EU CSRD: 2024 end-of-year set of EFRAG explanations

On 6 December 2024, EFRAG published 64 new explanations of the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD). These explanations are released as part of EFRAG’s role as the technical advisor to the European Commission and aim to assist the companies in their reporting under the ESRS. The new explanations have been incorporated into the Compilation of Explanations, which now contains 157 explanations released up to November 2024. Furthermore, on 23 December 2024, EFRAG published five additional explanations. According to EFRAG, these will be added to the next major update to the Compilation of Explanations, expected to be released in spring 2025.

Q&A platform

EFRAG launched its Q&A Platform in 2023 to collect and answer technical questions, thereby supporting the implementation of the ESRS. Explanations are non-authoritative and are not exposed to public feedback. 

As with previous explanations (see our previous blog posts on May and August sets), the current ones are categorised into chapters based on their nature (Cross-cutting, Environment, Social, and Governance) and their disclosure requirements. These new explanations can be identified by their release date and through Appendix 1 (Table of ID release date).

Explanation ID 177 is published separately and includes the mapping of sustainability matters in AR 16 of ESRS 1 with the Disclosure Requirements in topical standards. It is designed to assist in identifying the Disclosure Requirements and datapoints linked to material matters already determined. This explanation includes a flowchart, narrative content and mapping tables.

​Highlights of new explanations

• Question ID 339 – Use of secondary data and social protection: estimates or secondary data may not be used to determine whether an undertaking’s employees are covered by social protection.
• Question ID 434 – Difference between non-employees and value chain workers: the ESRS definition is not based on the type of activities performed by employees but on the type of contract or labour relation. Value chain workers include all workers who are not in the scope of ‘Own Workforce’ and do not have a contractual relationship with the undertaking.
• Question ID 472 – Major incidents and deposits: ESRS do not provide a threshold for distinguishing major incidents and deposits from regular occurrences. Evaluations should derive from the undertaking’s materiality assessment. Major incidents are likely linked to material impacts and risks hence likely to be identified as material. Incidents of lower scale can be also material if carrying material impacts or financial risks. The Seveso-III Directive and the IED 2.0 may also be relevant considerations.
• Question ID 473 – Restrictions due to national regulations. EFRAG acknowledges that in some countries (especially outside the EEA), there may be restrictions on employee data collection. ESRS S1 recognised such restrictions for two specific datapoints but not generally.
• Question ID 644 – Limits of fossil fuel sector: EFRAG explained that the petrochemical activities, such as ethylene production, can fit within fossil fuel sector if they fall under the definition of (EU) 2022/1288 (SFDR RTS), as for example ethylene production in refinery cracker to produce gasoline. Activities serving as chemical plant intermediates, rather than energy sources, wouldn't typically fit into this category unless falling under RTS definition. EPC contractors for LNG plants are considered part of the fossil fuels sector if they generate revenues from activities falling within RTS definition. 
• Question ID 923 – Phase-in entity-specific disclosures: entity-specific disclosures are required for the first three years of sustainability reporting. ESRS 1 paragraph 131 does not provide a phase-in for entity-specific provisions in general.
• Question ID 1090 – Length of transitional provisions for early adopters: EFRAG helpfully confirmed that the voluntary early publication of sustainability statements does not alter phase-in requirement periods as defined by ESRS 1. During ESRS’s mandatory application sustainability statements can be presented without comparative information, as stated in ESRS 1 paragraph 136, even if a voluntary statement was issued the prior year.
• Question ID 1297 – Level of disaggregation. In response to the question on the level of disaggregation in the sustainability statement of a group with multiple legal entities per country in the EU and outside EU, EFRAG explained that 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. Materiality as the basis for sustainability disclosures, including the level of disaggregation, is agnostic to the group’s legal structure.
• Questions ID 1033, 1076 and 1122 – Value chain phase-in for climate-related targets and credit institutions (these explanations were added on 23 December 2024): Scope 3, category 15 (Investments) targets for the lending portfolio are considered value chain information. When reporting on GHG emission reduction targets, an undertaking may refer to ESRS provisions allowing to adopt transitional measures for value chain information in the first three annual sustainability statements. This provision is applicable when the undertaking has adopted intensity targets for its Scope 3, category 15 (Investments) emissions, but the corresponding associated absolute values for the target year and interim target years are not available. When only targets in intensity value are available, in the first three years of reporting, a financial institution may limit the information on value chain targets to the information available in-house, which might include data already collected for Pillar 3 reporting. EFRAG may work on specific sector provisions in the future to cover this issue.

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