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General Disclosures

Author

Shel

ESRS 2 outlines the disclosure requirements (DRs) that apply to all companies. These DRs are sector agnostic and apply across all sustainability topics.

This standard contains five chapters, detailed below.

(Expand each chapter to view more details)

DR BP-1 : General basis for preparation of sustainability statements

The objective of this DR is for companies to explain how they prepare their sustainability statements. It includes details about the scope of consolidation, information about the upstream and downstream value chain, and whether they have used any options to omit information.

Each company should disclose the following details, regarding its sustainability statement:

  1. Whether the sustainability statement is prepared on a consolidated or individual basis.

  2. If prepared on a consolidated basis, the company should confirm if the consolidation scope matches that of the financial statements. If not, the company should clarify whether it is exempt from preparing financial statements or is following Article 48i of Directive 2013/34/EU for consolidated sustainability reporting.

  3. Which subsidiaries, if any, are exempted from individual or consolidated sustainability reporting under Article 19a or 29a of Directive 2013/34/EU.

  4. The extent to which the sustainability statement includes upstream and downstream value chain activities. The company may highlight the following areas:

    1. the extent to which its materiality assessment of IROs cover its upstream and/or downstream value chain;
    2. the scope of its policies, actions and targets in relation to the value chain; and,
    3. the inclusion of upstream and/or downstream value chain data in the company’s sustainability metrics.

  5. Whether it has omitted specific information related to intellectual property, know-how, or innovation results as per ESRS 1 (see chapter 7, section 7).

  6. If the company is based in an EU member state that permits exemptions for disclosing impending developments or ongoing negotiations (Article 19a or 29a of Directive 2013/34/EU), state whether this exemption has been applied.

DR BP-2 : Disclosures in relation to specific circumstances

This DR outlines details that companies should disclose with regards to certain circumstances.

Time horizon

When a company defines time horizons (short-term, medium-term, long-term) differently from how they are defined in chapter 6 of ESRS 1, it should describe these definitions and give reasons for applying them.

Value chain estimations

When a company includes upstream and/or downstream value chain data estimated using indirect sources in their metrics, such as sector-average data or other proxies, it should:

  1. identify the metrics;
  2. describe the basis for preparation;
  3. describe the resulting level of accuracy; and
  4. where applicable, describe the planned actions to improve the accuracy of the data in future.

Sources of estimation and outcome uncertainty

In line with ESRS 1 chapter 7, section 2, the company must:

  1. clearly state which quantitative metrics and monetary amounts in its disclosures are subject to significant measurement uncertainties,

  2. provide details of each identified metric or amount,

  3. explain the reason behind the uncertainty, such as dependency on future events, reliance on specific measurement techniques, or limitations in data quality or availability from the entity’s upstream and/or downstream value chain, and,

  4. disclose the assumptions, approximations and judgements made to measure the metric or monetary amount.

Changes in preparation or presentation of sustainability information

If there are changes in how sustainability information is prepared or presented (section 4, chapter 7 of ESRS 1), the company must;

  1. provide a clear explanation of the changes made and why they occurred, including justifying how the new metric offers more useful information to users,

  2. present updated comparative figures for past periods, unless it is not feasible to do so in which case the company should disclose this, and,

  3. specify the difference between the originally reported figure in the preceding period and the updated comparative figure.

Reporting errors in prior periods

If the company identifies significant errors from previous periods, it should disclose:

  1. the nature of the error,

  2. the correction made for each prior period in the sustainability statement, if practical, and,

  3. if not practical, give reasons why.

Disclosures stemming from other legislation or generally accepted sustainability reporting pronouncements

If a company includes sustainability information in its statement, that comes from other legislation or widely accepted reporting standards/frameworks, in addition to what ESRS requires, it should disclose this. If only part of another standard or framework is used, the company must specify the exact sections applied.

Incorporation by reference

When a company incorporates information by reference (see ESRS 1 section 9.1), it should disclose a list of the DRs of ESRS, or the specific data points mandated by a DR, that have been incorporated by reference.

