comparative period, the requirements of that ESRS shall prevail.

Section 2: Sources of estimation and outcome uncertainty

There are cases when quantitative metrics and monetary amounts, including upstream and downstream value chain information cannot be measured directly and can only be estimated. This may lead to measurement uncertainty. The company should disclose information to enable users to understand the most significant uncertainties affecting the quantitative metrics and monetary amounts reported in its sustainability statement.

The use of reasonable assumptions and estimates, such as scenario or sensitivity analysis, is an important part of preparing sustainability information. This does not reduce the usefulness of the information, as long as the assumptions and estimates are clearly described and explained. Even if there is a high level of uncertainty in the measurements, it does not mean that the assumption or estimate cannot still provide useful information or meet the required standards.

Data and assumptions used in preparing the sustainability statement should be consistent to the extent possible with the corresponding financial data and assumptions used in the company’s financial statements.

Some ESRS require companies to disclose information about possible future events with uncertain outcomes. To decide whether this information is important, the company should refer to the criteria in chapter 3 of this standard and consider:

  1. the possible financial impact of the events;
  2. the severity and likelihood of the impacts on people or the environment, based on the factors outlined in chapter 3 (the section on impact materiality); and
  3. the full range of possible outcomes and how likely each one is.

When assessing possible outcomes, the company should consider all relevant facts and circumstances, including low-probability but high-impact events, which, when combined, could become important. For example, the company might face several risks that could each cause the same type of disruption, like supply chain issues. Information about a single risk may not be important if it’s very unlikely to happen. However, the overall risk of supply chain disruption from all sources combined could be important (see ESRS 2 BP-2).

Section 3: Updating disclosures about events after the end of the reporting period

In some cases, the company may receive new information after the reporting period but before the management report is finalized. If this information reveals details about conditions that existed at the end of the period, the company should update its estimates and sustainability disclosures based on this new information, when appropriate.

If the new information provides details about important transactions, events, or conditions that happened after the reporting period, the company should provide a narrative describing the existence, nature, and potential consequences of these events, when appropriate.

Section 4: Changes in preparation or presentation of sustainability information

The definition and calculation of metrics, including those used to set targets and track progress, should remain consistent over time. Unless it’s not possible to do so, the company should provide restated figures for comparison when it has:

  1. changed or replaced a metric or target;
  2. found new information about the estimated figures from the previous period, where the new information shows evidence of conditions that existed during that period.

Section 5: Reporting errors in prior periods

The company should correct significant errors from previous periods by restating the comparative amounts for those periods, unless it is not possible to do so. This requirement does not apply to periods before the company first applies ESRS.

Prior period errors are mistakes or missing information in the company’s sustainability statement for previous periods. Such errors include mathematical mistakes, errors in applying the definitions for metrics or targets, oversights or misunderstandings of facts, and fraud. These errors happen when reliable information is either not used or used incorrectly. This information:

  1. was available when the management report, including the sustainability statement, was approved for release; and
  2. could reasonably be expected to have been obtained and considered when preparing the sustainability disclosures in those reports.

Errors that are found in the current period should be corrected before the management report is approved for release. However, significant errors are sometimes only discovered in a later period.

If it’s not possible to determine the effect of an error on all prior periods shown, the company should restate the comparative information to correct the error starting from the earliest date it can. When correcting past disclosures, the company should not use hindsight, either by assuming what management’s intentions would have been in a previous period or by estimating amounts disclosed in that period. This requirement applies to both past and future-oriented disclosures.

Corrections of errors are different from changes in estimates. Estimates may need to be updated as new information becomes available (see ESRS 2 BP-2).

Section 6: Consolidated reporting and subsidiary exemption

When reporting at a consolidated level, the company should assess material IROs for the entire group, no matter the legal structure of the group. It should ensure that all subsidiaries are included in a way that allows for an unbiased identification of material IROs. The criteria and thresholds for determining whether an IRO is material should be based on chapter 3 of this standard.

If the company identifies significant differences between the material IROs at the group level and those of one or more of its subsidiaries, it should provide a clear description of the IROs of the relevant subsidiary or subsidiaries, as appropriate.

When assessing whether the differences between material IROs at the group level and those of its subsidiaries are significant, the company may consider factors like whether the subsidiary or subsidiaries operate in a different sector than the rest of the group, or other circumstances outlined in section 5 of chapter 3 above, which discusses the level of disaggregation.

Section 7: Classified and sensitive information, and information on intellectual property, know-how or results of innovation

The company is not required to disclose classified or sensitive information, even if it is considered material.

When disclosing information about its strategy, plans, and actions, if a specific piece of information related to intellectual property, know-how, or innovation is relevant for meeting a Disclosure Requirement, the company may choose to omit that information if it:

  1. is secret, meaning it is not generally known or easily accessible to those who usually deal with such information;
  2. has commercial value because it is secret; and
  3. has been kept secret by the company through reasonable efforts.

