What is ESRS 2 under CSRD?
ESRS 2 under the CSRD sets out the general disclosure requirements that all companies must follow, regardless of their industry. These requirements cover various sustainability topics and ensure consistent reporting standards.
Companies must apply the detailed disclosure requirements for specific topical CSRD ESRS standards. For example identifying and assessing material impacts, risks, and opportunities.
ESRS 2 ensures comprehensive and phased-in sustainability reporting for better transparency and accountability. This standard can be viewed as an introduction to other parts of the sustainability report.
Key points of ESRS 2
The key points of ESRS 2 highlight its focus on comprehensive sustainability-related disclosures. It emphasizes materiality assessment, governance integration, data accuracy, and alignment with global standards. The 5 key points of ESRS 2 requirements are:
- Holistic scope: ESRS 2 encompasses a broad range of sustainability disclosures, covering areas such as the scope of sustainability statements, value chain coverage, and the use of external sustainability reporting standards.
- Materiality assessment: The standard emphasizes the importance of assessing the materiality of various sustainability topics. Companies are required to identify and assess material impacts, risks, and opportunities.
- Governance and strategy integration: ESRS 2 promotes the integration of sustainability considerations into corporate governance and strategy.
- Data accuracy and transparency: Companies must disclose metrics including value chain data, assumptions, and sources of measurement uncertainty.
Which data needs to be reported?
The ESRS 2 is divided into various categories, each serving a unique purpose. To comply with the CSRD for this standard, you need to report on the categories outlined in the paragraphs outlined below.
Basis for preparation (BP 1)
To start reporting under the ESRS 2 standards, your sustainability report should cover several key aspects to ensure clarity and comprehensiveness. These are described in the first datapoints of the sustainability report.
In this first part you need to disclose whether your sustainability statement is prepared on a consolidated or individual basis. If it’s consolidated you should confirm that the scope matches your financial statements or provide an explanation if it doesn’t.
Additionally, you should detail any specific circumstances that have influenced the preparation of your sustainability statement. This includes explaining any deviations from the standard medium- or long-term time horizons. You do this by providing your definitions, and the reasons for these deviations.
Another part of this BP-1 is reporting on changes compared to the previous period. You should report if there are changes in the preparation or presentation of your sustainability information compared to previous periods. Besides that you should explain these changes and their reasons.
Governance (GOV 1 until 5)
The goal of this part of the ESRS 2 is to outline the requirements for disclosing governance processes, controls, and procedures. It focuses on monitoring, managing, and overseeing sustainability matters.
You need to provide an overview of the structure and responsibilities of your administrative, management, and supervisory bodies. This overview should include their expertise and diversity. Detail how these bodies oversee sustainability impacts, risks, and opportunities.
Explain how sustainability performance is integrated into incentive schemes, highlighting key characteristics, targets, and approval processes. Additionally, map out your due diligence processes and their reflection in the sustainability statement.
Finally, you should describe your risk management and internal control systems related to sustainability reporting. This should include risk assessments, identified risks, mitigation strategies, and integration into internal functions.
Strategy (SBM 1 until 3)
The strategy part aims to set disclosure requirements that provide a clear understanding of how your organization’s strategy, business model, and value chain for CSRD address sustainability matters. It also considers stakeholder interests and assesses material impacts, risks, and opportunities.
You need to explain how your strategy and business model incorporate sustainability. Indicate key elements like significant products, services, markets, and any changes during the reporting period. Include information on employee distribution, revenue by sector, and involvement in industries such as fossil fuels or chemicals. Highlight your sustainability goals and how they align with your current operations and markets.
Additionally, describe how stakeholder interests are integrated into your strategy and business model. This includes your engagement process with stakeholders, key insights gained, and any strategic adjustments made in response.
Finally, disclose the material impacts, risks, and opportunities identified through your assessment, explaining their effects on your strategy and business model. Provide insights into the current and anticipated financial implications and the resilience of your strategy. Additionally, highlight any significant changes from the previous reporting period.
Impacts, risks and opportunities (IRO 1 and 2)
This last part of ESRS 2 focuses on how your organization manages sustainability impacts, risks, and opportunities. You need to explain your process for identifying and assessing these elements, including methodologies and criteria used to conduct a double materiality assessment.
Detail how these processes are integrated into your overall management and risk frameworks, and highlight any changes from previous periods.
In your sustainability statement, list the disclosure requirements you meet and their locations. If you find topics like climate change non-material, provide a detailed explanation and future reassessment conditions.
Why is CSRD ESRS 2 required?
ESRS 2 is required because it standardizes how organizations report on sustainability. It provides a consistent framework for disclosing governance processes, strategies, and the management of sustainability impacts, risks, and opportunities.
Essentially, ESRS 2 serves as a standardized introduction for your sustainability report. This makes it easier to compare different sustainability reports of the same companies or different companies in the same sector or branch.
The comparability allows stakeholders to more effectively evaluate and benchmark sustainability performance, identify best practices, and make informed decisions based on reliable and uniform information. It enhances transparency and accountability, fostering a more sustainable and responsible business environment.
What is ESRS 2 MDR?
The ESRS 2 minimum disclosure requirements (MDR) are the essential details organizations must report on their policies and actions for managing material sustainability matters. These include preventing, mitigating, and remediating impacts, addressing risks, and pursuing opportunities.
Companies must use ESRS 2 MDR for reporting specific thematic data points. This requirement applies when the data type indicates that using a specific minimal disclosure requirement is necessary. MDR are not individual data points themselves, but rather guidelines on how certain data points should be reported.
Disclosure requirements for policies (MDR-P)
When you need to report under the MDR P, you must indicate your policy. Disclose your policies on material sustainability matters, focusing on their objectives, scope, and monitoring processes.
Include details on key impacts, risks, and opportunities addressed, the highest accountability level, and any third-party standards followed. Also, consider stakeholder interests and explain how the policy is communicated and supported by relevant stakeholders.
Disclosure requirement for actions (MDR-A)
ESRS 2 MDR-A entails standards on managing material sustainability matters. You need to disclose the actions and resources allocated or planned for achieving a specific target.
Include key actions taken and planned, their expected outcomes, and their contribution to policy objectives. Specify the scope, time horizons, and any remedial actions for those harmed by impacts. Provide quantitative and qualitative progress information.
For actions requiring significant expenditures, describe current and future financial resources, including sustainable finance instruments. Explain their relation to financial statements.
Metrics and targets (MDR-M & MDR-T)
The last disclosure requirements are metrics and targets on metrics and targets. These include the following: disclose the metrics used to track the effectiveness of actions related to sustainability impacts, risks, and opportunities. The focus is on detailing methodologies, assumptions, any external validations, and providing clear and precise names and descriptions.
Additionally, disclose information about measurable, time-bound targets set for each material sustainability matter. Explain their relationship to policy objectives, defined target levels, scope, baseline values, timeframes, and progress.
If targets are not set, explain why and provide any plans to set them in the future. Track and disclose the effectiveness of policies and actions, involving stakeholders in the process. You should also provide an analysis of trends or significant changes in performance towards achieving the targets.
