3. The undertaking shall disclose the general basis for preparation of its sustainability statement.
   
   
4. The objective of this Disclosure Requirement is to provide an understanding of how the undertaking prepares its sustainability statement, including the scope of consolidation, the upstream and downstream value chain information and, where relevant, whether the undertaking has used any of the options for omitting information referred to in points d) and e) in the following paragraph.
   
   
5. The undertaking shall disclose the following information:
   1. whether the sustainability statement has been prepared on a consolidated or individual basis;
   2. for consolidated sustainability statements:
      1. a confirmation that the scope of consolidation is the same as for the financial statements, or, where applicable, a declaration that the reporting undertaking is not required to draw-up financial statements or that the reporting undertaking is preparing consolidated sustainability reporting pursuant to Article 48i of Directive 2013/34/EU; and
      2. where applicable, an indication of which subsidiary undertakings included in the consolidation are exempted from individual or consolidated sustainability reporting pursuant to Articles 19a(9) or 29a(8) of Directive 2013/34/EU;
   3. to what extent the sustainability statement covers the undertaking’s upstream and downstream value chain (see ESRS 1 section 5.1 Reporting undertaking and value chain);
   4. whether the undertaking has used the option to omit a specific piece of information corresponding to intellectual property, know-how or the results of innovation (see ESRS 1 section 7.7 Classified and sensitive information and information on intellectual property, know-how or results of innovation); and
   5. for undertakings based in an EU member state that allows for the exemption from disclosure of impending developments or matters in the course of negotiation, as provided for in articles 19a(3) and 29a(3) of Directive 2013/34/EU, whether the undertaking has used that exemption.

Application Requirements

AR 1.    When describing to what extent the sustainability statement covers the undertaking’s upstream and downstream value chain (see ESRS 1 section 5.1 Reporting undertaking and value chain), the undertaking may distinguish between:

1. the extent to which its materiality assessment of impacts, risks and opportunities extends to its upstream and/or downstream value chain;
2. the extent to which its policies, actions and targets extend to its value chain; and
3. the extent to which it includes upstream and/or downstream value chain data when disclosing on metrics.

6. The undertaking shall provide disclosures in relation to specific circumstances.
   
   
7. The objective of this Disclosure Requirement is to provide an understanding of the effect of these specific circumstances on the preparation of the sustainability statement.
   
   
8. The undertaking may report this information alongside the disclosures to which they refer.

Time horizons

9. When the undertaking has deviated from the medium- or long-term time horizons defined by ESRS 1 section 6.4 Definition of short-, medium- and long-term for reporting purposes, it shall describe:
   1. its definitions of medium- or long-term time horizons; and
   2. the reasons for applying those definitions.

Value chain estimation

10. When metrics include upstream and/or downstream value chain data estimated using indirect sources, such as sector-average data or other proxies, the undertaking shall:
    1. identify the metrics;
    2. describe the basis for preparation;
    3. describe the resulting level of accuracy; and
    4. where applicable, describe the planned actions to improve the accuracy in the future (see ESRS 1 chapter 5 Value chain).

Sources of estimation and outcome uncertainty

11. In accordance with ESRS 1 section 7.2 Sources of estimation and outcome uncertainty, the undertaking shall:
    1. identify the quantitative metrics and monetary amounts it has disclosed that are subject to a high level of measurement uncertainty;
    2. in relation to each quantitative metric and monetary amount identified:
       1. disclose information about the sources of measurement uncertainty (for example, the dependence of the amount on the outcome of a future event, on a measurement technique or on the availability and quality of data from the entity’s upstream and/or downstream value chain); and
       2. disclose the assumptions, approximations and judgements the entity has made in measuring it.

12. When disclosing forward-looking information, the undertaking may indicate that it considers such information to be uncertain.

Changes in preparation or presentation of sustainability information

13. When changes in the preparation and presentation of sustainability information occur compared to the previous reporting period(s), (see ESRS 1 section 7.4 Changes in preparation or presentation in sustainability information), the undertaking shall:
    1. explain the changes and the reasons for them, including why the replaced metric provides more useful information;
    2. disclose revised comparative figures, unless it is impracticable to do so. When it is impracticable to adjust comparative information for one or more prior periods, the undertaking shall disclose that fact; and
    3. disclose the difference between the figure disclosed in the preceding period and the revised comparative figure.

Reporting errors in prior periods

14. When the undertaking identifies material prior period errors (see ESRS 1 section 7.5 Reporting errors in prior periods), it shall disclose:
    1. the nature of the prior period material error;
    2. to the extent practicable, the correction for each prior period included in the sustainability statement; and
    3. if correction of the error is not practicable, the circumstances that led to the existence of that condition.

Disclosures stemming from other legislation or generally accepted sustainability reporting pronouncements

15. When the undertaking includes in its sustainability statement information stemming from other legislation which requires the undertaking to disclose sustainability information or from generally accepted sustainability reporting standards and frameworks (see ESRS 1 section 8.2 Content and structure of the sustainability statement), in addition to the information prescribed by ESRS, it shall disclose this fact. In case of partial application of other reporting standards or frameworks, the undertaking shall provide a precise reference to the paragraphs of the standard or framework applied.

Incorporation by reference

16. When the undertaking incorporates information by reference (see ESRS 1 section 9.1 Incorporation by reference), it shall disclose a list of the disclosure requirements of ESRS, or the specific datapoints mandated by a Disclosure Requirement, that have been incorporated by reference. 

Use of phase-In provisions in accordance with Appendix C of ESRS 1  

17. If an undertaking or group not exceeding on its balance sheet date the average number of 750 employees during the financial year decides to omit the information required by ESRS E4, ESRS S1, ESRS S2, ESRS S3 or ESRS S4 in accordance with Appendix C of ESRS 1, it shall nevertheless disclose whether the sustainability topics covered respectively by ESRS E4, ESRS S1, ESRS S2, ESRS S3 and ESRS S4 have been assessed to be material as a result of the undertaking’s materiality assessment. In addition, if one or more of these topics has been assessed to be material, the undertaking shall, for each material topic:
    1. disclose the list of matters (i.e. topic, sub-topic or sub-sub-topic) in AR 16 ESRS 1 Appendix A that are assessed to be material and briefly describe how the undertaking’s business model and strategy take account of the impacts of the undertaking related to those matters. The undertaking may identify the matter at the level of topic, sub-topic or sub-sub-topic; 
    2. briefly describe any time-bound targets it has set related to the matters in question, the progress it has made towards achieving those targets, and whether its targets related to biodiversity and ecosystems are based on conclusive scientific evidence;
    3. briefly describe its policies in relation to the matters in question;
    4. briefly describe actions it has taken to identify, monitor, prevent, mitigate, remediate or bring an end to actual or potential adverse impacts related to the matters in question, and the result of such actions; and
    5. disclose metrics relevant to the matters in question.

Application Requirements

AR 2. The undertaking may disclose whether it relies on any European standards approved by the European Standardisation System (ISO/IEC or CEN/CENELEC standards), as well as the extent to which data and processes that are used for sustainability reporting purposes have been verified by an external assurance provider and found to conform to the corresponding ISO/IEC or CEN/CENELEC standard.

19. The undertaking shall disclose the composition of the administrative, management and supervisory bodies, their roles and responsibilities and access to expertise and skills with regard to sustainability matters.
    
    
20. The objective of this Disclosure Requirement is to provide an understanding of:
    1. the composition and diversity of the administrative, management and supervisory bodies;
    2. the roles and responsibilities of the administrative, management and supervisory bodies in exercising oversight of the process to manage material impacts, risks and opportunities, including management’s role in these processes; and
    3. the expertise and skills of its administrative, management and supervisory bodies on sustainability matters or access to such expertise and skills.
       
       
21. The undertaking shall disclose the following information about the composition and diversity of the members of the undertaking’s administrative, management and supervisory bodies:
    1. the number of executive and non-executive members;
    2. representation of employees and other workers;
    3. experience relevant to the sectors, products and geographic locations of the undertaking;
    4. percentage by gender and other aspects of diversity that the undertaking considers. The board's gender diversity^[1] shall be calculated as an average ratio of female to male board members; and
    5. the percentage of independent board members^[2]. For undertakings with a unitary board, this corresponds to the percentage of independent non-executive board members. For undertakings with a dual board, it corresponds to the percentage of independent members of the supervisory body.
       
       
22. The undertaking shall disclose the following information about the roles and responsibilities of the administrative, management and supervisory bodies:
    1. the identity of the administrative, management and supervisory bodies (such as a board committee or similar) or individual(s) within a body responsible for oversight of impacts, risks and opportunities;
    2. how each body’s or individual’s responsibilities for impacts, risks and opportunities are reflected in the undertaking’s terms of reference, board mandates and other related policies;
    3. a description of management’s role in the governance processes, controls and procedures used to monitor, manage and oversee impacts, risks and opportunities, including:
       1. whether that role is delegated to a specific management-level position or committee and how oversight is exercised over that position or committee;
       2. information about the reporting lines to the administrative, management and supervisory bodies;
       3. whether dedicated controls and procedures are applied to the management of impacts, risks and opportunities and, if so, how they are integrated with other internal functions; and
    4. how the administrative, management and supervisory bodies and senior executive management oversee the setting of targets related to material impacts, risks and opportunities, and how they monitor progress towards them.
       
       
23. The disclosure shall include a description of how the administrative, management and supervisory bodies determine whether appropriate skills and expertise are available or will be developed to oversee sustainability matters, including:
    1. the sustainability-related expertise that the bodies, as a whole, either directly possess or can leverage, for example through access to experts or training; and
    2. how those skills and expertise relate to the undertaking's material impacts, risks and opportunities.
       
       

[1] This information supports the information needs of: financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts set out by indicator #13 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council with regard to disclosures rules on sustainable investments (“Board gender diversity”) and benchmark administrators to disclose ESG factors subject to Commission Delegated Regulation (EU) 2020/1816 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as set out by indicator “Weighted average ratio of female to male board members” in section 1 and 2 of Annex II.

[2] This information supports the information needs of benchmark administrators to disclose ESG factors subject to Regulation (EU) 2020/1816 as set out by indicator “Weighted average percentage of board members who are independent” in section I of Annex II.

Application Requirements

AR 3. In describing the role and responsibilities of the administrative, management and supervisory bodies with regard to sustainability matters, the undertaking may specify:

1. the aspects of sustainability over which oversight is exercised with regard to the environmental, social and governance matters the undertaking may be facing, including:
   1. any assessment of and changes to sustainability-related aspects of the undertaking’s strategy and business model;
   2. the identification and assessment of material risks, opportunities and impacts; iii. related policies and targets, action plans and dedicated resources; and iv. sustainability reporting;
2. the form such oversight takes for each of the above aspects: i.e., information, consultation or decision-making; and
3. the way such oversight is organised and formalised, i.e., processes by which the administrative, management and supervisory bodies engage with these aspects of sustainability.

AR 4. In describing the undertaking’s organisation of governance regarding sustainability matters, a description of complex governance structure may be complemented by their presentation in the form of a diagram.

AR 5. The description of the level of expertise or access to expertise of the administrative, management and supervisory bodies may be substantiated by illustrating the composition of the bodies, including members on whom these bodies rely for expertise to oversee sustainability matters, and how they leverage that expertise as a body. In the description, the undertaking shall consider how the expertise and skills are relevant to the undertaking’s material impacts, risks and opportunities and whether the bodies and/or its members have access to other sources of expertise, such as specific experts and training and other educational initiatives to update and develop sustainability-related expertise within these bodies.

24. The undertaking shall disclose how the administrative, management and supervisory bodies are informed about sustainability matters and how these matters were addressed during the reporting period.
    
    
25. The objective of this Disclosure Requirement is to provide an understanding of how administrative, management and supervisory bodies are informed about sustainability matters, as well as what information and matters they addressed during the reporting period. This in turn allows an understanding of whether the members of these bodies were adequately informed and whether they were able to fulfil their roles.
    
