Questions & Answers
(1) If water consumption is only deemed material for the value chain (and not material to own operations), is the undertaking still allowed to include this datapoint in its sustainability statement?
(2) If water consumption is not material for the undertaking (neither in relation to IROs that arise in own operations nor for those that arise in upstream and downstream value chain) but third parties ask the undertaking to include this datapoint in its sustainability statement, is this allowed?
- Water consumption
- non-material
- non-material datapoint
Background
EFRAG received two questions that were combined because they are on a similar issue. ID 526 ‘If water consumption is only deemed material for upstream value chain (and not material to own operations), is the undertaking still allowed to include this datapoint in their report?’ and ID 1021 ‘For a non-material topic, is it allowed to publish metrics that some clients / scoring agencies ask us to include in our sustainability reporting?’
ESRS E3 paragraph 28 states: ‘The disclosure required by paragraph 26 relates to own operations and shall include: (a) total water consumption in m3 ….’.
ESRS 1 paragraph 31: states: ‘The applicable information prescribed within a Disclosure Requirement, including its datapoints, or an entity-specific disclosure shall be disclosed when the undertaking assesses, as part of its assessment of material information, that the information is relevant from one or more of the following perspectives:
(a) the significance of the information in relation to the matter it purports to depict or explain; or
(b) the capacity of such information to meet the users’ decision-making needs, including the needs of primary users of general-purpose financial reporting described in paragraph 48 and/or the needs of users whose principal interest is in information about the undertaking’s impacts.’
ESRS 1 paragraph 11 states: ‘In addition to the disclosure requirements laid down in the three categories of ESRS, when an undertaking concludes that an impact, risk or opportunity is not covered or not covered with sufficient granularity by an ESRS but is material due to its specific facts and circumstances, it shall provide additional entity-specific disclosures to enable users to understand the undertaking’s sustainability-related impacts, risks or opportunities. Application requirements AR 1 to AR 5 provide further guidance regarding entity-specific disclosures.
ESRS 1 paragraph 33 states for policies, actions and targets: ‘When disclosing information on policies, actions and targets in relation to a sustainability matter that has been assessed to be material, the undertaking shall include the information prescribed by all the Disclosure Requirements and datapoints in the topical and sector-specific ESRS related to that matter and in the corresponding Minimum Disclosure Requirement on policies, actions, and targets required under ESRS 2. If the undertaking cannot disclose the information prescribed by either the Disclosure Requirements and datapoints in the topical or sector-specific ESRS, or the Minimum Disclosure Requirements in ESRS 2 on policies, actions and targets, because it has not adopted the respective policies, implemented the respective actions or set the respective targets, it shall disclose this to be the case and it may report a timeframe in which it aims to have these in place.’
ESRS 1 paragraph 34 states regarding metrics: ‘When disclosing information on metrics for a material sustainability matter according to the Metrics and Targets section of the relevant topical ESRS, the undertaking:
(a) shall include the information prescribed by a Disclosure Requirement if it assesses such information to be material; and
(b) may omit the information prescribed by a datapoint of a Disclosure Requirement if it assesses such information to be not material and concludes that such information is not needed to meet the objective of the Disclosure Requirement.’
ESRS 1 paragraph 114 states: ‘When the undertaking includes in its sustainability statement additional disclosures stemming from (i) other legislation which requires the undertaking to disclose sustainability information, or (ii) generally accepted sustainability reporting standards and frameworks, including non-mandatory guidance and sector-specific guidance, published by other standard-setting bodies (such as technical material issued by the International Sustainability Standards Board or the Global Reporting Initiative), such disclosures shall:
(a) be clearly identified with an appropriate reference to the related legislation, standard or framework (see ESRS 2 BP-2, paragraph 15);
(b) meet the requirements for qualitative characteristics of information specified in Chapter 2 and Appendix B of this Standard.’
ESRS 1 paragraph QC 17 states regarding the qualitative characteristic of ‘understandability’: ‘Concise disclosures shall only include material information. Complementary information presented pursuant to paragraph 114 shall be provided in a way that avoids obscuring material information.’
Answer
(1) If water consumption is only deemed material for the value chain (and not material to own operations), is the undertaking still allowed to include this datapoint in its sustainability statement?
If water consumption is only deemed material in relation to impacts, risks or opportunities that arise in the upstream or downstream value chain and not in own operations, the most relevant metric to be included is the water consumption for the value chain only. This is not a metric explicitly included in the sector-agnostic ESRS (ESRS E3 paragraph 24 (a) being focused on own operations). However, even if no datapoint in ESRS E3 is identified as material, the undertaking shall consider whether this or another metric that depicts this matter shall be disclosed as entity-specific disclosure following ESRS 1 paragraph 11. See also Question ID 442 – Entity-specific metrics.
As stated in ESRS 1 paragraph 34 (b) in respect of metrics for a material sustainability matter, an undertaking ‘may omit the information prescribed by a datapoint of a Disclosure Requirement if it assesses such information to be not relevant based on the ESRS 1 paragraph 31 criteria and concludes that such information is not needed to meet the objective of the Disclosure Requirement.’