Use of phase-in provisions in accordance with Appendix C of ESRS 1

If a company or group with an average of 750 or fewer employees during the financial year chooses to omit information required by ESRS E4, S1, S2, S3, or S4, it must still disclose whether these topics were deemed material in its materiality assessment. For any topics assessed as material, the company must:

  1. list the material matters (topics, sub-topics, or sub-sub-topics) and briefly explain how its business model and strategy address their impacts,
  2. briefly describe any time-bound targets related to these matters, progress towards those targets, and whether biodiversity-related targets are based on scientific evidence,
  3. briefly outline its policies related to these matters,
  4. summarize actions taken to address actual or potential negative impacts, including prevention, monitoring, mitigation, remediation, or cessation efforts, along with the outcomes of those actions,
  5. provide relevant metrics for these matters.

The company may choose to disclose whether it follows any European standards approved by the European Standardisation System (such as ISO/IEC or CEN/CENELEC standards). It can also specify the extent to which the data and processes used for sustainability reporting have been verified by an external assurance provider to ensure they meet the relevant ISO/IEC or CEN/CENELEC standard.

This chapter aims to establish disclosure requirements that explain the governance processes, controls, and procedures used to monitor, manage, and oversee sustainability matters.

DR GOV-1 : The role of the administrative, management and supervisory bodies

The company must disclose the composition of its administrative, management, and supervisory bodies, their roles and responsibilities, and their access to expertise and skills related to sustainability matters.

The goal of this disclosure is to provide an understanding of:

  1. the composition and diversity of the administrative, management, and supervisory bodies,

  2. the roles and responsibilities of these bodies in overseeing the management of material IROs, including management’s involvement, and,

  3. the expertise and skills of these bodies on sustainability matters, or their access to such expertise.

When disclosing information about the composition and diversity of its administrative, management and supervisory bodies, the company should disclose the following:

  1. the number of executive and non-executive members,
  2. employee and worker representation,
  3. relevant experience in the sectors, products or regions the company is involved in,
  4. gender percentage and other diversity aspects considered by the company, and,
  5. the percentage of independent board members.

When disclosing information about the roles and responsibilities of the administrative, management, and supervisory bodies, the company should disclose the following information:

  1. the identity of the body or individuals responsible for overseeing IROs (e.g. a board committee),
  2. how their responsibilities are reflected in terms of terms of reference, board mandates, and related policies,
  3. a description of management’s role in governance processes, controls, and procedures for monitoring and managing IROs, including:
    1. whether the role is delegated to a specific position or committee and how oversight is exercised;
    2. reporting lines to the administrative, management, and supervisory bodies;
    3. whether dedicated controls and procedures are applied to managing IROs, and how they are integrated with other functions;
  1. how the bodies and senior management oversee setting targets for material IROs and monitor progress.

The company may specify which sustainability aspects are being overseen, focusing on ESG issues. This includes any assessments or changes to the sustainability-related parts of the company’s strategy and business model, the identification and evaluation of material IROs, relevant policies, targets, action plans, and the allocation of resources, as well as sustainability reporting. The company may also describe how this oversight is carried out, whether it involves providing information, consultation, or decision-making. Additionally, the company can explain how this oversight is organized and formalized, detailing the processes by which the administrative, management, and supervisory bodies engage with sustainability matters.

This disclosure must include how the administrative, management, and supervisory bodies determine if they have or will develop the necessary skills and expertise to oversee sustainability matters, including the sustainability-related expertise the bodies possess or can access, such as through experts or training and how these skills and expertise are relevant to the company’s material IROs.

When describing the organization of governance related to sustainability matters, the company may include a diagram to complement the description of its complex governance structure. This helps to visually present the relationships and roles within the organization regarding sustainability oversight and decision-making.

The company should explain the level of expertise or access to expertise within its administrative, management, and supervisory bodies. This can be done by showing how these bodies are composed, including the members who provide the necessary expertise to oversee sustainability matters. The explanation should also outline how the bodies use this expertise collectively. In doing so, the company must consider how the expertise aligns with its material IROs. It should also indicate whether the bodies or individual members have access to additional sources of expertise, such as external experts, training, or educational programs, to continuously enhance their sustainability-related knowledge.

DR GOV-2 : Information provided to and sustainability matters addressed by the company’s administrative, management and supervisory bodies

This disclosure requirement aims to explain how administrative, management, and supervisory bodies are informed about sustainability matters, and what information and issues they addressed during the reporting period. This helps understand if the members of these bodies were properly informed and able to fulfill their roles effectively.