    
26. The undertaking shall disclose the following information:
    1. whether, by whom and how frequently the administrative, management and supervisory bodies, including their relevant committees, are informed about material impacts, risks and opportunities (see Disclosure Requirement IRO–1 - Description of the processes to identify and assess material impacts, risks and opportunities of this Standard), the implementation of due diligence, and the results and effectiveness of policies, actions, metrics and targets adopted to address them;
    2. how the administrative, management and supervisory bodies consider impacts, risks and opportunities when overseeing the undertaking’s strategy, its decisions on major transactions, and its risk management process, including whether they have considered trade-offs associated with those impacts, risks and opportunities; and
    3. a list of the material impacts, risks and opportunities addressed by the administrative, management and supervisory bodies, or their relevant committees during the reporting period.

Application Requirements

AR 6. Depending on the undertaking’s structure, the administrative, management and supervisory bodies may focus on overarching targets, while management focuses on the more detailed targets. In this case, the undertaking may disclose how the governance bodies ensure that an appropriate mechanism for performance monitoring is in place.

27. The undertaking shall disclose information about the integration of its sustainability-related performance in incentive schemes.
28. The objective of this Disclosure Requirement is to provide an understanding of whether incentive schemes are offered to members of the administrative, management and supervisory bodies that are linked to sustainability matters.
29. The undertaking shall disclose the following information about the incentive schemes and remuneration policies linked to sustainability matters for members of the undertaking's administrative, management and supervisory bodies, where they exist:
    1. a description of the key characteristics of the incentive schemes;
    2. whether performance is being assessed against specific sustainability-related targets and/or impacts, and if so, which ones;
    3. whether and how sustainability-related performance metrics are considered as performance benchmarks or included in remuneration policies;
    4. the proportion of variable remuneration dependent on sustainability-related targets and/or impacts; and
    5. the level in the undertaking at which the terms of incentive schemes are approved and updated.

Application Requirements

AR 7. For listed undertakings, this Disclosure Requirement should be consistent with the remuneration report prescribed in articles 9a and 9b of Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies. Subject to the provisions of ESRS 1, paragraphs 119, 120 and 122, a listed undertaking may make a reference to its remuneration report.

30. The undertaking shall disclose a mapping of the information provided in its sustainability statement about the due diligence process.
    
    
31. The objective of this Disclosure Requirement is to facilitate an understanding of the undertaking’s due diligence process with regard to sustainability matters.
    
    
32. The main aspects and steps of due diligence referred to under ESRS 1 chapter 4 Due diligence are related to a number of cross-cutting and topical Disclosure Requirements under the ESRS. The undertaking shall provide a mapping that explains how and where its application of the main aspects and steps of the due diligence process are reflected in its sustainability statement, to allow a depiction of the actual practices of the undertaking with regard to due diligence^[1].
    
    
33. This disclosure requirement does not mandate any specific behavioural requirements with regard to due diligence actions and does not extend or modify the role of administrative, management and supervisory bodies as mandated by other legislation or regulation.
    
    

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #10 in Table III

Application Requirements

AR 8. The mapping required by paragraph 30 may be presented in the form of a table, cross-referencing the core elements of due diligence, for impacts on people and the environment, to the relevant disclosures in the undertaking’s sustainability statement, as set out below.

AR 9. The undertaking may include additional columns to the table below to clearly identify those disclosures that relate to impacts on people and/or the environment given that, in some cases, more than one disclosure may provide information about the same due diligence step.

AR 10. The main references in the international instruments of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises to the core elements of the due diligence process are listed in ESRS 1 chapter 4.

34. The undertaking shall disclose the main features of its risk management and internal control system in relation to the sustainability reporting process.
    
    
35. The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s risk management and internal control processes in relation to sustainability reporting.
    
    
36. The undertaking shall disclose the following information:
    1. the scope, main features and components of the risk management and internal control processes and systems in relation to sustainability reporting;
    2. the risk assessment approach followed, including the risk prioritisation methodology;
    3. the main risks identified and their mitigation strategies including related controls;
    4. a description of how the undertaking integrates the findings of its risk assessment and internal controls as regards the sustainability reporting process into relevant internal functions and processes; and
    5. a description of the periodic reporting of the findings referred to in point (d) to the administrative, management and supervisory bodies.

Application Requirements

AR 11. This Disclosure Requirement focuses solely on the internal control processes over the sustainability reporting process. The undertaking may consider risks such as the completeness and integrity of the data, the accuracy of estimation results, the availability of upstream and/or downstream value chain data, and the timing of the availability of the information.

38. The undertaking shall disclose the elements of its strategy that relate to or impact sustainability matters, its business model and its value chain.

39. The objective of this Disclosure Requirement is to describe the key elements of the undertaking’s general strategy that relate to or affect sustainability matters, and the key elements of the undertaking’s business model and value chain, in order to provide an understanding of its exposure to impacts, risks and opportunities and where they originate.

40. The undertaking shall disclose the following information about the key elements of its general strategy that relate to or affect sustainability matters:
    1. a description of:
       1. significant groups of products and/or services offered, including changes in the reporting period (new/removed products and/or services);
       2. significant markets and/or customer groups served, including changes in the reporting period (new/removed markets and/or customer groups);
       3. headcount of employees by geographical areas; and
       4. where applicable and material, products and services that are banned in certain markets;
    2. a breakdown of total revenue, as included in its financial statements, by significant ESRS sectors. When the undertaking provides segment reporting as required by IFRS 8 Operating segments in its financial statements, this sector revenue information shall be, as far as possible, reconciled with IFRS 8 information;
    3. a list of the additional significant ESRS sectors beyond the ones reflected under paragraph 40(b), such as activities that give rise to intercompany revenues, in which the undertaking develops significant activities, or in which it is or may be connected to material impacts. The identification of these additional ESRS sectors shall be consistent with the way they have been considered by the undertaking when performing its materiality assessment and with the way it discloses material sector-specific information;
    4. where applicable, a statement indicating, together with the related revenues, that the undertaking is active in:
       1. 1. the fossil fuel (coal, oil and gas) sector^[1], (i.e., it derives revenues from exploration, mining, extraction, production, processing, storage, refining or distribution, including transportation, storage and trade, of fossil fuels as defined in Article 2, point (62), of Regulation (EU) 2018/1999 of the European Parliament and the Council^[2]), including a disaggregation of revenues derived from coal, from oil and from gas, as well as the revenues derived from Taxonomy-aligned economic activities related to fossil gas as required under Article 8(7)(a) of Commission Delegated Regulation 2021/2178¹⁸;
          2. ii. chemicals production^[3], i.e., its activities fall under Division 20.2 of Annex I to Regulation (EC) No 1893/2006;
          3. iii. controversial weapons^[4] (anti-personnel mines, cluster munitions, chemical weapons and biological weapons); and/or
          4. the cultivation and production of tobacco²¹;
    5. its sustainability-related goals in terms of significant groups of products and services, customer categories, geographical areas and relationships with stakeholders;
    6. an assessment of its current significant products and/or services, and significant markets and customer groups, in relation to its sustainability-related goals; and
    7. the elements of the undertaking’s strategy that relate to or impact sustainability matters, including the main challenges ahead, critical solutions or projects to be put in place, when relevant for sustainability reporting.

41. If the undertaking is based in an EU Member State that allows for an exemption from the disclosure of the information referred to in Article 18, paragraph 1, sub-point (a) of Directive 2013/34/EU^[5], and if the undertaking has made use of that exemption, it may omit the breakdown of revenue by significant ESRS sector required by paragraph 40(b). In this case the undertaking shall nevertheless disclose the list of ESRS sectors that are significant for the undertaking.
    
    
42. The undertaking shall disclose a description of its business model and value chain, including:
    1. its inputs and its approach to gathering, developing and securing those inputs;
    2. its outputs and outcomes in terms of current and expected benefits for customers, investors and other stakeholders; and
    3. the main features of its upstream and downstream value chain and the undertaking’s position in its value chain, including a description of the main business actors (such as key suppliers, customers, distribution channels and end-users) and their relationship to the undertaking. When the undertaking has multiple value chains, the disclosure shall cover the key value chains.
       
       

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts set out by indicator #4 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosures rules on sustainable investments (“Exposure to companies active in the fossil fuel sector”).

[2] Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, p. 1).  ¹⁸ Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation (OJ L 443, 10.12.2021, p. 9).

[3] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts set out by indicator #9 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosures rules on sustainable investments (“Investments in companies producing chemicals”).

[4] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts set out by indicator #14 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288  with regard to disclosures rules on sustainable investments (“Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)”).

²¹   This information supports the needs of benchmark administrators to disclose ESG factors subject to Regulation (EU) 2020/1818 as set out by paragraph b) of article 12.1.

[5] Article 18, paragraph 1, sub-point (a) of Directive 2013/34/EU: “the net turnover broken down by categories of activity and into geographical markets, in so far as those categories and markets differ substantially from one another, taking account of the manner in which the sale of products and the provision of services are organized.” 

Application Requirements

AR 12. To provide the information on sectors required by paragraph 40, the undertaking shall map its significant activities in accordance with ESRS sectors. If a code for a sub-sector does not exist, the caption “others” shall be used.

AR 13. For the purposes of the disclosures required in paragraph 40, a group of products and/or services offered, a group of markets and/or customer groups served, or an ESRS sector, is significant for the undertaking if it meets one or both of the following criteria:

1. it accounts for more than 10 per cent of the undertaking’s revenue;
2. it is connected with material actual impacts or material potential negative impacts of the undertaking.

AR 14. In preparing disclosures relating to its business model and value chain, the undertaking shall consider:

1. its key activities, resources, distribution channels and customer segments;
2. its key business relationships and their key characteristics, including relationships with customers and suppliers;
3. the cost structure and revenue of its business segments, in line with IFRS 8 disclosure requirements in the financial statement, where applicable;
4. the potential impacts, risks and opportunities in its significant sector(s) and their possible relationship to its own business model or value chain.

AR 15. Contextual information may be particularly relevant for users of the undertaking’s sustainability statement, to understand to what extent the disclosures include upstream and/or downstream value chain information. The description of the main features of the upstream and/or downstream value chain and where applicable the identification of key value chains should support an understanding of how the undertaking applies the requirements of ESRS 1 chapter 5 and the materiality assessment performed by the undertaking in line with ESRS 1 chapter 3. The description may provide a high-level overview of the key features of upstream and/or downstream value chain entities indicating their relative contribution to the undertaking’s performance and position and explaining how they contribute to the value creation of the undertaking.

43. The undertaking shall disclose how the interests and views of its stakeholders are taken into account by the undertaking’s strategy and business model.
    
    
44. The objective of this Disclosure Requirement is to provide an understanding of how stakeholders’ interests and views inform the undertaking’s strategy and business model.
    
    
45. The undertaking shall disclose a summarised description of:
    1. its stakeholder engagement, including:
       1. the undertaking’s key stakeholders;
       2. whether engagement with them occurs and for which categories of stakeholders;
       3. how it is organised;
       4. its purpose; and
       5. how its outcome is taken into account by the undertaking;
    2. the undertaking’s understanding of the interests and views of its key stakeholders as they relate to the undertaking’s strategy and business model, to the extent that these were analysed during the undertaking’s due diligence process and/or materiality assessment process (see Disclosure Requirement IRO-1 of this Standard);
    3. where applicable, amendments to its strategy and/or business model, including:
       1. how the undertaking has amended or expects to amend its strategy and/or business model to address the interests and views of its stakeholders;
       2. any further steps that are being planned and in what timeline; and
       3. whether these steps are likely to modify the relationship with and views of stakeholders; and
    4. whether and how the administrative, management and supervisory bodies are informed about the views and interests of affected stakeholders with regard to the undertaking’s sustainability-related impacts.

Application Requirements

AR 16. The views and interests of stakeholders that are expressed as part of the undertaking’s engagement with stakeholders through its due diligence process may be relevant to one or more aspects of its strategy or business model. As such, they may affect the undertaking’s decisions regarding the future direction of the strategy or business model.

46. The undertaking shall disclose its material impacts, risks and opportunities and how they interact with its strategy and business model.
    
    
47. The objective of this Disclosure Requirement is to provide an understanding of the material impacts, risks and opportunities as they result from the undertaking’s materiality assessment and how they originate from and trigger adaptation of the undertaking’s strategy and business model including its resources allocation. The information to be disclosed about the management of the undertaking’s material impacts, risks and opportunities is prescribed in topical ESRS and in sector-specific standards, which shall be applied in conjunction with the Minimum Disclosure Requirements on policies, actions and targets established in this Standard.
    
