Sinéad Slattery
Director, KPMG International
What does the implementation guidance cover?
EFRAG1 has published three implementation guidance documents covering some of the more challenging aspects of ESRSs2.
This non-authoritative guidance aims to support companies applying the ESRSs.
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An illustrative double materiality assessment (DMA) process, and practical guidance on how to determine impact and financial materiality when applying ESRS 1 General requirements
Practical guidance on how to implement the value chain requirements in ESRSs
A complete list of the disclosure requirements and related application requirements in the sector-agnostic standards
Companies looking to accelerate their ESRS implementation now have guidance from EFRAG to use alongside the standards. We welcome that EFRAG tackled the challenging concepts of materiality and value chain first.
Why is it important for companies?
There is no one-size-fits-all process or methodology for performing a DMA3. Companies can use the materiality guidance when developing their own DMA process – tailoring it to their specific facts and circumstances.
The materiality guidance acknowledges that market practice is still evolving, and it is expected that companies will continue to refine their DMA process over several reporting cycles.
Value chain guidance
Companies can use the value chain guidance to help them navigate the value chain requirements in the ESRSs. It provides answers to frequently asked questions, such as the reporting boundary for greenhouse gas emissions under ESRS E1 Climate change, and how a company’s DMA process could capture material impacts, risks and opportunities in the value chain.
Datapoints guidance
The datapoints can be used as a basis for a data gap analysis when preparing a sustainability-related statement under ESRSs. The list of datapoints, although helpful, is not a replacement for the ESRSs themselves – for example, it does not contain datapoints that would relate to company-specific disclosures or the conceptual principles from ESRS 1.
What other implementation support is planned?
EFRAG is in the process of preparing guidance to support companies in disclosing their transition plans.
In addition to implementation guidance, EFRAG has launched the ESRS Q&A Platform – publishing answers to technical implementation questions submitted by preparers and other stakeholders. To date, EFRAG has published a collection of 68 technical explanations to questions across environment, social, governance and cross-cutting topics. Further batches will continue to be published by EFRAG.
Actions for companies
- Read the implementation guidance and the ESRS Q&A technical explanations and understand how they can help when implementing the ESRSs.
- Remember that the implementation guidance accompanies the ESRSs but does not form part of the standards. This means that if anything in the guidance appears to contradict any requirement or explanation in the ESRSs, then the standards take precedence.
- Read the joint interoperability guidance issued by the International Sustainability Standards Board and EFRAG in conjunction with EFRAG’s implementation guidance and consider if the differences are relevant for your reporting.
- Monitor further guidance from EFRAG and the European Commission.
1 The European Financial Reporting Advisory Group
2 European Sustainability Reporting Standards
3 A double materiality assessment requires companies to approach their materiality analysis from two separate perspectives: impact materiality considers the sustainability matters that relate to a company’s actual or potential impacts on people or the environment; financial materiality considers information that would influence an investor’s decisions. Information is material to report if it meets the criteria of either perspective, or both. The ISSBTM Standards consider financial materiality only; the ESRSs consider double materiality
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