Questions & Answers
What is the level of disaggregation in the sustainability statement of a group with multiple legal entities per country in the EU and outside EU?
- Level of disaggregation
Background
The following background was provided with the question asked: ‘The ESRS Chapter 3.7 explains the case where an undertaking shall or shall not disaggregate the reported information (focusing here on the datapoints). It explains the possibility of disaggregating by country or by site when there are significant variations/impacts’. The following questions that were received relate to the granularity/breakdown of the data to be reported by a Group headquartered in the EU with several legal entities per country in the EU and outside the EU and possibly a legal entity in one country which owns some sub-entities in the country or abroad:
(a) Is it mandatory for the group to report datapoints per legal entity, or is it only in the case of variation / impact materially that a specific entity detail shall be reported?
(b) If the group reports only aggregated data at the group level, does it mean that a specific legal entity (in the EU) will be able to share ‘only’ group datapoints and not the specific information related to its legal entity?
ESRS 1 paragraphs 54 and 55 state:
‘54. When needed for a proper understanding of its material impacts, risks and opportunities, the undertaking shall disaggregate the reported information:
(a) by country, when there are significant variations of material impacts, risks and opportunities across countries and when presenting the information at a higher level of aggregation would obscure material information about impacts, risks or opportunities; or
(b) by significant site or by significant asset, when material impacts, risks and opportunities are highly dependent on a specific location or asset.
55. When defining the appropriate level of disaggregation for reporting, the undertaking shall consider the disaggregation adopted in its materiality assessment. Depending on the undertaking’s specific facts and circumstances, a disaggregation by subsidiary may be necessary.’
ESRS 1 paragraph 102 states: ‘When the undertaking is reporting at a consolidated level, it shall perform its assessment of material impacts, risks and opportunities for the entire consolidated group regardless of its group legal structure. It shall ensure that all subsidiaries are covered in a way that allows for the unbiased identification of material impacts, risks and opportunities. Criteria and thresholds for assessing an impact, risk or opportunity as material shall be determined based on Chapter 3 of this Standard.’
Answer
Determining the appropriate level of disaggregation involves judgement. The key driver is to provide fair presentation in relation to the specific disclosure objective of a Disclosure Requirement or datapoint.
Disaggregation depends on (a) variations of material impacts, risks and opportunities across countries (e.g. across different sectors or business models) and (b) impacts, risks and opportunities being highly dependent on a specific location (e.g. country) or asset as stipulated in ESRS 1 paragraph 54.
ESRS 1 paragraph 56 further clarifies that, where data is aggregated, the undertaking shall ensure that this aggregation does not obscure the specificity and context necessary to interpret the information, nor should the undertaking aggregate material items that differ in nature.
Materiality as the basis for sustainability disclosures, including the level of disaggregation (see ESRS 1 Chapter 3.7 Level of disaggregation), is agnostic to the group’s legal structure.
In conclusion, the undertaking is expected to report at a legal entity level if for specific matters or material IROs this corresponds to the criteria in ESRS 1 paragraph 54 and 56 (e.g. one legal entity per country and ‘significant variations of material impacts, risks and opportunities across countries’ as well as higher-level aggregation would obscure information).
When needed for a proper understanding of its material impacts, risks and opportunities, the undertaking shall disaggregate the reported information by significant site or by significant asset when material impacts, risks and opportunities are highly dependent on a specific location or asset in accordance with ESRS 1 paragraph 54(b).
Conversely, the undertaking is expected to report information aggregated at group level (or for a cluster of legal entities) if it assesses that a more granular level of disaggregation is not necessary. In this case, the legal entities/subsidiaries are treated the same irrespective of their location (within the EU or in non-EU territories) when they are included as part of the aggregated data, with their share contributing to the respective datapoint (e.g. with their share of Scope 2 GHG emissions, consumed energy – whether purchased or acquired externally, i.e. from third parties/non-group entities in accordance with ESRS E1 Disclosure Requirement E1-6) or their share of the group’s employee characteristics as required by ESRS S1 Disclosure Requirement S1-6 – Characteristics of the undertaking’s employees.
Relations
Paragraph | Content |
|---|---|
3.7 Level of disaggregation | |
3.7 Level of disaggregation | |
3.7 Level of disaggregation | |
When the undertaking is reporting at a consolidated level, it shall perform its assessment of material impacts, risks and opportunities for the entire consolidated group, regardless of its group legal structure. It shall ensure that all subsidiaries are covered in a way that allows for the unbiased identification of material impacts, risks and opportunities. Criteria and thresholds for assessing an impact, risk or opportunity as material shall be determined based on chapter 3 of this Standard. | |
When defining the appropriate level of disaggregation for reporting, the undertaking shall consider the disaggregation adopted in its materiality assessment. Depending on the undertaking’s specific facts and circumstances, a disaggregation by subsidiary may be necessary. | |
When needed for a proper understanding of its material impacts, risks and opportunities, the undertaking shall disaggregate the reported information: | |
When the undertaking is reporting at a consolidated level, it shall perform its assessment of material impacts, risks and opportunities for the entire consolidated group, regardless of its group legal structure. It shall ensure that all subsidiaries are covered in a way that allows for the unbiased identification of material impacts, risks and opportunities. Criteria and thresholds for assessing an impact, risk or opportunity as material shall be determined based on chapter 3 of this Standard. | |
When defining the appropriate level of disaggregation for reporting, the undertaking shall consider the disaggregation adopted in its materiality assessment. Depending on the undertaking’s specific facts and circumstances, a disaggregation by subsidiary may be necessary. | |
When needed for a proper understanding of its material impacts, risks and opportunities, the undertaking shall disaggregate the reported information: | |
When the undertaking is reporting at a consolidated level, it shall perform its assessment of material impacts, risks and opportunities for the entire consolidated group, regardless of its group legal structure. It shall ensure that all subsidiaries are covered in a way that allows for the unbiased identification of material impacts, risks and opportunities. Criteria and thresholds for assessing an impact, risk or opportunity as material shall be determined based on chapter 3 of this Standard. |