    
48. The undertaking shall disclose:
    1. a brief description of its material impacts, risks and opportunities resulting from its materiality assessment (see Disclosure Requirement IRO-1 of this standard), including a description of where in its business model, its own operations and its upstream and downstream value chain these material impacts, risks and opportunities are concentrated;
    2. the current and anticipated effects of its material impacts, risks and opportunities on its business model, value chain, strategy and decision-making, and how it has responded or plans to respond to these effects, including any changes it has made or plans to make to its strategy or business model as part of its actions to address particular material impacts or risks, or to pursue particular material opportunities;
    3. with reference to the undertaking’s material impacts:
       1. how the undertaking’s material negative and positive impacts affect (or, in the case of potential impacts, are likely to affect) people or the environment;
       2. whether and how the impacts originate from or are connected to the undertaking's strategy and business model;
       3. the reasonably expected time horizons of the impacts; and
       4. whether the undertaking is involved with the material impacts through its activities or because of its business relationships, describing the nature of the activities or business relationships concerned;
    4. the current financial effects of the undertaking’s material risks and opportunities on its financial position, financial performance and cash flows and the material risks and opportunities for which there is a significant risk of a material adjustment within the next annual reporting period to the carrying amounts of assets and liabilities reported in the related financial statements;
    5. the anticipated financial effects of the undertaking’s material risks and opportunities on its financial position, financial performance and cash flows over the short-, medium- and long-term, including the reasonably expected time horizons for those effects. This shall include how the undertaking expects its financial position, financial performance and cash flows to change over the short, medium- and long-term, given its strategy to manage risks and opportunities, taking into consideration:
       1. its investment and disposal plans (for example, capital expenditure, major acquisitions and divestments, joint ventures, business transformation, innovation, new business areas and asset retirements), including plans the undertaking is not contractually committed to; and
       2. its planned sources of funding to implement its strategy.
    6. information about the resilience of the undertaking's strategy and business model regarding its capacity to address its material impacts and risks and to take advantage of its material opportunities. The undertaking shall disclose a qualitative and, when applicable, a quantitative analysis of the resilience, including how the analysis was conducted and the time horizons that were applied as defined in ESRS 1 (see ESRS 1 chapter 6 Time horizons). When providing quantitative information, the undertaking may disclose single amounts or ranges;
    7. changes to the material impacts, risks and opportunities compared to the previous reporting period; and
    8. a specification of those impacts, risks and opportunities that are covered by ESRS Disclosure Requirements as opposed to those covered by the undertaking using additional entity-specific disclosures.

49. The undertaking may disclose the descriptive information required in paragraph 46 alongside the disclosures provided under the corresponding topical ESRS, in which case it shall still present a statement of its material impacts, risks and opportunities alongside its disclosures prepared under this chapter of ESRS 2.

Application Requirements

AR 17. When describing where in its upstream and/or downstream value chain material impacts, risks and opportunities are concentrated, the undertaking shall consider: geographical areas, facilities or types of assets, inputs, outputs and distribution channels.

AR 18. This disclosure may be expressed in terms of a single impact, risk or opportunity or by aggregating groups of material impacts, risks and opportunities, when this provides more relevant information and does not obscure material information.

51. The undertaking shall disclose its process to identify its impacts, risks and opportunities and to assess which ones are material.
    
    
52. The objective of this Disclosure Requirement is to provide an understanding of the process through which the undertaking identifies impacts, risks and opportunities and assesses their materiality, as the basis for determining the disclosures in its sustainability statement (see ESRS 1 chapter 3 and its related Application Requirements, which set out requirements and principles regarding the process to identify and assess material impacts, risks and opportunities based on the principle of double materiality).
    
    
53. The undertaking shall disclose the following information:
    1. a description of the methodologies and assumptions applied in the described process;
    2. 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:
       1. focusses on specific activities, business relationships, geographies or other factors that give rise to heightened risk of adverse impacts;
       2. considers the impacts with which the undertaking is involved through its own operations or as a result of its business relationships;
       3. includes consultation with affected stakeholders to understand how they may be impacted and with external experts;
       4. 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;
    3. 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:
       1. how the undertaking has considered the connections of its impacts and dependencies with the risks and opportunities that may arise from those impacts and dependencies;
       2. how the undertaking assesses the likelihood, magnitude, and nature of effects of the identified risk and opportunities (such as the qualitative or quantitative thresholds and other criteria used as prescribed by ESRS 1 section 3.5 Financial materiality);
       3. how the undertaking prioritises sustainability-related risks relative to other types of risks, including its use of risk-assessment tools;
    4. a description of the decision-making process and the related internal control procedures;
    5. the extent to which and how the process to identify, assess and manage impacts and risks is integrated into the undertaking’s overall risk management process and used to evaluate the undertaking’s overall risk profile and risk management processes;
    6. the extent to which and how the process to identify, assess and manage opportunities is integrated into the undertaking’s overall management process where applicable;
    7. the input parameters it uses (for example, data sources, the scope of operations covered and the detail used in assumptions); and
    8. whether and how the process has changed compared to the prior reporting period, when the process was modified for the last time and future revision dates of the materiality.

54. The undertaking shall report on the Disclosure Requirements complied with in its sustainability statements.
    
    
55. The objective of this Disclosure Requirement is to provide an understanding of the Disclosure Requirements included in the undertaking’s sustainability statement and of the topics that have been omitted as not material, as a result of the materiality
    
    
56. The undertaking shall include a list of the Disclosure Requirements complied with in preparing the sustainability statement, following the outcome of the materiality assessment (see ESRS 1 chapter 3), including the page numbers and/or paragraphs where the related disclosures are located in the sustainability statement. This may be presented as a content index. The undertaking shall also include a table of all the datapoints that derive from other EU legislation as listed in Appendix B of this standard, indicating where they can be found in the sustainability statement and including those that the undertaking has assessed as not material, in which case the undertaking shall indicate “Not material” in the table in accordance with ESRS 1 paragraph 35.
    
    
57. If the undertaking concludes that climate change is not material and therefore omits all disclosure requirements in ESRS E1 Climate change, it shall disclose a detailed explanation of the conclusions of its materiality assessment with regard to climate change (see ESRS 2 IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement), including a forward-looking analysis of the conditions that could lead the undertaking to conclude that climate change is material in the future.

58. If the undertaking concludes that a topic other than climate change is not material and therefore omits all the Disclosure Requirements in the corresponding topical ESRS, it may provide a brief explanation of the conclusions of its materiality assessment for that topic.
    
    
59. 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. 

Application Requirements

AR 19. Notwithstanding the basis for the presentation of the information about sustainability matters included in ESRS 1 chapter 8 Structure of sustainability statement, the undertaking may disclose the list of the Disclosure Requirements complied with in preparing the sustainability statement (see paragraph 54) in the general information part or in other parts of the sustainability statement as it deems appropriate. The undertaking may use a content index, i.e., a tabular list of the Disclosure Requirements included in the sustainability statement, with the indication of where they are located (page/paragraphs).

13. The undertaking shall disclose whether and how climate-related considerations are factored into the remuneration of members of the administrative, management and supervisory bodies, including if their performance has been assessed against the GHG emission reduction targets reported under Disclosure Requirement E1-4 and the percentage of the remuneration recognised in the current period that is linked to climate related considerations, with an explanation of what the climate considerations are.

14. The undertaking shall disclose its transition plan for climate change mitigation³⁵.
    
    
15. The objective of this Disclosure Requirement is to enable an understanding of the undertaking’s past, current, and future mitigation efforts to ensure that its strategy and business model are compatible with the transition to a sustainable economy, and with the limiting of global warming to 1.5 °C in line with the Paris Agreement and with the objective of achieving climate neutrality by 2050 and, where relevant, the undertaking’s exposure to coal, oil and gas-related activities.
    
    
16. The information required by paragraph 14 shall include:
    1. by reference to GHG emission reduction targets (as required by Disclosure Requirement E1-4), an explanation of how the undertaking’s targets are compatible with the limiting of global warming to 1.5°C in line with the Paris Agreement;
    2. by reference to GHG emission reduction targets (as required by Disclosure Requirement E1-4) and the climate change mitigation actions (as required by Disclosure Requirement E1-3), an explanation of the decarbonisation levers identified, and key actions planned, including changes in the undertaking’s product and service portfolio and the adoption of new technologies in its own operations, or the upstream and/or downstream value chain;
    3. by reference to the climate change mitigation actions (as required by Disclosure Requirement E1-3), an explanation and quantification of the undertaking’s investments and funding supporting the implementation of its transition plan, with a reference to the key performance indicators of taxonomy-aligned CapEx, and where relevant the CapEx plans, that the undertaking discloses in accordance with Commission Delegated Regulation (EU) 2021/2178;
    4. a qualitative assessment of the potential locked-in GHG emissions from the undertaking’s key assets and products. This shall include an explanation of if and how these emissions may jeopardise the achievement of the undertaking’s GHG emission reduction targets and drive transition risk, and if applicable, an explanation of the undertaking’s plans to manage its GHG-intensive and energyintensive assets and products;
    5. for undertakings with economic activities that are covered by delegated regulations on climate adaptation or mitigation under the Taxonomy Regulation, an explanation of any objective or plans (CapEX, CapEx plans, OpEX) that the undertaking has for aligning its economic activities (revenues, CapEx, OpEx) with the criteria established in Commission Delegated Regulation 2021/2139³⁶;
    6. if applicable, a disclosure of significant CapEx amounts invested during the reporting period related to coal, oil and gas-related economic activities;³⁷
    7. a disclosure on whether or not the undertaking is excluded from the EU Paris-aligned Benchmarks;³⁸
    8. an explanation of how the transition plan is embedded in and aligned with the undertaking’s overall business strategy and financial planning;
    9. whether the transition plan is approved by the administrative, management and supervisory bodies; and
    10. an explanation of the undertaking’s progress in implementing the transition plan.

17. In case the undertaking does not have a transition plan in place, it shall indicate whether and, if so, when it will adopt a transition plan.
    
    

^[35]This information is aligned with the Regulation (EU) 2021/1119 of the European Parliament and of the Council (EU Climate Law), Article 2 (1); and with Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Article 2.

 ^[36] Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives (OJ L 442, 9.12.2021, p. 1).

 ^[37] The CapEx amounts considered are related to the following NACE codes:

1. B.05 - Mining of coal and lignite, B.06 Extraction of crude petroleum and natural gas (limited to crude petroleum), B.09.1 Support activities for petroleum and natural gas extraction (limited to crude petroleum),
2. C.19 - Manufacture of coke and refined petroleum products,
3. D35.1 - Electric power generation, transmission and distribution,
4. D35.3 - Steam and air conditioning supply (limited to coal-fired and oil-fired power and/or heat generation),
5. G.46.71 - Wholesale of solid, liquid and gaseous fuels and related products (limited to solid and liquid fuels).

For gas-related activities, the NACE code definition addresses activities with direct GHG emissions that are higher than 270 gCO2/KWh.

^[38] This disclosure requirement is included consistent with the requirements in Commission Implementing Regulation (EU) 2022/2453 template I climate change transition risk; and is aligned with Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Articles 12.1 (d) to (g) and 12.2.

Application Requirements

AR1. A transition plan relates to the undertaking’s efforts in climate change mitigation. When disclosing its transition plan, the undertaking is expected to provide a high-level explanation of how it will adjust its strategy and business model to ensure compatibility with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement (or an updated inter   national agreement on climate change) and the objective of achieving climate neutrality by 2050 with no or limited overshoot as established in Regulation (EU) 2021/1119 (European Climate Law), and where applicable, how it will adjust its exposure to coal, and oil and gas-related activities. 

AR2. Sectoral pathways have not yet been defined by the public policies for all sectors. Hence, the disclosure under paragraph 16 (a) on the compatibility of the transition plan with the objective of limiting global warming to 1.5°C should be understood as the disclosure of the undertaking’s GHG emissions reduction target. The disclosure under paragraph 16 (a) shall be benchmarked in relation to a pathway to 1.5°C. This benchmark should be based on either a sectoral decarbonisation pathway if available for the undertaking’s sector or an economy-wide scenario bearing in mind its limitations (i.e., it is a simple translation of emission reduction objectives from the state to undertaking level). This AR should be read also in conjunction with AR 26 and AR 27 and the sectoral decarbonisation pathways they refer to.