If the company omits classified or sensitive information, or a specific piece of information related to intellectual property, know-how, or innovation because it meets the criteria mentioned above, it should still comply with the disclosure requirement by providing all other required information.

The company should make every reasonable effort to ensure that, apart from omitting classified or sensitive information, or specific details related to intellectual property, know-how, or innovation, the overall relevance of the disclosure is not affected.

Section 8: Reporting on opportunities

When reporting on opportunities, the company should provide descriptive information that helps the reader understand the opportunity for the company or the entire sector. The company should consider the materiality of the information being disclosed. In this context, it should take into account factors such as:

  1. whether the opportunity is actively being pursued and is part of the company’s overall strategy, rather than just a general opportunity for the company or sector; and
  2. whether including quantitative measures of expected financial effects is appropriate, considering the number of assumptions required and the resulting uncertainty.

The sustainability information should be presented in a way that clearly separates information required by ESRS disclosures from other information in the management report and in a structure that makes it easy to access and understand the sustainability statement, in a format that is both human-readable and machine-readable.

The company should include in its sustainability statement the disclosures required by Article 8 of the EU Taxonomy and the Commission Delegated Regulations that specify the content and other details of those disclosures. The company should ensure that these disclosures are clearly identifiable within the sustainability statement.

Disclosures related to each environmental objective defined in the Taxonomy Regulation should be grouped together in a clearly identifiable part of the environmental section of the sustainability statement.

When the company includes additional disclosures in its sustainability statement, either from other legislations requiring the disclosure of sustainability information, or widely accepted sustainability reporting standards and frameworks, including non-mandatory or sector-specific guidance from other standard-setting bodies (such as technical material from the International Sustainability Standards Board or the Global Reporting Initiative), such disclosures shall be clearly identified with an appropriate reference to the related legislation, standard, or framework and meet the requirements for the qualitative characteristics of information specified in chapter 2 above.

The company should structure its sustainability statement in four parts, in the following order:

  1. General information
  2. Environmental information (including disclosures required by Article 8 of the EU Taxonomy)
  3. Social information
  4. Governance information

If information provided in one part overlaps with information required in another part, the company may refer to the relevant information in that other part, to avoid duplication.

The disclosures required by sector-specific ESRS should be grouped by reporting area and, where applicable, by sustainability topic. These disclosures should be presented together with the disclosures required by ESRS 2 and the corresponding topical ESRS.

When the company develops material entity-specific disclosures, it should report those disclosures alongside the most relevant sector-agnostic and sector-specific disclosures.

The company should provide information that helps users of its sustainability statement understand the connections between different pieces of information within the statement, as well as the links between the sustainability statement and other information disclosed in other parts of its corporate reporting.

Section 1: Incorporation by reference

Information required by a Disclosure Requirement of an ESRS, including a specific datapoint, may be incorporated into the sustainability statement by referring to:

  1. another section of the management report;
  2. the financial statements;
  3. the corporate governance statement (if not part of the management report);
  4. the remuneration report required by Directive 2007/36/EC (Shareholder Rights Directive (SRD));
  5. the universal registration document, as per Article 9 of Regulation (EU) 2017/1129 (Prospectus Regulation); and
  6. public disclosures under Regulation (EU) No 575/2013 (Capital Requirements Regulation (CRR): Pillar 3 disclosures).

If the company incorporates information from Pillar 3 disclosures, it should ensure the information aligns with the scope of consolidation used for the sustainability statement and, if necessary, add additional elements to complement the incorporated information.

The company may incorporate information by reference to the documents or parts of the documents listed above, provided that the disclosures incorporated by reference:

  1. are a distinct element of information and are clearly identified in the document as addressing the relevant Disclosure Requirement or specific data point;
  2. are published before or at the same time as the management report;
  3. are in the same language as the sustainability statement;
  4. are subject to at least the same level of assurance as the sustainability statement; and
  5. meet the same technical digitalization requirements as the sustainability statement.

If the conditions above are met, information required by a Disclosure Requirement of an ESRS, including a specific data point, may be incorporated into the sustainability statement by referring to the company’s report prepared under the EU EcoManagement and Audit Scheme (EMAS) Regulation (EU) No 1221/2009. In this case, the company should ensure that the information incorporated by reference follows the same basis for preparing ESRS information, including the scope of consolidation and the treatment of value chain information.

When preparing its sustainability statement using incorporation by reference, the company should ensure that the overall cohesiveness of the reported information is maintained and that incorporating information by reference does not affect the readability of the sustainability statement.

See page 39 of this standard for an example of incorporation by reference.