The company must specifically disclose the following information:

  1. Who informs the administrative, management, and supervisory bodies, including their committees, about material IROs, due diligence, and the results of policies, actions, metrics, and targets related to them, and how frequently this information is provided;

  2. How the bodies consider these IROs when overseeing the strategy, major transactions, and risk management process, including if they have considered trade-offs related to these factors;

  3. A list of the material IROs addressed by the bodies or their relevant committees during the reporting period.

Depending on the company structure, the administrative, management, and supervisory bodies may concentrate on overarching targets, while the management is responsible for focusing on more detailed, specific targets. In such cases, the company may explain how the governance bodies ensure that a proper mechanism is in place to monitor performance effectively.

DR GOV-3 : Integration of sustainability-related performance in incentive schemes

This disclosure requirement aims to clarify whether incentive schemes for administrative, management, and supervisory body members are tied to sustainability objectives.

The company must disclose details about incentive schemes and remuneration policies tied to sustainability matters for its administrative, management, and supervisory bodies, including:

  1. A description of the key features of the incentive schemes;

  2. Whether specific sustainability-related targets or impacts are used to assess performance, and if so, which ones;

  3. How sustainability-related metrics are incorporated as performance benchmarks or into remuneration policies;

  4. The percentage of variable remuneration tied to sustainability-related targets or impacts; and

  5. The organizational level responsible for approving and updating the terms of these incentive schemes.

For listed companies, this disclosure requirement should align with the remuneration report outlined in Articles 9a and 9b of Directive 2007/36/EC, which relates to the exercise of certain shareholder rights in listed companies. In accordance with the provisions of chapter 9 section 1 of ESRS 1, a listed company may reference its remuneration report when disclosing the relevant information.

DR GOV–4 : Statement on due diligence

The objective of this disclosure requirement is to understand a company’s due diligence process concerning sustainability matters.

The company should map out how and where the main aspects and steps of its due diligence process, as described in ESRS 1 chapter 4, are reflected in its sustainability statement. This mapping should illustrate how the company applies due diligence in practice across relevant cross-cutting and topical disclosure requirements under the ESRS. The mapping may be presented in the form of a table, cross-referencing the core elements of due diligence for impacts on people and the environment to the relevant disclosures in the company’s sustainability statement. This table should clearly align the due diligence processes with the corresponding sections or disclosures within the statement.

This disclosure requirement does not impose specific behavioral expectations for due diligence actions, nor does it alter the roles of administrative, management, and supervisory bodies as defined by other laws or regulations.

DR GOV–5 : Risk management and internal controls over sustainability reporting

The objective of this disclosure requirement is to provide an understanding of the company’s risk management and internal control processes in relation to sustainability reporting.

The company should disclose the following information:

  1. The scope, main features, and components of the risk management and internal control processes related to sustainability reporting.

  2. The approach to risk assessment, including the methodology for prioritizing risks.

  3. The primary risks identified and their mitigation strategies, including associated controls.

  4. How findings from the risk assessment and internal controls are incorporated into relevant internal functions and processes.

  5. How findings are periodically reported to the administrative, management, and supervisory bodies.

This disclosure requirement focuses solely on the internal control processes related to the sustainability reporting process. The company may consider risks such as the completeness and integrity of the data, the accuracy of estimation results, the availability of upstream and/or downstream value chain data, and the timing of when the information becomes available.

This section requires companies to disclose:

  1. the elements of their strategy that relate to sustainability, their business model, and their value chain;

  2. how they incorporate the interests and views of stakeholders into their strategy and business model;

  3. the results of their assessment of material IROs, and how these inform their strategy and business decisions.

DR SBM-1 : Strategy, business model and value chain

The goal of this disclosure is to explain the main parts of the company’s overall strategy that are related to sustainability, as well as the key aspects of its business model and value chain. This helps to understand the company’s exposure to IROs, and where they come from.