AR3. When disclosing the information required under paragraph 16(d) the undertaking may consider:

1. the cumulative locked-in GHG emissions associated with key assets from the reporting year until 2030 and 2050 in tCO₂ This will be assessed as the sum of the estimated Scopes 1 and 2 GHG emissions over the operating lifetime of the active and firmly planned key assets. Key assets are those owned or controlled by the undertaking, and they consist of existing or planned assets (such as stationary or mobile installations, facilities, and equipment) that are sources of either significant direct or energy-indirect GHG emissions. Firmly planned key assets are those that the undertaking will most likely deploy within the next 5 years.
2. the cumulative locked-in GHG emissions associated with the direct use-phase GHG emissions of sold products in tCO2eq, assessed as the sales volume of products in the reporting year multiplied by the sum of estimated direct use-phase GHG emissions over their expected lifetime. This requirement only applies if the undertaking has identified the Scope 3 category “use of sold products” as significant under Disclosure Requirement E1-6 paragraph 51; and
3. an explanation of the plans to manage, i.e., to transform, decommission or phase out its GHG-intensive and energy-intensive assets and products.

AR4. When disclosing the information required under paragraph 16 (e), the undertaking shall explain how the alignment of its economic activities with the provisions of Commission Delegated Regulation (EU) 2021/2139 is expected to evolve over time to support its transition to a sustainable economy. In doing so, the undertaking shall take account of the key performance indicators required to be disclosed under Article 8 of Regulation (EU) 2020/852 (in particular taxonomy-aligned revenue and CapEx and, if applicable, CapEx plans). 

AR5. When disclosing the information required under paragraph 16 (f), the undertaking shall state whether or not it is excluded from the EU Paris-aligned Benchmarks in accordance with the exclusion criteria stated in Articles 12.1 (d) to (g)⁵³ and 12.2 of Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Standards Regulation)⁵⁴.

⁵³Article 12.1 of the Climate Benchmark Standards Regulation states that “Administrators of EU Paris-aligned Benchmarks shall exclude the following companies:

1. companies that derive 1% or more of their revenues from exploration, mining, extraction, distribution or refining of hard coal and lignite; or
2. companies that derive 10% or more of their revenues from exploration, extraction, distribution or refining of oil fuels; or
3. companies that derive 50% or more of their revenues from exploration, extraction, manufacturing or distribution of gaseous fuels; or
4. companies that derive 50% or more of their revenues from electricity generation with a GHG intensity of more than 100 g CO2 e/KWh.”

Article 12.2 states that “Administrators of EU Paris-aligned Benchmarks shall exclude from those benchmarks any companies that are found or estimated by them or by external data providers to significantly harm one or more of the environmental objectives referred to in Article 9 of Regulation (EU) 2020/852 of the European Parliament and of the Council, in accordance with the rules on estimations laid down in Article 13(2) of this Regulation.”.

⁵⁴This disclosure requirement is consistent with the requirements in Commission Implementing Regulation (EU) 2022/2453 - template 1 climate change transition risk.

18. The undertaking shall explain for each material climate-related risk it has identified, whether the entity considers the risk to be a climate-related physical risk or climate-related transition risk.
    
    
19. The undertaking shall describe the resilience of its strategy and business model in relation to climate change. This description shall include:
    1. the scope of the resilience analysis;
    2. how and when the resilience analysis has been conducted, including the use of climate scenario analysis as referenced in the Disclosure Requirement related to ESRS 2 IRO-1 and the related application requirement paragraphs; and
    3. the results of the resilience analysis including the results from the use of scenario analysis.

Application Requirements

AR 6. When disclosing the information on the scope of the resilience analysis as required under paragraph 19 (a), the undertaking shall explain which part of its own operations and upstream and downstream value chain as well as which material physical risks and transition risks may have been excluded from the analysis.

AR 7. When disclosing the information on how the resilience analysis has been conducted as required under paragraph 19 (b), the undertaking shall explain:

1. the critical assumptions about how the transition to a lower-carbon and resilient economy will affect its surrounding macroeconomic trends, energy consumption and mix, and technology deployment assumptions;
2. the time horizons applied and their alignment with the climate and business scenarios considered for determining material physical and transition risks (paragraphs AR 11 to AR 12) and setting GHG emissions reduction targets (reported under Disclosure Requirement E1-4); and
3. how the estimated anticipated financial effects from material physical and transition risks (as required by Disclosure Requirement E1-9) as well as the mitigation actions and resources (disclosed under Disclosure Requirement E1-3) were considered.

AR 8. When disclosing the information on the results of the resilience analysis as required under paragraph 19 (c), the undertaking shall explain:

1. the areas of uncertainties of the resilience analysis and to what extent the assets and business activities at risk are considered within the definition of the undertaking’s strategy, investment decisions, and current and planned mitigation actions;
2. the ability of the undertaking to adjust or adapt its strategy and business model to climate change over the short-, medium- and long-term, including securing ongoing access to finance at an affordable cost of capital, the ability to redeploy, upgrade or decommission existing assets, shifting its products and services portfolio, or reskilling its workforce.

20. The undertaking shall describe the process to identify and assess climate-related impacts, risks and opportunities. This description shall include its process in relation to:
    1. impacts on climate change, in particular, the undertaking’s GHG emissions (as required by Disclosure Requirement ESRS E1-6);
    2. climate-related physical risks in own operations and along the upstream and downstream value chain, in particular:
       1. the identification of climate-related hazards, considering at least high emission climate scenarios; and
       2. the assessment of how its assets and business activities may be exposed and are sensitive to these climate-related hazards, creating gross physical risks for the undertaking.
    3. climate-related transition risks and opportunities in own operations and along the upstream and downstream value chain, in particular:
       1. the identification of climate-related transition events, considering at least a climate scenario in line with limiting global warming to 1.5°C with no or limited overshoot; and
       2. the assessment of how its assets and business activities may be exposed to these climate-related transition events, creating gross transition risks or opportunities for the undertaking.
       3. When disclosing the information required under paragraphs 20 (b)and 20 (c) the undertaking shall explain how it has used climate-related scenario analysis, including a range of climate scenarios, to inform the identification and assessment of physical risks and transition risks and opportunities over the short-, medium- and long-term.

21. When disclosing the information required under paragraphs 20 (b) and 20 (c) the undertaking shall explain how it has used climate-related scenario analysis, including a range of climate scenarios, to inform the identification and assessment of physical risks and transition risks and opportunities over the short-, medium- and long-term.

Application Requirements

AR 9. When disclosing the information on the processes to identify and assess climate impacts as required under paragraph 20 (a), the undertaking shall explain how it has:

1. screened its activities and plans in order to identify actual and potential future GHG emission sources and, if applicable, drivers for other climate-related impacts (e.g., emissions of black carbon or tropospheric ozone or land-use change) in own operations and along the value chain; and
2. assessed its actual and potential impacts on climate change (i.e., its total GHG emissions).

AR 10. The undertaking may link the information disclosed under paragraphs 20 (a) and AR 9 to the information disclosed under the following Disclosure Requirements: Disclosure Requirement E1-1, paragraph 16 (d) on locked-in GHG emissions; Disclosure Requirement E1-4 and Disclosure Requirement E1-6.

AR 11. When disclosing the information on the processes to identify and assess physical risks as required under paragraph 20 (b), the undertaking shall explain whether and how:

1. it has identified climate-related hazards (see table below) over the short-, medium- and long-term and screened whether its assets and business activities may be exposed to these hazards;
2. it has defined short-, medium- and long-term time horizons and how these definitions are linked to the expected lifetime of its assets, strategic planning horizons and capital allocation plans;
3. it has assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified climate-related hazards, taking into consideration the likelihood, magnitude and duration of the hazards as well as the geospatial coordinates (such as Nomenclature of Territorial Units of Statistics- NUTS for the EU territory) specific to the undertaking’s locations and supply chains; and
4. the identification of climate-related hazards and the assessment of exposure and sensitivity are informed by high emissions climate scenarios, which may, for example, be based on IPCC SSP5-8.5, relevant regional climate projections based on these emission scenarios, or NGFS (Network for Greening the Financial System) climate scenarios with high physical risk such as “Hot house world” or “Too little, too late”. For general requirements regarding climate-related scenario analysis see paragraphs 18, 19, AR 13 to AR 15. 

AR 12. When disclosing the information on the processes to identify transition risks and opportunities as required under paragraph 20 (c), the undertaking shall explain whether and how it has:

1. identified transition events (see the table with examples below) over the short-, medium- and long-term and screened whether its assets and business activities may be exposed to these In case of transition risks and opportunities, what is considered long-term may cover more than 10 years and may be aligned with climate-related public policy goals;
2. assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified transition events, taking into consideration the likelihood, magnitude and duration of the transition events;
3. informed the identification of transition events and the assessment of exposure by climate-related scenario analysis, considering at least a scenario consistent with the Paris Agreement and limiting climate change to 1.5°C, for example, based on scenarios of the International Energy Agency (Net zero Emissions by 2050, Sustainable Development Scenario, etc), or NGFS (Network for Greening the Financial System) climate scenarios. For the general requirements related to climate-related scenario analysis see paragraphs 18, 19, AR 13 to AR 15; and
4. identified assets and business activities that are incompatible with or need significant efforts to be compatible with a transition to a climate-neutral economy (for example, due to significant locked-in GHG emissions or incompatibility with the requirements for Taxonomy-alignment under Commission Delegated Regulation (EU) 2021/2139).

Climate-related scenario analysis

AR 13. When disclosing the information required under paragraphs 19, 20, 21, AR 10 and AR 11, the undertaking shall explain how it has used climate-related scenario analysis that is commensurate to its circumstances to inform the identification and assessment of physical and transition risks and opportunities over the short-, medium- and long-term, including:

1. which scenarios were used, their sources and alignment with state-of-the-art science;
2. narratives, time horizons, and endpoints used with a discussion of why it believes the range of scenarios used covers its plausible risks and uncertainties;
3. the key forces and drivers taken into consideration in each scenario and why these are relevant to the undertaking, for example, policy assumptions, macroeconomic trends, energy usage and mix, and technology assumptions; and
4. key inputs and constraints of the scenarios, including their level of detail (e.g., whether the analysis of physical climate-related risks is based on geospatial coordinates specific to the undertaking’s locations or national- or regional-level broad data).

AR 14. When conducting scenario analysis, the undertaking may consider the following guidance: TCFD Technical Supplement on “The Use of Scenario Analysis in Disclosure of Climate- Related Risks and Opportunities” (2017); TCFD “Guidance on Scenario Analysis for Non- Financial Companies” (2020); ISO 14091:2021 “Adaptation to climate change — Guidelines on vulnerability, impacts and risk assessment”; any other recognised industry standards such as NGFS (Network for Greening the Financial System); and EU, national, regional and local regulations.

AR 15. The undertaking shall briefly explain how the climate scenarios used are compatible with the critical climate-related assumptions made in the financial statements.

22. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to climate change mitigation and adaptation.
    
    
23. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material climate change mitigation and adaptation impacts, risks and opportunities.
    
    
24. The disclosure required by paragraph 22 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to climate change mitigation and adaptation in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.
    
    
25. The undertaking shall indicate whether and how its policies address the following areas:
    1. climate change mitigation;
    2. climate change adaptation;
    3. energy efficiency;
    4. renewable energy deployment; and
    5. other

Application Requirements

AR 16. Policies related to either climate change mitigation or climate adaptation may be disclosed separately as their objectives, people involved, actions and resources needed to implement them are different.

AR 17. Policies related to climate change mitigation address the management of the undertaking’s GHG emissions, GHG removals and transition risks over different time horizons, in its own operations and/or in the upstream and downstream value chain. The requirement under paragraph 14 may relate to stand-alone climate change mitigation policies as well as relevant policies on other matters that indirectly support climate change mitigation including training policies, procurement or supply chain policies, investment policies or product development policies.

AR 18. Policies related to climate change adaptation address the management of the undertaking’s physical climate risks and of its transition risks related to climate change adaptation. The requirement under paragraphs 22 and 25 may relate to stand-alone climate change adaptation policies as well as relevant policies on other matters that indirectly support climate change adaptation including training policies, and emergency or health and safety policies.

26. The undertaking shall disclose its climate change mitigation and adaptation actions and the resources allocated for their implementation.
    
    
27. The objective of this Disclosure Requirement is to provide an understanding of the key actions taken and planned to achieve climate-related policy objectives and targets.
    
