Questions & Answers
(1) How is threshold-setting to be documented?
(2) How is one to disclose on threshold-setting? Is it enough to just generally explain how the thresholds for the materiality assessment are set, or is it necessary to explain each threshold separately?
- Disclosure of thresholds
Background
The question received, ‘How to document on setting thresholds? Is it enough to just generally explain how the thresholds for the materiality assessment are set or is it necessary to explain each threshold separately?’ was reworded for the sake of clarity into the question above.
ESRS 2 paragraph 53 (b) and (c) states: ‘The undertaking shall disclose: …
(b) an overview of the process to identify, assess, prioritise and monitor the undertaking’s potential and actual impacts on people and the environment, informed by the undertaking’s due diligence process, including an explanation of whether and how the process:
…
(iv) prioritises negative impacts based on their relative severity and likelihood (see ESRS 1 section 3.4 Impact materiality) and, if applicable, positive impacts on their relative scale, scope and likelihood, and determines which sustainability matters are material for reporting purposes, including the qualitative or quantitative thresholds and other criteria used as prescribed by ESRS 1 section 3.4 Impact materiality;
(c) an overview of the process used to identify, assess, prioritise and monitor risks and opportunities that have or may have financial effects. The disclosure shall include:
…
(ii) how the undertaking assesses the likelihood, magnitude and nature of effects of the identified risks and opportunities (such as the qualitative or quantitative thresholds and other criteria used as prescribed by ESRS 1 section 3.3 Financial materiality) …’
ESRS 2 paragraph 59 states: ‘The undertaking shall provide an explanation of how it has determined the material information to be disclosed in relation to the impacts, risks and opportunities that it has assessed to be material, including the use of thresholds and/or how it has implemented the criteria in ESRS 1 section 3.2 Material matters and materiality of information.’
Answer
(1) How is threshold-setting to be documented?
ESRS do not set behavioural requirements. As explained in IG 1 Materiality Assessment FAQ 12 Should the materiality assessment be documented/evidenced? the ESRS do not prescribe specific documentation. However, it is reasonable to expect that a certain level of documentation will need to be produced. This will probably be used for internal control purposes and requested by the assurance providers of the undertaking’s sustainability statement.
(2) How is one to disclose on threshold-setting? Is it enough to just generally explain how the thresholds for the materiality assessment are set, or is it necessary to explain each threshold separately?
Disclosing or explaining each threshold separately is not required in all circumstances. ESRS 2 requires disclosing an overview of the process to identify, assess, prioritise and monitor:
(a) impacts … including an explanation of whether and how the process … determines which sustainability matters are material … including the qualitative or quantitative thresholds and other criteria … and
(b) risks and opportunities … including how the undertaking assesses … risks and opportunities such as the qualitative or quantitative thresholds and other criteria …’
Depending on its specific facts and circumstances, the description and disclosure of thresholds may be more or less granular. Information about thresholds, as well as information about the materiality process in general and its components, may be aggregated when this is compatible with paragraphs 54 to 57 of ESRS 1.
Relations
Paragraph | Content |
|---|---|
The undertaking shall provide an explanation of how it has determined the material information to be disclosed in relation to the impacts, risks and opportunities that it has assessed to be material, including the use of thresholds and/or how it has implemented the criteria in ESRS 1 section 3.2 Material matters and materiality of information. | |
The undertaking shall provide an explanation of how it has determined the material information to be disclosed in relation to the impacts, risks and opportunities that it has assessed to be material, including the use of thresholds and/or how it has implemented the criteria in ESRS 1 section 3.2 Material matters and materiality of information. | |
The undertaking shall provide an explanation of how it has determined the material information to be disclosed in relation to the impacts, risks and opportunities that it has assessed to be material, including the use of thresholds and/or how it has implemented the criteria in ESRS 1 section 3.2 Material matters and materiality of information. |