The company should disclose the following information about the key elements of its general strategy that relate to or affect sustainability matters:

  1. A description of:

    1. significant groups of products and/or services offered, including changes in the reporting period (new/removed products and/or services),

    2. significant markets and/or customer groups served, including changes in the reporting period (new/removed markets and/or customer groups),

    3. headcount of employees by geographical areas; and

    4. where applicable and material, products and services that are banned in certain markets;

  2. A breakdown of total revenue by significant ESRS sectors, as included in its financial statements. When the company provides segment reporting as required by IFRS 8 in its financial statements, this sector revenue information should be, as far as possible, reconciled with IFRS 8 information.

  3. A list of the additional significant ESRS sectors beyond the ones reflected above, such as activities that give rise to intercompany revenues, in which the company develops significant activities, or in which it is or may be connected to material impacts. The identification of these additional ESRS sectors should be consistent with the way they have been considered by the company when performing its materiality assessment and with the way it discloses material sector-specific information.

  4. Where applicable, a statement indicating, together with the related revenues, that the company is active in:

    1. the fossil fuel (coal, oil and gas) sector i.e., it derives revenues from exploration, mining, extraction, production, processing, storage, refining or distribution, including transportation, storage and trade, of fossil fuels as defined in Article 2, point (62), of Regulation (EU) 2018/1999 of the European Parliament and the Council , including a disaggregation of revenues derived from coal, from oil and from gas, as well as the revenues derived from Taxonomy-aligned economic activities related to fossil gas as required under Article 8(7)(a) of Commission Delegated Regulation 2021/2178;

    2. chemical production, i.e., its activities fall under Division 20.2 of Annex I to Regulation (EC) No 1893/2006;

    3. controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons); and/or

    4. the cultivation and production of tobacco.

  5. Its sustainability-related goals in terms of significant groups of products and services, customer categories, geographical areas and relationships with stakeholders;

  6. An assessment of its current significant products and/or services, and significant markets and customer groups, in relation to its sustainability-related goals; and

  7. The elements of its strategy that relate to or impact sustainability matters, including the main challenges ahead, critical solutions or projects to be put in place, when relevant for sustainability reporting.

To provide information on sectors in which the company operates, it should map its significant activities according to the ESRS sectors. If a code for a sub-sector does not exist, the caption “others” should be used.

A group of products and/or services offered, a group of markets and/or customer groups served, or an ESRS sector is considered significant for the company if it meets one or both of the following criteria:

  1. It accounts for more than 10 percent of the company’s revenue.
  2. It is connected with material actual impacts or material potential negative impacts of the company.

If a company is based in an EU member state that permits an exemption from disclosing the information in Article 18(1)(a) of Directive 2013/34/EU and has used this exemption, it may omit the revenue breakdown by significant ESRS sectors. However, the company must still disclose the list of ESRS sectors that are significant to its operations.

Additionally, the company should disclose a description of its business model and value chain, including:

  1. Its inputs and its approach to sourcing, developing, and securing those inputs.

  2. Its outputs and outcomes, detailing the current and expected benefits for customers, investors, and other stakeholders.

  3. The main characteristics of its upstream and downstream value chain, along with its position within it. This should include a description of key business actors, such as major suppliers, customers, distribution channels, and end-users, as well as their relationship with the company.

In preparing disclosures related to its business model and value chain, the company should consider the following:

  1. Its key activities, resources, distribution channels, and customer segments.

  2. Its key business relationships and their key characteristics, including relationships with customers and suppliers.

  3. The cost structure and revenue of its business segments, in line with IFRS 8 disclosure requirements in the financial statement, where applicable.

  4. The potential IROs in its significant sector(s) and their possible relationship to its own business model or value chain.

If the company operates multiple value chains, the disclosure should cover the most significant ones.

DR SBM-2 : Interests and views of stakeholders

The objective of this disclosure requirement is to provide an understanding of how stakeholders’ interests and views inform the company’s strategy and business model.

The company should disclose a summarised description of:

  1. its stakeholder engagement including who its key stakeholders are, whether engagement with them occurs and for which categories of stakeholders, how the engagement is organised, its purpose, and how the outcome of the engagement is taken into account by the company,

  2. the company’s understanding of the interests and views of its key stakeholders as they relate to its strategy and business model, to the extent that these were analysed during the company’s due diligence process and/or materiality assessment process.