    
28. The description of the actions and resources related to climate change mitigation and adaptation shall follow the principles stated in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.
    
    
29. In addition to ESRS 2 MDR-A, the undertaking shall:
    1. when listing key actions taken in the reporting year and planned for the future, present the climate change mitigation actions by decarbonisation lever including the nature- based solutions;
    2. when describing the outcome of the actions for climate change mitigation, include the achieved and expected GHG emission reductions; and
    3. relate significant monetary amounts of CapEx and OpEx required to implement the actions taken or planned to:
       1. the relevant line items or notes in the financial statements;
       2. the key performance indicators required under Commission Delegated Regulation (EU) 2021/2178; and iii. if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178.

Application Requirements

AR 19. When disclosing the information on actions as required under paragraphs 29 (a) and 29 (b), the undertaking may:

1. disclose its key actions taken and/or plans to implement climate change mitigation and adaptation policies in its single or separate actions;
2. aggregate types of mitigation actions (decarbonisation levers) such as energy efficiency, electrification, fuel switching, use of renewable energy, products change, and supply-chain decarbonisation that fit the undertakings' specific actions;
3. disclose the list of key mitigation actions alongside the measurable targets (as required by Disclosure Requirement E1-4) with disaggregation by decarbonisation levers; and
4. disclose the climate change adaptation actions by type of adaptation solution such as nature-based adaptation, engineering, or technological solutions.

AR 20. When disclosing the information on resources as required under paragraph 29 (c), the undertaking shall only disclose the significant OpEx and CapEx amounts required for the implementation of the actions as the purpose of this information is to demonstrate the credibility of its actions rather than to reconcile the disclosed amounts to the financial statements. The disclosed CapEx and OpEx amounts shall be the additions made to both tangible and intangible assets during the current financial year as well as the planned additions for future periods of implementing the actions. The disclosed amounts shall only be the incremental financial investments directly contributing to the achievement of the undertaking’s targets.

AR 21. In line with the requirements of ESRS 2 MDR-A, the undertaking shall explain if and to what extent its ability to implement the actions depends on the availability and allocation of resources. Ongoing access to finance at an affordable cost of capital can be critical for the implementation of the undertaking’s actions, which include its adjustments to supply/demand changes or its related acquisitions and significant research and development (R&D) investments.

AR 22. The amounts of OpEx and CapEx required for the implementation of the actions disclosed under paragraph 29 (c) shall be consistent with the key performance indicators (CapEx and OpEx key performance indicators) and, if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178. The undertaking shall explain any potential differences between the significant OpEx and CapEx amounts disclosed under this Standard and the key performance indicators disclosed under Commission Delegated Regulation (EU) 2021/2178 due to, for instance, the disclosure of non-eligible economic activities as defined in that delegated regulation. The undertaking may structure its actions by economic activity to compare its OpEx and CapEx, and if applicable its OpEx and/or CapEx plans to its Taxonomy-aligned key performance indicators.

30. The undertaking shall disclose the climate-related targets it has set.
    
    
31. The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has set to support its climate change mitigation and adaptation policies and address its material climate-related impacts, risks and opportunities.
    
    
32. The disclosure of the targets required in paragraph 30 shall contain the information required in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.
    
    
33. For the disclosure required by paragraph 30, the undertaking shall disclose whether and how it has set GHG emissions reduction targets and/or any other targets to manage material climate-related impacts, risks and opportunities, for example, renewable energy deployment, energy efficiency, climate change adaptation, and physical or transition risk
    mitigation.
    
    
34. If the undertaking has set GHG emission reduction targets^[1], ESRS 2 MDR-T and the following requirements shall apply:
    1. GHG emission reduction targets shall be disclosed in absolute value (either in tonnes of CO2eq or as a percentage of the emissions of a base year) and, where relevant, in intensity value;
    2. GHG emission reduction targets shall be disclosed for Scope 1, 2, and 3 GHG emissions, either separately or combined. The undertaking shall specify, in case of combined GHG emission reduction targets, which GHG emission Scopes (1, 2 and/or 3) are covered by the target, the share related to each respective GHG emission Scope and which GHGs are covered. The undertaking shall explain how the consistency of these targets with its GHG inventory boundaries is ensured (as required by Disclosure Requirement E1-6). The GHG emission reduction targets shall be gross targets, meaning that the undertaking shall not include GHG removals, carbon credits or avoided emissions as a means of achieving the GHG emission reduction targets;
    3. the undertaking shall disclose its current base year and baseline value, and from 2030 onwards, update the base year for its GHG emission reduction targets after every five-year period thereafter. The undertaking may disclose the past progress made in meeting its targets before its current base year provided that this information is consistent with the requirements of this Standard;
    4. GHG emission reduction targets shall at least include target values for the year 2030 and, if available, for the year 2050. From 2030, target values shall be set after every 5 year period thereafter;
    5. the undertaking shall state whether the GHG emission reduction targets are science- based and compatible with limiting global warming to 1.5°C. The undertaking shall state which framework and methodology has been used to determine these targets including whether they are derived using a sectoral decarbonisation pathway and what the underlying climate and policy scenarios are and whether the targets have been externally assured. As part of the critical assumptions for setting GHG emission reduction targets, the undertaking shall briefly explain how it has considered future developments (e.g., changes in sales volumes, shifts in customer preferences and demand, regulatory factors, and new technologies) and how these will potentially impact both its GHG emissions and emissions reductions; and
    6. the undertaking shall describe the expected decarbonisation levers and their overall quantitative contributions to achieve the GHG emission reduction targets (e.g., energy or material efficiency and consumption reduction, fuel switching, use of renewable energy, phase out or substitution of product and process).
       
       

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 (SFDR) because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #4 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Investments in companies without carbon emission reduction initiatives”); and is aligned with the Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Article 6.

Application Requirements

AR 23. Under paragraph 34 (a), the undertaking may disclose GHG emission reduction targets in intensity value. Intensity targets are formulated as ratios of GHG emissions relative to a unit of physical activity or economic output. Relevant units of activity or output are referred to in ESRS sector-specific standards. In cases where the undertaking has only set a GHG intensity reduction target, it shall nevertheless disclose the associated absolute values for the target year and interim target year(s). This may result in a situation where an undertaking is required to disclose an increase of absolute GHG emissions for the target year and interim target year(s), for example because it anticipates organic growth of its business.

AR 24. When disclosing the information required under paragraph 34 (b), the undertaking shall specify the share of the target related to each respective GHG emission Scope (1, 2 or 3). The undertaking shall state the method used to calculate Scope 2 GHG emissions included in the target (i.e., either the location-based or market-based method). If the boundary of the GHG emission reduction target diverges from that of the GHG emissions reported under Disclosure Requirement E1-6, the undertaking shall disclose which gases are covered, the respective percentage of Scope 1, 2, 3 and total GHG emissions covered by the target. For the GHG emission reduction targets of its subsidiaries, the undertaking shall analogously apply these requirements at the level of the subsidiary.

AR 25. When disclosing the information required under paragraph 34(c) on base year and baseline value:

1. the undertaking shall briefly explain how it has ensured that the baseline value against which the progress towards the target is measured is representative in terms of the activities covered and the influences from external factors (e.g., temperature anomalies in a certain year influencing the amount of energy consumption and related GHG emissions). This can be done by the normalisation of the baseline value, or, by using a baseline value that is derived from a 3-year average if this increases the representativeness and allows a more faithful representation;
2. the baseline value and base year shall not be changed unless significant changes in either the target or reporting boundary occur. In such a case, the undertaking shall explain how the new baseline value affects the new target, its achievement and presentation of progress over To foster comparability, when setting new targets, the undertaking shall select a recent base year that does not precede the first reporting year of the new target period by longer than 3 years. For example, for 2030 as the target year and a target period between 2025 and 2030, the base year shall be selected from the period between 2022 and 2025;
3. the undertaking shall update its base year from 2030 and after every 5-year period thereafter. This means that before 2030, the base years chosen by undertakings’ may be either the currently applied base year for existing targets or the first year of application of the sustainability reporting requirements as set out in Article 5(2) of Directive (EU) 2022/2464 (2024, 2025 or 2026) and, after 2030, every 5 years (2030, 2035, etc); and
4. when presenting climate-related targets, the undertaking may disclose the progress in meeting these targets made before its current base year. In doing so, the undertaking shall, to the greatest extent possible, ensure that the information on past progress is consistent with the requirements of this In the case of methodological differences, for example, regarding target boundaries, the undertaking shall provide a brief explanation for these differences.

AR 26. When disclosing the information required under paragraphs 34 (d) and 34 (e), the undertaking shall present the information over the target period with reference to a sector- specific, if available, or a cross-sector emission pathway compatible with limiting global warming to 1.5°C. For this purpose, the undertaking shall calculate a 1.5°C aligned reference target value for Scope 1 and 2 (and, if applicable, a separate one for Scope 3) against which its own GHG emission reduction targets or interim targets in the respective Scopes can be compared.

AR 27. The reference target value may be calculated by multiplying the GHG emissions in the base year with either a sector-specific (sectoral decarbonisation methodology) or cross-sector (contraction methodology) emission reduction factor. These emission reduction factors can be derived from different sources. The undertaking should ensure that the source used is based on an emission reduction pathway compatible with limiting global warming to 1.5°C.

AR 28. The emission reduction factors are subject to further development. Consequently, undertakings are encouraged to only use updated publicly available information.

AR 29. The reference target value is dependent on the base year and baseline emissions of the undertaking’s GHG emission reduction target. As a result, the reference target value for undertakings with a recent base year or from higher baseline emissions may be less challenging to achieve than it will be for undertakings that have already taken ambitious past actions to reduce GHG emissions. Therefore, undertakings that have in the past achieved GHG emissions reductions compatible with either a 1.5°C-aligned cross-sector or sector- specific pathway, may adjust their baseline emissions accordingly to determine the reference target value. Accordingly, if the undertaking is adjusting the baseline emissions to determine the reference target value, it shall not consider GHG emission reductions that precede the year 2020 and it shall provide appropriate evidence of its past achieved GHG emission reduction.

AR 30. When disclosing the information required under paragraph 34 (f), the undertaking shall explain:

1. by reference to its climate change mitigation actions, the decarbonisation levers and their estimated quantitative contributions to the achievement of its GHG emission reduction targets broken down by each Scope (1, 2 and 3);
2. whether it plans to adopt new technologies and the role of these to achieve its GHG emission reduction targets; and
3. whether and how it has considered a diverse range of climate scenarios, at least including a climate scenario compatible with limiting global warming to 5°C, to detect relevant environmental-, societal-, technology-, market- and policy-related developments and determine its decarbonisation levers.

AR 31. The undertaking may present its GHG emission reduction targets together with its climate change mitigation actions (see paragraph AR 19) as a table or graphical pathway showing developments over time. The following figure and table provide examples combining targets and decarbonization levers:

[the first example is in a format that cannot be replicated in this table - please refer to original publication]

35. The undertaking shall provide information on its energy consumption and mix.
    
    
36. The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s total energy consumption in absolute value, improvement in energy efficiency, exposure to coal, oil and gas-related activities, and the share of renewable energy in its overall energy mix.
    
    
37. The disclosure required by paragraph 35 shall include the total energy consumption in MWh related to own operations disaggregated by:
    1. total energy consumption from fossil sources^[1];
    2. total energy consumption from nuclear sources;
    3. total energy consumption from renewable sources disaggregated by:
       1. fuel consumption for renewable sources including biomass (also comprising industrial and municipal waste of biologic origin), biofuels, biogas, hydrogen from renewable sources^[2], etc.;
       2. consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources; and
       3. consumption of self-generated non-fuel renewable energy.

38. The undertaking with operations in high climate impact sectors^[3] shall further disaggregate their total energy consumption from fossil sources by:
    1. fuel consumption from coal and coal products;
    2. fuel consumption from crude oil and petroleum products;
    3. fuel consumption from natural gas;
    4. fuel consumption from other fossil sources;
    5. consumption of purchased or acquired electricity, heat, steam, or cooling from fossil sources;

39. In addition, where applicable, the undertaking shall disaggregate and disclose separately its non-renewable energy production and renewable energy production in MWh.^[4]

Energy intensity based on net revenue^[5]

40. The undertaking shall provide information on the energy intensity (total energy consumption per net revenue) associated with activities in high climate impact sectors.
    
