Let ESRS speed up your double materiality assessment
Beginning this year, big companies operating in Europe must start reporting their non-financial performance based on the European Sustainability Reporting Standard (ESRS). The goal is that in the future companies’ non-financial data will be as accurate as their financial-one, there will be less room for green washing and investors and other important stakeholders can base their decisions on more accurate data.
ESRS is a true Aladdin’s cave of ESG topics. Close to 300 pages of disclosure and application requirements, tables, methodologies, annexes, and annexes of annexes will get even the savviest sustainability director a bit anxious. Just as we have adopted GRI, Global Compact, Ecovadis, EU taxonomy and others, there is a new standard, which is obligatory and more detailed than any before. But alas, ESRS is a rather handy document. It is concise and the instructions are clear as soon as you get a grasp of the logic (bit of scrolling back and forth). Use it as any manual. Read it when you need it.
Starting point for sustainability transition is to find out the biggest impacts, risks, and opportunities of your business operations in terms of environment, social issues, and good governance. Without proper risk assessment you cannot really create a real impact. Studying your ESG risks is not only obligatory, but it is smart management. Analyzing your business strategy through a ESG lens will give you valuable insight on how to grow your business, enhance social well-being with less harm to the planet.
Use ESRS to guide your risk assessment. You save time and resources. There has been a battalion of sustainability and statistic professionals thinking on your behalf for years on how to draw a proper sustainability statement. No use trying to figure it out yourself. Here are the three handy tools provided by ESRS (Commission Delegated Regulation in Official Journal available) to follow, that will save time considerably:
Base your double materiality assessment on ESRS 1 (page 29), Appendix A, Application Requirement 16: There are all relevant ESG topics, sub-topic and sub-topics listed ESRS. Use the list of topics as your base and add necessary company and industry specific themes into it. This way your materiality’s follow the logic of reporting.
Draw a gap analysis on climate risks (E-1). Calculating your scope 3 emissions is going to be a huge change from previous reporting for many companies. Identify your biggest emissions in your value chain and analyse what data you have, what is missing and where the data is located. Do this when producing the double materiality assessment because you must report your climate change topics, and it is going to take time and resources to get the data from your value chain.
Update your Due Diligence based on United Nation’s Guiding Principles on Business and Human Rights. For ESRS you must assess the situation on human rights inside of your company and in your value chain. Implement the set of questions from the UN model. Even though it is a bit outdated, the set of questions is still valid and comprehensive. Using the framework speeds up your DD-update.
When you have completed the risk analysis the next step is to decide what to do about the information. What are the actions your company is going to take to mitigate those risks? Reporting is obligatory, but a sustainability statement is useless if the actions you disclose have very little actual impact on enhancing social well-being or mitigating climate change. Now when you have found out where the boat is leaking the most, set measurable targets and make an action plan to fix your problems. By doing so the report practically writes itself.