  3. where applicable, amendments to its strategy and/or business model, including:

    1. how the company has amended or expects to amend its strategy and/or business model to address the interests and views of its stakeholders;
    2. any further steps that are being planned and in what timeline; and
    3. whether these steps are likely to modify the relationship with and views of stakeholders; and

  4. whether and how the administrative, management and supervisory bodies are informed about the views and interests of affected stakeholders with regard to the company’s sustainability-related impacts.

The views and interests of stakeholders, expressed during the company’s engagement with them through its due diligence process, may be relevant to various aspects of its strategy or business model. These insights can influence the company’s decisions about the future direction of its strategy or business model.

DR SBM-3 : Material impacts, risks and opportunities and their interaction with strategy and business model

The purpose of this disclosure is to explain the key IROs identified through the company’s materiality assessment, and how they affect the company’s strategy and business model, including how resources are allocated. The company must also provide information on how it manages these material IROs, following the rules outlined in specific ESRS and sector standards. These standards should be used alongside the minimum disclosure requirements for policies, actions, and targets set in this standard.

The company should disclose:

  1. a brief description of its material IROs resulting from its materiality assessment, including a description of where in its business model, its own operations and its upstream and downstream value chain these material IROs are concentrated;

  2. the current and anticipated effects of its material IROs on its business model, value chain, strategy and decision-making, and how it has responded or plans to respond to these effects, including any changes it has made or plans to make to its strategy or business model as part of its actions to address particular material impacts or risks, or to pursue particular material opportunities;

  3. with reference to the company’s material impacts:

    1. how the company’s material negative and positive impacts affect (or, in the case of potential impacts, are likely to affect) people or the environment;

    2. whether and how the impacts originate from or are connected to the company’s strategy and business model;

    3. the reasonably expected time horizons of the impacts; and

    4. whether the company is involved with the material impacts through its activities or because of its business relationships, describing the nature of the activities or business relationships concerned;

  4. the current financial effects of the company’s material risks and opportunities on its financial position, financial performance and cash flows and the material risks and opportunities for which there is a significant risk of a material adjustment within the next annual reporting period to the carrying amounts of assets and liabilities reported in the related financial statements;

  5. the anticipated financial effects of the company’s material risks and opportunities on its financial position, financial performance and cash flows over the short-, medium- and long-term, including the reasonably expected time horizons for those effects. This should include how the company expects its financial position, financial performance and cash flows to change over the short, medium- and long-term, given its strategy to manage risks and opportunities, taking into consideration:

    1. its investment and disposal plans (for example, capital expenditure, major acquisitions and divestments, joint ventures, business transformation, innovation, new business areas and asset retirements), including plans the company is not contractually committed to; and

    2. its planned sources of funding to implement its strategy.

  6. information about the resilience of the company’s strategy and business model regarding its capacity to address its material impacts and risks and to take advantage of its material opportunities. The company should disclose a qualitative and, when applicable, a quantitative analysis of the resilience, including how the analysis was conducted and the time horizons that were applied as defined in ESRS 1, chapter 6. When providing quantitative information, the company may disclose single amounts or ranges;

  7. changes to the material IROs compared to the previous reporting period; and

  8. a specification of those IROs that are covered by ESRS Disclosure Requirements as opposed to those covered by the company using additional entity-specific disclosures.

When describing where material IROs are concentrated in its upstream and/or downstream value chain, the company should consider factors such as geographical areas, facilities or types of assets, inputs, outputs, and distribution channels.

This disclosure may be presented either in terms of a single impact, risk, or opportunity, or by aggregating groups of material IROs, provided that this approach offers more relevant information and does not obscure material details.

Disclosures on the materiality assessment process

This chapter outlines disclosure requirements to help understand the process the company uses to identify its material IROs and the information the company has included in its sustainability statement based on the results of its materiality assessment.

DR IRO-1 : Description of the process to identify and assess material impacts, risks and opportunities

The objective of this disclosure requirement is to explain how the company identifies its IROs and assesses their materiality. This process forms the basis for the disclosures in its sustainability statement. It follows the guidelines in ESRS 1, chapter 3, which outline the requirements and principles for identifying and assessing material IROs based on the principle of double materiality.