    
41. The disclosure on energy intensity required by paragraph 40 shall only be derived from the total energy consumption and net revenue from activities in high climate impact sectors.
    
    
42. The undertaking shall specify the high climate impact sectors that are used to determine the energy intensity required by paragraph 40.
    
    
43. The undertaking shall disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amount from activities in high climate impact sectors (the denominator in the calculation of the energy intensity required by paragraph 40).

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from a mandatory indicator related to principal adverse impacts as set out by indicator #5 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Share of non-renewable energy consumption and production”). The breakdown serves as a reference for an additional indicator related to principal adverse impacts as set out by indicator #5 in Table II of the same Annex (“Breakdown of energy consumption by type of non-renewable sources of energy”).

[2] Compliant with the requirements in delegated acts for hydrogen from renewable sources: Commission Delegated Regulation of 10 February 2023 supplementing Directive (EU) 2018/2001 of the European Parliament and of the Council by establishing a Union methodology setting out detailed rules for the production of renewable liquid and gaseous transport fuels of non-biological origin; and Commission Delegated Regulation of 10 February 2023 supplementing Directive (EU) 2018/2001 of the European Parliament and of the Council by establishing a minimum threshold for greenhouse gas emissions savings of recycled carbon fuels and by specifying a methodology for assessing greenhouse gas emissions savings from renewable liquid and gaseous transport fuels of non-biological origin and from recycled carbon fuel. 

[3] High climate impact sectors are those listed in NACE Sections A to H and Section L (as defined in Commission Delegated Regulation (EU) 2022/1288).

[4] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from a mandatory indicator related to principal adverse impacts as set out by indicator #5 in Table I of Annex I of  Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Share of non-renewable energy consumption and production”).

[5] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from a mandatory indicator related to principal adverse impacts as set out by indicator #6 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Energy consumption intensity per high climate impact sector”).

Application Requirements

Calculation guidance

AR 32. When preparing the information on energy consumption required under paragraph 35, the undertaking shall:

1. only report energy consumed from processes owned or controlled by the undertaking applying the same perimeter applied for reporting GHG Scopes 1 and 2 emissions;
2. exclude feedstocks and fuels that are not combusted for energy purposes. The undertaking that consumes fuel as feedstocks can disclose information on this consumption separately from the required disclosures;
3. ensure all quantitative energy-related information is reported in either Mega-Watt- hours (MWh) in Lower Heating Value or net calorific value. If raw data of energy- related information is only available in energy units other than MWh (such as Giga- Joules (GJ) or British Thermal Units (Btu)), in volume units (such as cubic feet or gallons) or in mass units (such as kilograms or pounds), they shall be converted to MWh using suitable conversion factors (see for example Annex II of the Fifth Assessment IPCC report). Conversion factors for fuels shall be made transparent and applied in a consistent manner;
4. ensure all quantitative energy-related information is reported as final energy consumption, referring to the amount of energy the undertaking actually consumes using for example the table in Annex IV of Directive 2012/27 of the European Parliament and of the Council (55) on energy efficiency;
5. avoid double counting fuel consumption when disclosing self-generated energy consumption. If the undertaking generates electricity from either a non-renewable or renewable fuel source and then consumes the generated electricity, the energy consumption shall be counted only once under fuel consumption;
6. not offset energy consumption even if onsite generated energy is sold to and used by a third party;
7. not count energy that is sourced from within the organisational boundary under “purchased or acquired” energy;
8. account for steam, heat or cooling received as “waste energy” from a third party’s industrial processes under “purchased or acquired” energy;
9. account for renewable hydrogen (56) as a renewable fuel. Hydrogen that is not completely derived from renewable sources shall be included under “fuel consumption from other non-renewable sources”; and
10. adopt a conservative approach when splitting the electricity, steam, heat or cooling between renewable and non-renewable sources based on the approach applied to calculate market-based Scope 2 GHG The undertaking shall only consider these energy consumptions as deriving from renewable sources if the origin of the purchased energy is clearly defined in the contractual arrangements with its suppliers (renewable power purchasing agreement, standardised green electricity tariff, market instruments like Guarantee of Origin from renewable sources in Europe (57) or similar instruments like Renewable Energy Certificates in the US and Canada, etc.).

55 Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC (OJ L 315, 14.11.2012, p. 1).

56 Compliant with the requirements in delegated acts for hydrogen from renewable sources: Commission delegated regulation of 10 February 2023 supplementing Directive (EU) 2018/2001 of the European Parliament and of the Council by establishing a Union methodology setting out detailed rules for the production of renewable liquid and gaseous transport fuels of non- biological origin; and Commission delegated regulation of 10 February 2023 supplementing Directive (EU) 2018/2001 of the European Parliament and of the Council by establishing a minimum threshold for greenhouse gas emissions savings of recycled carbon fuels and by specifying a methodology for assessing greenhouse gas emissions savings from renewable liquid and gaseous transport fuels of non-biological origin and from recycled carbon fuel.

57 Based on Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources.

AR 33. The information required under paragraph 37 (a) is applicable if the undertaking is operating in at least one high climate impact sector. The information required under paragraph 38 (a) to (e). shall also include energy from fossil sources consumed in operations that are not in high climate impact sectors.

AR 34. The information on Energy consumption and mix may be presented using the following tabular format for high climate impact sectors and for all other sector by omitting rows (1) to (5). 

AR 35. The total energy consumption with a distinction between fossil, nuclear and renewable energy consumption may be presented graphically in the sustainability statement showing developments over time (e.g., through a pie or bar chart).

Energy intensity based on net revenue

Calculation guidance

AR 36. When preparing the information on energy intensity required under paragraph 40, the undertaking shall:

1. calculate the energy intensity ratio using the following formula:
   

   𝑇𝑜𝑡𝑎𝑙 𝑒𝑛𝑒𝑟𝑔𝑦 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 𝑓𝑟𝑜𝑚 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠 𝑖𝑛 ℎ𝑖𝑔ℎ 𝑐𝑙𝑖𝑚𝑎𝑡𝑒 𝑖𝑚𝑝𝑎𝑐𝑡 𝑠𝑒𝑐𝑡𝑜𝑟𝑠 (𝑀𝑊ℎ)
                                                                                                                                                                 ;

   𝑁𝑒𝑡 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠 𝑖𝑛 ℎ𝑖𝑔ℎ 𝑐𝑙𝑖𝑚𝑎𝑡𝑒 𝑖𝑚𝑝𝑎𝑐𝑡 𝑠𝑒𝑐𝑡𝑜𝑟𝑠 (𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝑢𝑛𝑖𝑡)

2. express the total energy consumption in MWh and the net revenue in monetary units (e.g., Euros);
3. the numerator and denominator shall only consist of the proportion of the total final energy consumption (in the numerator) and net revenue (in the denominator) that are attributable to activities in high climate impact sectors. In effect, there should be consistency in the scope of both the numerator and denominator;
4. calculate the total energy consumption in line with the requirement in paragraph 37;
5. calculate the net revenue in line with the accounting standards requirements applicable for the financial statements, i.e., IFRS 15 Revenue from Contracts with Customers or local GAAP requirements.

AR 37. The quantitative information may be presented in the following table.

Connectivity of energy intensity based on net revenue with financial reporting information

AR 38. The reconciliation of net revenue from activities in high climate impact sectors to the relevant financial statements line item or disclosure (as required by paragraph 43) may be presented either:

1. by a cross-reference to the related line item or disclosure in the financial statements; or
2. If the net revenue cannot be directly cross-referenced to a line item or disclosure in the financial statements, by a quantitative reconciliation using the below tabular format.

44. The undertaking shall disclose in metric tonnes of CO2eq its^[1]:
    1. gross Scope 1 GHG emissions;
    2. gross Scope 2 GHG emissions;
    3. gross Scope 3 GHG emissions; and
    4. total GHG emissions.
       
       
45. The objective of the Disclosure Requirement in paragraph 44 in respect of:
    1. gross Scope 1 GHG emissions as required by paragraph 44 (a) is to provide an understanding of the direct impacts of the undertaking on climate change and the proportion of its total GHG emissions that are regulated under emission trading schemes.
    2. gross Scope 2 GHG emissions as required by paragraph 44 (b) is to provide an understanding of the indirect impacts on climate change caused by the undertaking’s consumed energy whether externally purchased or acquired.
    3. gross Scope 3 GHG emissions as required by paragraph 44 (c) is to provide an understanding of the GHG emissions that occur in the undertaking’s upstream and downstream value chain beyond its Scope 1 and 2 GHG emissions. For many undertakings, Scope 3 GHG emissions may be the main component of their GHG inventory and are an important driver of the undertaking’s transition risks.
    4. total GHG emissions as required by paragraph 44 (d) is to provide an overall understanding of the undertaking’s GHG emissions and whether they occur from its own operations or the usptream and donwstream value chain. This disclosure is a prerequisite for measuring progress towards reducing GHG emissions in accordance with the undertaking’s climate-related targets and EU policy

The information from this Disclosure Requirement is also needed to understand the undertaking’s climate-related transition risks.

46. When disclosing the information on GHG emissions required under paragraph 44, the undertaking shall refer to ESRS 1 paragraphs from 62 to 67. In principle, the data on GHG emissions of its associates or joint ventures that are part of the undertaking’s upstream and downstream value chain (ESRS 1 Paragraph 67) are not limited to the share of equity held. For its associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements that are joint arrangements not structured through an entity (i.e., jointly controlled operations and assets), the undertaking shall include the GHG emissions in accordance with the extent of the undertaking’s operational control over them.  
    
    
47. In case of significant changes in the definition of what constitutes the reporting undertaking and its upstream and downstream value chain, the undertaking shall disclose these changes and explain their effect on the year-to-year comparability of its reported GHG emissions (i.e., the effect on the comparability of current versus previous reporting period GHG emissions).
    
    
48. The disclosure on gross Scope 1 GHG emissions required by paragraph 44 (a) shall include:
    1. the gross Scope 1 GHG emissions in metric tonnes of CO2eq; and
    2. the percentage of Scope 1 GHG emissions from regulated emission trading schemes.
       
       
49. The disclosure on gross Scope 2 GHG emissions required by paragraph 44 (b) shall include: (a) the gross location-based Scope 2 GHG emissions in metric tonnes of CO₂eq; and (b) the gross market-based Scope 2 GHG emissions in metric tonnes of CO₂eq.
    
    
50. For Scope 1 and Scope 2 emissions disclosed as required by paragraphs 44 (a) and (b) the undertaking shall disaggregate the information, separately disclosing emissions from:
    1. the consolidated accounting group (the parent and subsidiaries); and
    2. investees such as associates, joint ventures, or unconsolidated subsidiaries that are not fully consolidated in the financial statements of the consolidated accounting group, as well as contractual arrangements that are joint arrangements not structured through an entity (i.e., jointly controlled operations and assets), for which it has operational control.
       
       
51. The disclosure of gross Scope 3 GHG emissions required by paragraph 44 (c) shall include GHG emissions in metric tonnes of CO2eq from each significant Scope 3 category (i.e. each Scope 3 category that is a priority for the undertaking).
    
    
52. The disclosure of total GHG emissions required by paragraph 44 (d) shall be the sum of Scope 1, 2 and 3 GHG emissions required by paragraphs 44 (a) to (c). The total GHG emissions shall be disclosed with a disaggregation that makes a distinction of:
    1. the total GHG emissions derived from the underlying Scope 2 GHG emissions being measured using the location-based method; and
    2. the total GHG emissions derived from the underlying Scope 2 GHG emissions being measured using the market-based method.

GHG Intensity based on net revenue^[2]

53. The undertaking shall disclose its GHG emissions intensity (total GHG emissions per net revenue).
    
    
54. The disclosure on GHG intensity required by paragraph 53 shall provide the total GHG emissions in metric tonnes of CO₂eq (required by paragraph 44 (d)) per net revenue.
    
    
55. The undertaking shall disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amounts (the denominator in the calculation of the GHG emissions intensity required by paragraph 53).
    
    

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from a mandatory indicator related to principal adverse impacts as set out by indicators #1 and #2 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“GHG emissions” and “Carbon footprint”). This information is aligned with Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Articles 5 (1), 6 and 8 (1).