The undertaking assesses the datapoint of ESRS E3 paragraph 24 (a) to be not material information. Accordingly, based on ESRS 1 paragraph 34 (b) the undertaking may omit this datapoint even though the sustainability matter of water consumption is material (because it relates to material impacts, risks or opportunities in the value chain).
As ESRS 1 paragraph 34 (b) states that ‘the undertaking may omit’, this implies that the undertaking does not have to omit the datapoint. Put differently, ‘may omit’ does not mean ‘shall omit’. Therefore, it can be included in the sustainability statement.
In addition, the undertaking shall consider requirements of ESRS 1 in Chapter 2 Qualitative characteristics of information whereby material information is not obscured by immaterial information.
(2) If water consumption is not material for the undertaking (neither in relation to IROs that arise in own operations nor for those that arise in upstream and downstream value chain) but third parties ask the undertaking to include this datapoint in its sustainability statement, is this allowed?
It depends. Following the provisions in ESRS 1 paragraph 114, in addition to the disclosure of material matters identified during the materiality assessment process, the undertaking may provide additional information stemming from other legislation as well as from generally accepted sustainability reporting standards and frameworks (for example, SASB Standards or GRI Standards). Other voluntary additional disclosures require the application of professional judgement, are expected to be limited (i.e. disclosure is based on robust reasoning) and shall fulfil the criteria laid out in ESRS 1 Appendix B Qualitative characteristics of information. This requires that: ‘Complementary information … be provided in a way that avoids obscuring material information.’
Such information may fall under the remit of ESRS 2 BP-2 paragraph 15 whereby this information ‘shall: (a) be clearly identified with an appropriate reference to the related legislation, standard or framework (see ESRS 2 BP-2, paragraph 15) …’.
Relations
Paragraph | Content |
|---|---|
For sustainability disclosures to be concise, they need to (a) avoid generic “boilerplate” information, which is not specific to the undertaking; (b) avoid unnecessary duplication of information, including information also provided in financial statements; and (c) use clear language and well-structured sentences and paragraphs. Concise disclosures shall only include material information. Complementary information presented pursuant to paragraph 114 shall be provided in a way that avoids obscuring material information. | |
When the undertaking includes in its sustainability statement additional disclosures stemming from (i) other legislation which requires the undertaking to disclose sustainability information, or (ii) generally accepted sustainability reporting standards and frameworks, including non-mandatory guidance and sector-specific guidance, published by other standard-setting bodies (such as technical material issued by the International Sustainability Standards Board or the Global Reporting Initiative), such disclosures shall: | |
When disclosing information on policies, actions and targets in relation to a sustainability matter that has been assessed to be material, the undertaking shall include the information prescribed by all the Disclosure Requirements and datapoints in the topical and sector-specific ESRS related to that matter and in the corresponding Minimum Disclosure Requirement on policies, actions, and targets required under ESRS 2. If the undertaking cannot disclose the information prescribed by either the Disclosure Requirements and datapoints in the topical or sector-specific ESRS, or the Minimum Disclosure Requirements in ESRS 2 on policies, actions and targets, because it has not adopted the respective policies, implemented the respective actions or set the respective targets, it shall disclose this to be the case and it may report a timeframe in which it aims to have these in place. | |
When disclosing information on metrics for a material sustainability matter according to the Metrics and Targets section of the relevant topical ESRS, the undertaking: | |
The applicable information prescribed within a Disclosure Requirement, including its datapoints, or an entity-specific disclosure, shall be disclosed when the undertaking assesses, as part of its assessment of material information, that the information is relevant from one or more of the following perspectives: | |
In addition to the disclosure requirements laid down in the three categories of ESRS, when an undertaking concludes that an impact, risk or opportunity is not covered or not covered with sufficient granularity by an ESRS but is material due to its specific facts and circumstances, it shall provide additional entity-specific disclosures to enable users to understand the undertaking’s sustainability-related impacts, risks or opportunities. Application requirements AR 1 to AR 5 provide further guidance regarding entity-specific disclosures. | |
The disclosure required by paragraph 26 relates to own operations and shall include: | |
The disclosure required by paragraph 26 relates to own operations and shall include: | |
For sustainability disclosures to be concise, they need to (a) avoid generic “boilerplate” information, which is not specific to the undertaking; (b) avoid unnecessary duplication of information, including information also provided in financial statements; and (c) use clear language and well-structured sentences and paragraphs. Concise disclosures shall only include material information. Complementary information presented pursuant to paragraph 114 shall be provided in a way that avoids obscuring material information. | |
When the undertaking includes in its sustainability statement additional disclosures stemming from (i) other legislation which requires the undertaking to disclose sustainability information, or (ii) generally accepted sustainability reporting standards and frameworks, including non-mandatory guidance and sector-specific guidance, published by other standard-setting bodies (such as technical material issued by the International Sustainability Standards Board or the Global Reporting Initiative), such disclosures shall: |