The company should disclose the following information:

  1. a description of the methodologies and assumptions applied in the described process;

  2. an overview of the process to identify, assess, prioritise and monitor the company’s potential and actual impacts on people and the environment, informed by the company’s due diligence process, including an explanation of whether and how the process:

    1. focuses on specific activities, business relationships, geographies or other factors that give rise to heightened risk of adverse impacts;

    2. considers the impacts with which the company is involved through its own operations or as a result of its business relationships;

    3. includes consultation with affected stakeholders and external experts to understand how they may be impacted ;

    4. prioritises negative impacts based on their relative severity and likelihood and, if applicable, positive impacts on their relative scale, scope and likelihood, and determines which sustainability matters are material for reporting purposes, including the qualitative or quantitative thresholds and other criteria used as prescribed by the ESRS 1 section on Impact materiality;

  3. an overview of the process used to identify, assess, prioritise and monitor risks and opportunities that have or may have financial effects. The disclosure should include:

    1. how the company has considered the connections of its impacts and dependencies with the risks and opportunities that may arise from those impacts and dependencies;

    2. how the company assesses the likelihood, magnitude, and nature of effects of the identified risk and opportunities (such as the qualitative or quantitative thresholds and other criteria used as prescribed by ESRS 1 section on Financial materiality);

    3. how the company prioritises sustainability-related risks relative to other types of risks, including its use of risk-assessment tools;

  4. a description of the decision-making process and the related internal control procedures;

  5. the extent to which and how the process to identify, assess and manage impacts and risks is integrated into the company’s overall risk management process and used to evaluate the company’s overall risk profile and risk management processes;

  6. the extent to which and how the process to identify, assess and manage opportunities is integrated into the company’s overall management process where applicable;

  7. the input parameters it uses, for example, data sources, the scope of operations covered and the detail used in assumptions; and

  8. whether and how the process has changed compared to the prior reporting period, when the process was modified for the last time and future revision dates of the materiality assessment.

DR IRO-2 : Disclosure Requirements in ESRS covered by the company’s sustainability statement

The objective of this disclosure requirement is to explain the disclosure requirements included in the company’s sustainability statement and to highlight the topics that have been excluded as not material, based on the results of the materiality assessment.

The company should include a list of the disclosure requirements compiled when preparing the sustainability statement, based on the outcome of the materiality assessment. This list should include the page numbers or paragraphs where the related disclosures can be found in the sustainability statement. The list may also be presented as a content index.

Additionally, the company should include a table of all the datapoints that come from other EU legislation, as listed in Appendix B of this standard (page 62 - page 70). This table should indicate where these datapoints can be found in the sustainability statement. If any data points are considered immaterial, the company should label them as ‘Not material’.

If the company determines that climate change is not material and hence excludes all disclosure requirements in ESRS E1 (Climate Change), it must provide a detailed explanation of the conclusions from its materiality assessment regarding climate change. This should include a forward-looking analysis of the conditions that might lead the company to conclude that climate change is material in the future.

If the company determines any other topic as immaterial and excludes its disclosure requirements from the sustainability statement, it may give a brief explanation of the conclusion from its material assessment for that specific topic.

The company should explain how it has determined the material information to be disclosed regarding the IROs it has assessed as material. This should include details on the thresholds used and/or how it has applied the criteria outlined in the ‘Double Materiality’ section of ESRS 1.

Despite the structure of the sustainability statement outlined in chapter 8 of ESRS 1, the company may disclose the list of disclosure requirements compiled while preparing the sustainability statement either in the general information section or in other parts of the sustainability statement, as it sees fit. The company may choose to use a content index, which is a tabular list of the disclosure requirements included in the sustainability statement, along with the corresponding page or paragraph locations.

Minimum disclosure requirements on policies and actions

This section outlines the minimum disclosure requirements (MDRs) that must be included when the company shares information on the policies it has and actions it has taken to manage material sustainability matters. This includes policies and actions aimed at preventing, mitigating, and remediating actual and potential material impacts, addressing material risks, and/or pursuing material opportunities.

These requirements should be applied alongside the relevant disclosure requirements, provided in the topical ESRS. They should also be followed when the company prepares entity-specific disclosures.

These disclosures should be placed alongside the disclosures required by the relevant ESRS. If a single policy or set of actions addresses multiple interconnected sustainability matters, the company may disclose required information under one topical ESRS and reference it in its reporting under other relevant topical ESRS.