[2] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from a mandatory indicator related to principal adverse impacts as set out by indicator #3 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“GHG intensity of investee companies”). This information is aligned with Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Article 8 (1).

Application Requirements

Calculation guidance

AR 39. When preparing the information for reporting GHG emissions as required by paragraph 44, the undertaking shall:

1. consider the principles, requirements and guidance provided by the GHG Protocol Corporate Standard (version 2004). The undertaking may consider Commission Recommendation (EU) 2021/227958 or the requirements stipulated by EN ISO 14064- 1:2018. If the undertaking already applies the GHG accounting methodology of ISO 14064- 1: 2018, it shall nevertheless comply with the requirements of this standard (e.g., regarding reporting boundaries and the disclosure of market-based Scope 2 GHG emissions);
2. disclose the methodologies, significant assumptions and emissions factors used to calculate or measure GHG emissions accompanied by the reasons why they were chosen, and provide a reference or link to any calculation tools used;
3. include emissions of CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3. Additional GHG may be considered when significant; and
4. use the most recent Global Warming Potential (GWP) values published by the IPCC based on a 100-year time horizon to calculate CO2eq emissions of non-CO2 gases.

AR 40. When preparing the information for reporting GHG emissions from its associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements as required by paragraph 50, the undertaking shall consolidate 100% of the GHG emissions of the entities it operationally controls. In practice, this happens when the undertakings holds the license - or permit - to operate the assets from these associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements. When the undertaking has a contractually defined part-time operational control, it shall consolidate 100% the GHG emitted during the time of its operational control.

AR 41. In line with ESRS 1 chapter 3.7, the undertaking shall disaggregate information on its GHG emissions as appropriate. For example, the undertaking may disaggregate its Scope 1, 2, 3, or total GHG emissions by country, operating segments, economic activity, subsidiary, GHG category (CO2, CH4, N2O, HFCs, PFCs, SF6, NF3, and other GHG considered by the undertaking) or source type (stationary combustion, mobile combustion, process emissions and fugitive emissions).

AR 42. An undertaking might have a different reporting period from some or all of the entities in its value chain. In such circumstances, the undertaking is permitted to measure its GHG emissions in accordance with paragraph 44 using information for reporting periods that are different from its own reporting period if that information is obtained from entities in its value chain with reporting periods that are different from the undertaking’s reporting period, on the condition that:

1. the undertaking uses the most recent data available from those entities in its value chain to measure and disclose its greenhouse gas emissions;
2. the length of the reporting periods is the same; and
3. the undertaking discloses the effects of significant events and changes in circumstances (relevant to its GHG emissions) that occur between the reporting dates of the entities in its value chain and the date of the undertaking’s general purpose financial statements.

AR 43. When preparing the information on gross Scope 1 GHG emissions required under paragraph 48 (a), the undertaking shall:

1. calculate or measure GHG emissions from stationary combustion, mobile combustion, process emissions and fugitive emissions; and use suitable activity data that include the non-renewable fuel consumption;
2. use suitable and consistent emission factors;
3. disclose biogenic emissions of CO2 from the combustion or bio-degradation of biomass separately from the Scope 1 GHG emissions, but include emissions of other types of GHG (in particular CH4 and N2O);
4. not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 1 GHG emissions; and
5. for activities reporting under the EU ETS, report on Scope 1 emissions following the EU ETS methodology. The EU ETS methodology may also be applied to activities in geographies and sectors that are not covered by the EU ETS.

AR 44. When preparing the information on the percentage of Scope 1 GHG emissions from regulated emission trading schemes required under paragraph 48 (b), the undertaking shall:

1. consider GHG emissions from the installations it operates that are subject to regulated Emission Trading Schemes (ETS), including the EU-ETS, national ETS and non-EU ETS, if applicable;
2. only include emissions of CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3;
3. ensure the same accounting period for gross Scope 1 GHG emissions and GHG emissions regulated under the ETS; and
4. calculate the share by using the following formula:

GHG Emissions in (t CO2eq) from EU ETS installations + national ETS installations + nonEU ETS installations Scope 1 GHG emissions (t CO2eq)

AR 45. When preparing the information on gross Scope 2 GHG emissions required under paragraph 49, the undertaking shall:

1. consider the principles and requirements of the GHG Protocol Scope 2 Guidance (version 2015, in particular the Scope 2 quality criteria in chapter 7.1 relating to contractual instruments); it may also consider Commission Recommendation (EU) 2021/2279 or the relevant requirements for the quantification of indirect GHG emissions from imported energy in EN ISO 14064-1:2018;
2. include purchased or acquired electricity, steam, heat, and cooling consumed by the undertaking;
3. avoid double counting of GHG emissions reported under Scope 1 or 3;
4. apply the location-based and market-based methods to calculate Scope 2 GHG emissions and provide information on the share and types of contractual instruments. Location-based method quantifies Scope 2 GHG emissions based on average energy generation emission factors for defined locations, including local, subnational, or national boundaries (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015). Market-based method quantifies Scope 2 GHG emissions based on GHG emissions emitted by the generators from which the reporting entity contractually purchases electricity bundled with instruments, or unbundled instruments on their own (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015); in this case, the undertaking may disclose the share of market-based scope 2 GHG emissions linked to purchased electricity bundled with instruments such as Guarantee of Origins or Renewable Energy Certificates. The undertaking shall provide information about the share and types of contractual instruments used for the sale and purchase of energy bundled with attributes about the energy generation or for unbundled energy attribute claims.
5. disclose biogenic emissions of CO2 carbon from the combustion or biodegradation of biomass separately from the Scope 2 GHG emissions but include emissions of other types of GHG (in particular CH4 and N2O). In case the emission factors applied do not separate the percentage of biomass or biogenic CO2, the undertaking shall disclose In case GHG emissions other than CO2 (particularly CH4 and N2O) are not available for, or excluded from, location-based grid average emissions factors or with the market-based method information, the undertaking shall disclose this.
6. not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 2 GHG emissions.

AR 46. When preparing the information on gross Scope 3 GHG emissions required under paragraph 51, the undertaking shall:

1. consider the principles and provisions of the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011); and it may consider Commission Recommendation (EU) 2021/2279 or the relevant requirements for the quantification of indirect GHG emissions from EN ISO 14064-1:2018;
2. if it is a financial institution, consider the GHG Accounting and Reporting Standard for the Financial Industry from the Partnership for Carbon Accounting Financial (PCAF), specifically part A “Financed Emissions” (version December 2022);
3. screen its total Scope 3 GHG emissions based on the 15 Scope 3 categories identified by the GHG Protocol Corporate Standard and GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011) using appropriate estimates. Alternatively, it may screen its indirect GHG emissions based on the categories provided by EN ISO 14064-1:2018 clause 5.2.4 (excluding indirect GHG emissions from imported energy);
4. identify and disclose its significant Scope 3 categories based on the magnitude of their estimated GHG emissions and other criteria provided by GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011, p. 61 and 65-68) or EN ISO 14064-1:2018 Annex H.3.2, such as financial spend, influence, related transition risks and opportunities or stakeholder views;
5. calculate or estimate GHG emissions in significant Scope 3 categories using suitable emissions factors;
6. update Scope 3 GHG emissions in each significant category every year on the basis of current activity data; update the full Scope 3 GHG inventory at least every 3 years or on the occurrence of a significant event or a significant change in circumstances (a significant event or significant change in circumstances can, for example, relate to changes in the undertaking’s activities or structure, changes in the activities or structure of its upstream and downstream value chain(s), a change in calculation methodology or in the discovery of errors);”);
7. disclose the extent to which the undertaking’s Scope 3 GHG emissions are measured using inputs from specific activities within the entity’s upstream and downstream value chain, and disclose the percentage of emissions calculated using primary data obtained from suppliers or other value chain
8. for each significant Scope 3 GHG category, disclose the reporting boundaries considered, the calculation methods for estimating the GHG emissions as well as if and which calculation tools were applied. The Scope 3 categories should be consistent with the GHGP and include:
   1. indirect Scope 3 GHG emissions from the consolidated accounting group (the parent and its subsidiaries),
   2. indirect Scope 3 GHG emissions from associates, joint ventures, and unconsolidated subsidiaries for which the undertaking has the ability to control the operational activities and relationships (i.e., operational control),
   3. Scope 1, 2 and 3 GHG emissions from associates, joint ventures, unconsolidated subsidiaries (investment entities) and joint arrangements for which the undertaking does not have operational control and when these entities are part of the undertaking’s upstream and downstream value chain.
9. disclose a list of Scope 3 GHG emissions categories included in and excluded from the inventory with a justification for excluded Scope 3 categories;
10. disclose biogenic emissions of CO2 from the combustion or biodegradation of biomass that occur in its upstream and downstream value chain separately from the gross Scope 3 GHG emissions, and include emissions of other types of GHG (such as CH4 and N2O), and emissions of CO2 that occur in the life cycle of biomass other than from combustion or biodegradation (such as GHG emissions from processing or transporting biomass) in the calculation of Scope 3 GHG emissions;
11. not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 3 GHG emissions;

AR 47. When preparing the information on the total GHG emissions required under paragraph 52, the undertaking shall:

1. apply the following formulas to calculate the total GHG emissions:
   

   Total GHG emissions_{𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛−𝑏𝑎𝑠𝑒𝑑} (t CO₂eq)

   = Gross Scope 1 + Gross Scope 2_{𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛−𝑏𝑎𝑠𝑒𝑑} + Gross Scope 3 Total GHG emissions_{𝑚𝑎𝑟𝑘𝑒𝑡−𝑏𝑎𝑠𝑒𝑑} (t CO₂eq)

   = Gross Scope 1 + Gross Scope 2_{𝑚𝑎𝑟𝑘𝑒𝑡−𝑏𝑎𝑠𝑒𝑑} + Gross Scope 3

2. disclose total GHG emissions with a distinction between emissions derived from the location-based and market-based methods applied while measuring the underlying Scope 2 GHG emissions.

AR 48. The undertaking shall disclose its total GHG emissions disaggregated by Scopes 1 and 2 and significant Scope 3 in accordance with the table below.

AR 49. To highlight potential transition risks, the undertaking may disclose its total GHG emissions disaggregated by major countries and, if applicable, by operating segments (applying the same segments for the financial statements as required by the accounting standards, i.e., IFRS 8 Operating Segments or local GAAP). Scope 3 GHG emissions may be excluded from these breakdowns by country if the related data is not readily available.

AR 50. The Scope 3 GHG emissions may also be presented by according to the indirect emission categories defined in EN ISO 14064-1:2018.

AR 51. If it is material for the undertaking's Scope 3 emissions, it shall disclose the GHG emissions from purchased cloud computing and data centre services as a subset of the overarching Scope 3 category “upstream purchased goods and services”.

AR 52. The total GHG emissions disaggregated by Scope 1, 2 and 3 GHG emissions may be graphically presented in the sustainability statement (e.g., as a bar or pie chart) showing the split of GHG emissions across the value chain (Upstream, Own operations, Transport, Downstream).

GHG intensity based on net revenue

Calculation guidance

AR 53. When disclosing the information on GHG intensity based on net revenue required under paragraph 53, the undertaking shall:

1. calculate the GHG intensity ratio by the following formula:
   

   𝑇𝑜𝑡𝑎𝑙 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 (𝑡 𝐶𝑂2𝑒𝑞);

   𝑁𝑒𝑡 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 (𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝑢𝑛𝑖𝑡)

2. express the total GHG emissions in metric tonnes of CO2eq and the net revenue in monetary units (e.g., Euros) and present the results for the market-based and location-based method;
3. include the total GHG emissions in the numerator and overall net revenue in the denominator;
4. calculate the total GHG emissions as required by paragraphs 44 (d) and 52; and
5. calculate the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP.

AR 54. The quantitative information may be presented in the following tabular format.

Connectivity of GHG intensity based on revenue with financial reporting information

AR 55. The reconciliation of the net revenue used to calculate GHG intensity to the relevant line item or notes in the financial statements (as required by paragraph 55) may be done by either:

1. a cross-reference to the related line item or disclosure in the financial statements; or
2. if the net revenue cannot be directly cross-referenced to a line item or disclosure in the financial statements, by a quantitative reconciliation using the below tabular format.

