What are ESRS 1 and 2, and why are they important?
ESRS 1 and 2 are cross-cutting standards within the European Sustainability Reporting Standards (ESRS). Unlike other standards focused on specific environmental, social, or governance topics, ESRS 1 and 2 apply to all businesses and provide the foundational framework for CSRD compliance. ESRS 1 sets out the key concepts and principles, while ESRS 2 details the specific disclosure requirements. Understanding these standards is crucial for anyone involved in sustainability reporting under the CSRD legislation.
What are the key principles outlined in ESRS 1?
ESRS 1 establishes the conceptual framework for sustainability reporting. It emphasises the need for high-quality information that is relevant, a faithful representation, comparable, verifiable, and understandable. These principles ensure that the information provided is reliable and useful for stakeholders to make informed decisions.
What is "double materiality" and why is it significant?
"Double materiality" is a core concept in ESRS 1. It requires companies to assess and report on sustainability matters that are significant from both a sustainability perspective and a financial perspective. This means that a company must disclose information not only on what matters to the environment and society but also on what has the potential to impact the company's financial performance. This is different from other reporting frameworks that may only focus on financial materiality.
What are the key elements of ESRS 2 disclosure requirements?
ESRS 2 outlines the specific disclosure requirements and follows the structure of the Task Force on Climate-Related Financial Disclosures (TCFD). It covers four main areas: Governance, Strategy, Impacts, Risks & Opportunities (IRO) Management, and Metrics & Targets. Each of these areas requires companies to provide detailed information about their sustainability practices and performance.
What does the governance section of ESRS 2 entail?
The governance section requires companies to disclose information about their governance processes, controls, and procedures related to sustainability matters. This includes the role of management, how management receives information about sustainability, management incentives related to sustainability, sustainability due diligence, and risk management and internal controls. This level of detail provides stakeholders with a comprehensive view of how sustainability is managed within the organisation.
What is covered in the strategy section of ESRS 2?
The strategy section focuses on the company's business model and how it relates to sustainability. Companies must describe their products or services, key markets, stakeholder engagement, and how they consider stakeholder views in their business strategy. This section aims to provide stakeholders with an understanding of the company's direction and how sustainability is integrated into its overall strategy.
What does IRO management involve?
The Impacts, Risks & Opportunities (IRO) management section details how a company manages risks, impacts, and opportunities related to sustainability. This includes the processes for assessing and managing these factors, as well as the policies and actions taken. Companies must also discuss how these factors may affect their financial position, performance, and cash flows, both in the short and long term.
What are the metrics and targets requirements in ESRS 2?
The metrics and targets section requires companies to set and report on metrics related to sustainability matters. Companies must also assess the effectiveness of these metrics in addressing IROs. This section ensures that companies are not only identifying and managing sustainability issues but also measuring and tracking their progress towards set targets.
Why is "faithful representation" important in sustainability reporting?
"Faithful representation" is a key principle that requires companies to publish information that accurately reflects their operations and sustainability performance. This means that the information should be complete, neutral, and free from material error. Faithful representation is essential for building trust with stakeholders and ensuring that the information is reliable and useful.