If a company is unable to disclose information on policies and actions required under the relevant ESRS because it has not adopted policies and/or actions for the specific sustainability matter, it must state this and provide reasons for not having adopted them. The company may also disclose a time frame within which it plans to adopt these policies and actions.

MDR-P – Policies adopted to manage material sustainability matters

The company should disclose information about the policies it has adopted to manage material sustainability matters.

This disclosure should include:

  1. a description of the key contents of each policy, including its general objectives, the specific IRO the policy addresses, and the process used to monitor its effectiveness;

  2. a description of the scope of the policy, including any exclusions, with regard to activities, the upstream and/or downstream value chain, geographies, and where relevant, the affected stakeholder groups;

  3. the most senior level within the company that is accountable for implementing the policy;

  4. if applicable, reference to any third-party standards or initiatives it commits to respecting through the implementation of the policy;

  5. if relevant, a description of how it took the interests of key stakeholders into account when setting the policy;

  6. if relevant, whether and how the company makes the policy available to potentially affected stakeholders, and stakeholders who need help implementing it.

Given the interconnection of impacts on people and the environment, risks, and opportunities, a single policy may address multiple material sustainability matters, potentially covering issues from more than one topical ESRS. For instance, if one policy addresses both environmental and social matters, the company may report on it in the environmental section of its sustainability statement. In this case, a cross-reference should be included in the social section, directing readers to the environmental section where the policy is detailed. Conversely, the policy could be reported in the social section, with a cross-reference to the environmental section.

The description of the policy’s scope should clarify which activities and/or segments of the company’s operations or its upstream and downstream value chain are included. It may also outline additional boundaries relevant to the specific sustainability topic or the company’s circumstances, such as geographical areas or product life cycles. In cases where the policy does not cover the entire value chain, the company should provide clear information about the specific parts of the value chain that are included under the policy.

MDR-A – Actions and resources in relation to material sustainability matters

The objective of this MDR is to provide an understanding of the key actions the company has taken and/or plans to take to prevent, mitigate and remediate actual and potential impacts. Key actions refer to those actions that significantly contribute to the achievement of the company’s objectives in managing material IROs. Additionally, this MDR aims to address risks and opportunities, and where applicable, achieve the objectives and targets set by related policies.

Where the implementation of a policy requires actions, or a comprehensive action plan to achieve its objectives or when actions are implemented without a specific policy, the company should disclose the following information:

  1. the list of key actions taken in the reporting year and planned for the future, their expected outcomes, and how their implementation contributes to the achievement of policy objectives and targets;

  2. the scope of the key actions i.e. coverage in terms of activities, upstream and/or downstream value chain, geographies and, where applicable, affected key stakeholders;

  3. the time horizons for completing each key action;

  4. if applicable, key actions taken and their results to provide remedy or support for those harmed by actual material impacts;

  5. if applicable, quantitative and qualitative information on the progress of actions or action plans disclosed in prior periods.

When the implementation of an action plan requires significant operational expenditure (OpEx) and capital expenditure (CapEx), the company should:

  1. describe the type of current and future financial and other resources allocated to the action plan, including if applicable, the relevant terms of sustainable finance instruments, such as green bonds, social bonds and green loans;

  2. specify the environmental and social objectives of these instruments, and whether the ability to implement the action or action plan depends on specific pre-conditions e.g., granting of financial support, public policy or market developments;

  3. provide the amount of current financial resources allocated to the action plan and explain how these resources relate to the relevant amounts presented in the financial products;

  4. provide the amount of future financial resources allocated to the plan.

Information regarding resource allocation can be presented in a table format, distinguishing between capital expenditure (CapEx) and operating expenditure (OpEx). The breakdown should cover the relevant time horizons and differentiate between resources allocated in the current reporting year and those planned for future time periods.

This chapter outlines the MDRs that must be included when the company discloses information on its metrics and targets related to each sustainability matter.

These requirements should be applied alongside the relevant disclosure requirements, provided in the topical ESRS. They should also be followed when the company prepares entity-specific disclosures.

If the company is unable to disclose the information on targets required under the relevant topical ESRS because it has not set targets for the specific sustainability matter, it must state this and provide reasons for not having adopted them. The company may also disclose a time frame in which it plans to set targets.

