EU CSRD: EFRAG finalises three ESRS Implementation Guidance documents

On 31 May 2024, EFRAG published the first three ESRS Implementation Guidance (IG) documents to assist in-scope companies in complying with their new obligations under the Corporate Sustainability Reporting Directive (CSRD): IG 1 Materiality Assessment, IG 2 Value Chain and IG 3 List of ESRS Data Points, along with an Explanatory Note. 

The draft IGs were open for public feedback from 22 December 2023 to 2 February 2024 (for more information on the draft IGs, see our previous blog post). 

Each of the Implementation Guidance documents is accompanied by Feedback Statement that explain the main changes made to the final IGs.

IG 1 - Materiality Assessment (MAIG)

MAIG describes the reporting requirements for the materiality assessment, including the illustration of possible steps in the process. It provides tools and mechanisms for undertakings to comply with the ESRS while taking account of their specific facts and circumstances. 

According to the Feedback statement, the main changes include the following: 

1. New Section 3.6.3 was added to reflect the matter of unbiased assessment and to further consider the concept of significant differences from the subsidiary exemption. The concept of conglomerates and investment groups was added and the concept of application of thresholds for group materiality was developed with some examples. Such examples distinguished between the matters that could be aggregated at a group level (for example, pollution) from those where aggregation was not suited (for example, violation of human rights).
2. EFRAG clarified the extent to which mitigation actions may be considered in the materiality assessment and amended the examples.
3. During the public consultation, respondents suggested enhancing the materiality assessment process by including the role of management and governance in the validation of the analysis. In response to this, a specific reference to ESRS 2 GOV was added in the materiality assessment process.
4. For the materiality assessment, respondents suggested including other tools and external sources for guidance in relation to the identification of matters. EFRAG clarified that it is possible to use additional sources as inputs provided that the result is aligned with the ESRS requirements. An emphasis is placed on those sources that are interoperable with the ESRS.

EFRAG also acknowledged that further examples of material impacts, risks and opportunities, as well as illustrations of the steps of the materiality assessment, could be included in a future iteration of MAIG. 

IG 2 - Value Chain (VCIG)

VCIG describes the reporting requirements on value chain about the materiality statement, material impacts, risks and opportunity management as well as metrics and targets. It discusses the reporting boundary of the undertaking for sustainability reporting, including the role of operational control in environmental metrics. 

According to the Feedback Statement, the main changes include the following: 

1. During the public consultation, respondents recommended that EFRAG ensures alignment between the ESRS and the Corporate Sustainability Due Diligence Directive (CSDDD/ CS3D) in terms of value chain coverage (for more information on the CSDDD, see our blog post and relevant materials). EFRAG noted, however, that the Implementation Guidance cannot deviate from the content of the approved ESRS. The CSDDD focuses on behavioural aspects while the CSRD and ESRS focus on reporting. VCIG is based on the CSRD, not the CSDDD. ESRS requires transparency around the reporting undertaking’s due diligence processes but does not assume any compliance with the CSDDD or other behavioural frameworks. Even if value chain due diligence obligations do not exist for certain companies under the CSDDD, this does not modify the definition of the value chain for reporting purposes, i.e. the transparency obligations under ESRS. This was reflected in a note on the CSDDD in the VCIG. 
2. EFRAG clarified the compatibility of ESRS with the GHG Protocol. It explained that the GHG Protocol provides different options. ESRS E1 adopts a financial control approach, which is one of the possible approaches of the GHGP, and the datapoint in ESRS E1 paragraph 50(a) corresponds to the amount of Scope 1 and Scope 2 emissions under the GHGP’s financial control approach. However, ESRS E1 requires adding to this amount the GHG emissions of sites, assets and entities under operational control that are not included in the financial statements (datapoint in ESRS E1 paragraph 50(b)).
3. EFRAG noted that it is important to clarify that joint control, operational control and significant influence are financial reporting concepts not covered in the ESRS. The final version of VCIG includes a new section elaborating on several concepts that apply to financial reporting.  
4. VCIG now includes an explanation of the applicability of the operational control concept to ESRS S1 and S2. It establishes that for S1 and S2 the notion of operational control is based on the arrangements of contractual relationships between the workers and the reporting undertaking. It also stated that the concept of operational control does not apply to social standards.
5. Respondents to the public consultation requested more guidance on what ‘reasonable effort’ means when determining whether it is necessary to obtain direct information from actors in the value chain as opposed to developing estimates of information about their value chain by using proxies. Unfortunately, EFRAG noted that it is not possible for them to provide additional guidance on the concept of ‘reasonable effort’ through an implementation guidance.

IG 3 - List of ESRS Data Points 

This IG presents a list of all disclosure requirements in an Excel format. The Excel file includes all the standards except ESRS 1 General Requirements (as the latter does not set specific disclosures). 

This IG contains additional information, such as the types of requirements (for example, quantitative or qualitative) or whether these are subject to transitional provisions. This list can form the basis for a data gap analysis or data collection exercise. The Explanatory Note outlines the methodology for implementing the datapoint list and its relationship with the ESRS Set 1 Draft XBRL Taxonomy. 

According to the Feedback Statement, main changes include: 

1. hyperlinks connecting each Data Point (DP) to the corresponding paragraph in the ESRS;
2. a new column identifying conditional and alternative DPs; 
3. more specific references to the phase-in provisions, including the year in which a DP becomes mandatory; 
4. more specific instruction at the top of each sheet on DPs that have to be reported irrespective of the materiality assessment. 

EFRAG also noted that all amendments to this IG are consistent with the ESRS Set 1 Draft XBRL Taxonomy.

For more information on the CSRD, see our CSRD Demystified materials.