Section 2: Connected information and connectivity with financial statements

The company should describe the relationships between different pieces of information. Doing so could require connecting narrative information on governance, strategy, and risk management to related metrics and targets. For example, in providing connected information, the company may need to explain the effect or likely effect of its strategy on its financial statements or financial plans, or explain how its strategy relates to metrics and targets used to measure progress against performance. Furthermore, the company may need to explain how its use of natural resources and changes within its supply chain could amplify, change, or reduce its material IROs. It may need to link this information to information about current or anticipated financial effects on its production costs, to its strategic response to mitigate such impacts or risks, and to its related investment in new assets. The company may also need to link narrative information to the related metrics and targets and to information in the financial statements. Information that describes connections should be clear and concise.

The sustainability statement may include monetary amounts or other quantitative data points that exceed a threshold of materiality and that are either an aggregation of, or a part of, monetary amounts or quantitative data presented in the company’s financial statements (indirect connectivity between information disclosed in sustainability statement and information disclosed in financial statements). If this is the case, the company should explain how these amounts or data points in the sustainability statement relate to the most relevant amounts presented in the financial statements. This disclosure should include a reference to the line item and/or to the relevant paragraphs of its financial statements where the corresponding information can be found. Where appropriate, a reconciliation may be provided, and it may be presented in a tabular form.

When the sustainability statement includes monetary amounts or other quantitative data points that exceed a threshold of materiality and that are presented in the financial statements (direct connectivity between information disclosed in sustainability statement and information disclosed in financial statements), the company should include a reference to the relevant paragraph of its financial statements where the corresponding information can be found.

In the case of information not covered by the paragraphs above, the company should explain, based on a threshold of materiality, the consistency of significant data, assumptions, and qualitative information included in its sustainability statement with the corresponding data, assumptions and qualitative information included in the financial statements. This may occur when the sustainability statement includes:

  1. monetary amounts or other quantitative data linked to monetary amounts or other quantitative data presented in the financial statements; or
  2. qualitative information linked to qualitative information presented in the financial statements.

Section 1: Transitional provision related to entity-specific disclosures

The coverage of sustainability matters in ESRS is expected to grow as more disclosure requirements are developed. As a result, the need for entity-specific disclosures will likely decrease over time, especially with the future introduction of sector-specific standards.

When defining its entity-specific disclosures, the company may use transitional measures for the first three annual sustainability statements. During this time, it may prioritize:

  1. including entity-specific disclosures it reported in previous periods, as long as these disclosures meet or are adapted to meet the qualitative characteristics of information described in chapter 2 of this standard, and
  1. supplementing its disclosures based on topical ESRS with additional disclosures that address sustainability matters material to the company’s sector(s), using available best practices and/or frameworks or reporting standards, such as IFRS industry-based guidance and GRI sector standards.

Section 2: Transitional provision related to chapter 5 (Value chain)

For the first three years of the company’s sustainability reporting under the ESRS, if not all the necessary information about its upstream and downstream value chain is available, the undertaking should explain the efforts made to gather the required information, the reasons why some of the information couldn’t be obtained, and its plans to collect the necessary information in the future.

To address the challenges companies may face in gathering information from actors across their value chain and to reduce the burden on SMEs in the value chain when disclosing information on policies, actions, and targets according to ESRS2 and other ESRS, the company may limit upstream and downstream value chain information to data available in-house, such as internal data and publicly available information. When disclosing metrics, the company is not required to include upstream and downstream value chain information, except for data points required by other EU legislation, as listed in ESRS 2 Appendix B.

The information above applies regardless of whether the relevant actor in the value chain is an SME

Starting from the fourth year of its reporting under the ESRS, the company should include upstream and/or downstream value chain information as per paragraph 63 of the standard. In this case, the information that ESRS requires to be obtained from SME companies in the value chain will not exceed the content of the future ESRS for listed SMEs.

Section 3: Transitional provision related to section 7.1 (Presenting comparative information)

To make it easier for the company to apply this standard for the first time, it is not required to disclose the comparative information required by chapter 7, section 1 (Presenting comparative information) in the first year of preparing the sustainability statement under the ESRS.

For the disclosure requirements listed in Appendix C, this transitional provision applies starting from the first year when the phased-in disclosure requirement becomes mandatory.

Section 4: List of Disclosure Requirements that are phased-in

See page 33 of this standard for a list of phase-in provisions for certain Disclosure Requirements or data points within the ESRS that may be omitted or are not applicable in the first year(s) of preparing the sustainability statement under the ESRS.


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Footnotes

  1. For example, consider a supermarket that uses plastic bags for its customers purchases (business operation). Plastic takes a hundred years to degrade and as it breaks down, it contaminates the environment (negative impact). Customers that lean towards eco-friendly packaging bags are likely to switch to a competitor that offers this type of packaging (risk). To avoid this, the supermarket has the opportunity to reduce its environmental impact by switching to more sustainable alternatives. This could not only help reduce plastic waste but also boost the supermarket’s reputation as a responsible and eco-conscious brand (opportunity).↩︎

  2. Impacts, risks and opportunities are collectively referred to as IROs.↩︎