MDR-M - Metrics in relation to material sustainability matters

The objective of this MDR is to provide an understanding of the metrics the company uses to track the effectiveness of its actions in managing sustainability matters.

The company should disclose any metric it uses to evaluate performance and effectiveness in relation to material IROs. Metrics should include those identified in the ESRS, as well as any metrics identified on an entity-specific basis, whether taken from other sources or developed by the company itself.

For each metric, the company should:

  1. disclose the methodologies and significant assumptions behind the metric, along with any limitations of the methodologies used;

  2. disclose whether the measurement of the metric is validated by an external body other than the assurance provider, and if so, which one;

  3. label and define the metric using meaningful, clear and precise names and descriptions;

  4. when currency is specified as the unit of measure, use the currency used in its financial statements.

MDR-T - Tracking effectiveness of policies and actions through targets

The goal of this MDR is to provide, for each material sustainability matter, an understanding of:

  1. whether and how the company tracks the effectiveness of its actions in addressing material IROs, including metrics used for this tracking;

  2. measurable, time-bound, outcome-oriented targets set by the company to meet the policy’s objectives, defined in terms of expected results for people, the environment, or the company itself regarding material IROs;

  3. the overall progress towards the adopted targets over time;

  4. how the company tracks the effectiveness of its actions to address material IROs and measures the progress in achieving its policy objectives, when measurable time-bound outcome oriented targets have not been set; and

  5. whether and how stakeholders have been involved in setting targets for each sustainability matter.

The company should disclose the measurable, outcome-oriented and time-bound targets on material sustainability issues it has set to assess progress. For each target, the disclosure should include the following information:

  1. a description of the relationship of the target to the policy objectives;

  2. the defined target level to be achieved, including details on whether the target is absolute or relative and in which unit it is measured;

  3. the scope of the target, including the company’s activities and/or its upstream and/or downstream value chain, and geographical boundaries;

  4. the baseline value and base year from which progress is measured;

  5. the period to which the target applies and if possible, any milestones or interim targets;

  6. the methodologies and significant assumptions used to define targets, including where applicable, the selected scenario, data sources, alignment with national, EU or international policy goals and how the targets consider the wider context of sustainable development and/or local situations in which impacts take place;

  7. whether targets related to environmental matters are based on conclusive scientific evidence;

  8. whether and how stakeholders have been involved in setting these targets;

  9. any changes in targets and corresponding metrics or underlying measurement methodologies, significant assumptions, limitations, sources and processes to collect data adopted within the defined time horizon, including an explanation of the rationale for these changes and their effect on comparability; and

  10. the performance against its disclosed targets, including information on how the target is monitored and reviewed and the metrics used, whether the progress is in line with what had been initially planned, and an analysis of trends or significant changes in the company’s performance towards achieving the target.

When disclosing targets aimed at preventing or mitigating environmental impacts, the company should prioritize targets that focus on reducing these impacts in absolute terms rather than in relative terms. For targets addressing social impacts, they can be specified in terms of their effects on human rights, welfare, or positive outcomes for the stakeholders affected.

The progress made towards achieving targets can be presented in a detailed table. This table should include information such as the baseline value, target value, milestones, and the performance achieved in previous periods.

If the company hasn’t set any measurable outcome-oriented targets, it may disclose whether it plans to set such targets in the future and provide a time frame for doing so. If the company doesn’t plan to set targets, it should explain the reasons behind this decision.

The company may also establish a baseline to evaluate progress, in the absence of a measurable target. For example, it could assess progress by evaluating a wage increase percentage for workers below a fair wage or by examining the quality of its relationships with local communities based on the proportion of community-raised issues that were resolved satisfactorily. The baseline and assessment of progress should be directly tied to the IROs that make the matter addressed by the policy material.

The company must also disclose whether it tracks the effectiveness of its policies and actions related to material sustainability IROs. If so, it should provide details on the processes it uses to do so. The company must also disclose the level of ambition it aims to achieve and any qualitative and quantitative indicators it uses to evaluate progress. This should include the base period from which progress is measured.


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Footnotes

  1. gender diversity is calculated as the ratio of female to male board members↩︎

  2. For a unitary board, this refers to independent non-executive members, and for a dual board, it refers to independent members of the supervisory body.↩︎