56. The undertaking shall disclose:
    1. GHG removals and storage in metric tonnes of CO2eq resulting from projects it may have developed in its own operations, or contributed to in its upstream and downstream value chain; and
    2. the amount of GHG emission reductions or removals from climate change mitigation projects outside its value chain it has financed or intends to finance through any purchase of carbon credits.
       
       
57. The objective of this Disclosure Requirement is:
    1. to provide an understanding of the undertaking’s actions to permanently remove or actively support the removal of GHG from the atmosphere, potentially for achieving net-zero targets (as stated in paragraph 60).
    2. to provide an understanding of the extent and quality of carbon credits the undertaking has purchased or intends to purchase from the voluntary market, potentially for supporting its GHG neutrality claims (as stated in paragraph 61).
       
       
58. The disclosure on GHG removals and storage required by paragraph 56 (a) shall include, if applicable:
    1. the total amount of GHG removals and storage in metric tonnes of CO2eq disaggregated and separately disclosed for the amount related to the undertaking’s own operations and its upstream and donwstream value chain, and broken down by removal activity; and
    2. the calculation assumptions, methodologies and frameworks applied by the undertaking.
       
       
59. The disclosure on carbon credits required by paragraph 56 (b) shall include, if applicable:
    1. the total amount of carbon credits outside the undertaking’s value chain in metric tonnes of CO2eq that are verified against recognised quality standards and cancelled in the reporting period; and
    2. the total amount of carbon credits outside the undertaking’s value chain in metric tonnes of CO2eq planned to be cancelled in the future and whether they are based on existing contractual agreements or not.

60. In the case where the undertaking discloses a net-zero target in addition to the gross GHG emission reduction targets in accordance with Disclosure Requirement E1-4, paragraph 30, it shall explain the scope, methodologies and frameworks applied and how the residual GHG emissions (after approximately 90-95% of GHG emission reduction with the possibility for justified sectoral variations in line with a recognised sectoral decarbonisation pathway) are intended to be neutralised by, for example, GHG removals in its own operations and upstream and donwstream value chain.
    
    
61. In the case where the undertaking may have made public claims of GHG neutrality that involve the use of carbon credits, it shall explain:
    1. whether and how these claims are accompanied by GHG emission reduction targets as required by Disclosure requirement ESRS E1-4;
    2. whether and how these claims and the reliance on carbon credits neither impede nor reduce the achievement of its GHG emission reduction targets^[1], or, if applicable, its net zero target; and
    3. the credibility and integrity of the carbon credits used, including by reference to recognised quality standards.
       
       

[1] This information is aligned with Regulation (EU) 2021/1119 of the European Parliament and of the Council (EU Climate Law), Article 2 (1).

Application Requirements

GHG removals and storage in own operations and the upstream and downstream value chain

AR 56. In addition to their GHG emission inventories, undertakings shall provide transparency on how and to what extent they either enhance natural sinks or apply technical solutions to remove GHGs from the atmosphere in their own operations and upstream and downstream value chain. While there are no generally accepted concepts and methodologies for accounting for GHG removals, this Standard aims to increase transparency on the undertaking’s efforts to remove GHGs from the atmosphere (paragraphs 56 (a) and 58). The GHG removals outside the value chain that the undertaking supports through the purchase of carbon credits are to be disclosed separately as required by paragraphs 56 (b) and 59.

AR 57. When disclosing the information on GHG removals and storage from the undertaking’s own operations and its upstream and donwstream value chain required under paragraphs 56 (a) and 58, for each removal and storage activity, the undertaking shall describe:

1. the GHGs concerned;
2. whether removal and storage are biogenic or from land-use change (e.g., afforestation, reforestation, forest restoration, urban tree planting, agroforestry, building soil carbon, etc.), technological (e.g., direct air capture), or hybrid (e.g., bioenergy with CO2 capture and storage), and technological details about the removal, the type of storage and, if applicable, the transport of removed GHGs;
3. if applicable, a brief explanation of whether the activity qualifies as a nature-based solution; and
4. how the risk of non-permanence is managed, including determining and monitoring leakage and reversal events, as appropriate.

Calculation guidance

AR 58. When preparing the information on GHG removals and storage from the undertaking’s own operations and its upstream and donwstream value chain required under paragraphs 56 (a) and 58, the undertaking shall:

1. consider, as far as applicable, the GHG Protocol Corporate Standard (version 2004), Product Standard (version 2011), Agriculture Guidance (version 2014), Land use, land-use change, and forestry Guidance for GHG project accounting (version 2006);
2. apply consensus methods on accounting for GHG removals as soon as they are available, notably the EU regulatory framework for the certification of CO2 removals;
3. if applicable, explain the role of removals for its climate change mitigation policy;
4. include removals from operations that it owns, controls, or contributes to and that have not been sold to another party through carbon credits;
5. if applicable, mark those GHG removal activities in own operations or the value chain that have been converted into carbon credits and sold on to other parties on the voluntary market;
6. account for the GHG emissions associated with a removal activity, including transport and storage, under Disclosure Requirement E1-6 (Scopes 1, 2 or 3). To increase transparency on the efficiency of a removal activity, including transport and storage, the undertaking may disclose the GHG emissions associated with this activity (e.g., GHG emissions from electricity consumption of direct air capture technologies) alongside, but separately from, the amount of removed GHG emissions;
7. in case of a reversal, account for the respective GHG emissions as an offset for the removals in the reporting period;
8. use the most recent GWP values published by the IPCC based on a 100-year time horizon to calculate CO2eq emissions of non-CO2 gases and describe the assumptions made, methodologies and frameworks applied for calculation of the amount of GHG removals; and
9. consider nature-based solutions.

AR 59. The undertaking shall disaggregate and separately disclose the GHG removals that occur in its own operations and those that occur in its upstream and downstream value chain. GHG removal activities in the upstream and downstream value chain shall include those that the undertaking is actively supporting, for example, through a cooperation project with a supplier. The undertaking is not expected to include any GHG removals that may occur in its upstream and downstream value chain that it is not aware of.

AR 60. The quantitative information on GHG removals may be presented by using the following tabular format.

GHG mitigation projects financed through carbon credits

AR 61. Financing GHG emission reduction projects outside the undertaking’s value chain through purchasing carbon credits that fulfil high-quality standards can be a useful contribution towards mitigating climate change. This Standard requires the undertaking to disclose whether it uses carbon credits separately from the GHG emissions (paragraphs 56 (b) and 59) and GHG emission reduction targets (Disclosure Requirement E1-4). It also requires the undertaking to show the extent of use and which quality criteria it uses for those carbon credits.

AR 62. When disclosing the information on carbon credits required under paragraphs 56 (b) and 59, the undertaking shall disclose the following disaggregation as applicable:

1. the share (percentage of volume) of reduction projects and removal projects;
2. for carbon credits from removal projects, an explanation whether they are from biogenic or technological sinks;
3. the share (percentage of volume) for each recognised quality standard;
4. the share (percentage of volume) issued from projects in the EU; and
5. the share (percentage of volume) that qualifies as a corresponding adjustment under Article. 6 of the Paris Agreement.

Calculation guidance

AR 63. When preparing the information on carbon credits required under paragraphs 56 (b) and 59, the undertaking shall:

1. Consider recognised quality standards;.
2. if applicable, explain the role of carbon credits in its climate change mitigation policy;
3. not include carbon credits issued from GHG emission reduction projects within its value chain as the respective GHG emission reductions shall already be disclosed under Disclosure Requirement E1-6 (Scope 2 or Scope 3) at the time they occur (i.e., double counting is avoided);
4. not include carbon credits from GHG removal projects within its value chain as the respective GHG removals may already be accounted for under Disclosure Requirement E1-7 at the time they occur (i.e., double counting is avoided);
5. not disclose carbon credits as an offset for its GHG emissions under Disclosure Requirement E1-6 on GHG emissions;
6. not disclose carbon credits as a means to reach the GHG emission reduction targets disclosed under Disclosure Requirement E1-4; and
7. calculate the amount of carbon credits to be cancelled in the future, as the sum of carbon credits in metric tonnes of CO2eq over the duration of existing contractual agreements.

AR 64. The information on carbon credits cancelled in the reporting year and planned to be cancelled in the future may be presented using the following tabular formats.

62. The undertaking shall disclose whether it applies internal carbon pricing schemes, and if so, how they support its decision making and incentivise the implementation of climate-related policies and targets.
    
    
63. The information required in paragraph 62 shall include:
    1. the type of internal carbon pricing scheme, for example, the shadow prices applied for CapEX or research and development (R&D) investment decision making, internal carbon fees or internal carbon funds;
    2. the specific scope of application of the carbon pricing schemes (activities, geographies, entities, etc.);
    3. the carbon prices applied according to the type of scheme and critical assumptions made to determine the prices, including the source of the applied carbon prices and why these are deemed relevant for their chosen application. The undertaking may disclose the calculation methodology of the carbon prices including the extent to which these have been set using scientific guidance and how their future development is related to science-based carbon pricing trajectories; and
    4. the current year approximate gross GHG emission volumes by Scopes 1, 2 and, where applicable, Scope 3 in metric tonnes of CO₂eq covered by these schemes, as well as their share of the undertaking’s overall GHG emissions for each respective Scope.

Application Requirements

AR 65. When disclosing the information required under paragraphs 62 and 63, if applicable, the undertaking shall briefly explain whether and how the carbon prices used in internal carbon pricing schemes are consistent with those used in financial statements. This shall be done in respect of the internal carbon prices used for,

1. the assessment of the useful life and residual value of its assets (intangibles, property, plant and equipment);
2. the impairment of assets; and
3. the fair value measurement of assets acquired through business

AR 66. The information may be presented by using the following table:

64. The undertaking shall disclose its:
    1. anticipated financial effects from material physical risks;
    2. anticipated financial effects from material transition risks; and
    3. potential to benefit from material climate-related opportunities.

65. The information required by paragraph 64 is in addition to the information on current financial effects required under ESRS 2 SBM-3 para 48 (d). The objective of this Disclosure Requirement related to:
    1. anticipated financial effects due to material physical risks and transition risks is to provide an understanding of how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance and cash flows, over the short-, medium- and long- term. The results of scenario analysis used to conduct resilience analysis as required under paragraphs AR 10 to AR 13 should inform the assessment of anticipated financial effects from material physical and transition risks.
    2. potential to pursue material climate-related opportunities is to enable an understanding of how the undertaking may financially benefit from material climate- related opportunities. This disclosure is complementary to the key performance indicators to be disclosed in accordance with Commission Delegated Regulation (EU) 2021/2178.
       
       
66. The disclosure of anticipated financial effects from material physical risks required by paragraph 64 (a) shall include^[1]:

• 1. the monetary amount and proportion (percentage) of assets at material physical risk over the short-, medium- and long-term before considering climate change adaptation actions; with the monetary amounts of these assets disaggregated by acute and chronic physical risk⁴⁹;
  2. the proportion of assets at material physical risk addressed by the climate change adaptation actions;
  3. the location of significant assets at material physical risk^[2]; and
  4. the monetary amount and proportion (percentage) of net revenue from its business activities at material physical risk over the short-, medium- and long-term.

67. The disclosure of anticipated financial effects from material transition risks required by paragraph 64 (b) shall include:
    1. the monetary amount and proportion (percentage) of assets at material transition risk over the short-, medium- and long-term before considering climate mitigation actions;
    2. the proportion of assets at material transition risk addressed by the climate change mitigation actions;
    3. a breakdown of the carrying value of the undertaking’s real estate assets by energy efficiency classes^[3];
    4. liabilities that may have to be recognised in financial statements over the short-, medium- and long-term; and
    5. the monetary amount and proportion (percentage) of net revenue from its business activities at material transition risk over the short-, medium- and long-term including, where relevant, the net revenue from the undertaking’s customers operating in coal, oil and gas-related activities.

68. The undertaking shall disclose reconciliations to the relevant line items or notes in the financial statements of the following:
    1. significant amounts of the assets and net revenue at material physical risk (as required by paragraph 66);
    2. significant amounts of the assets, liabilities, and net revenue at material transition risk (as required by paragraph 67).
       
       
69. For the disclosure of the potential to pursue climate-related opportunities required by paragraph 64 (c) the undertaking shall consider^[4]:
    1. its expected cost savings from climate change mitigation and adaptation actions; and
    2. the potential market size or expected changes to net revenue from low-carbon products and services or adaptation solutions to which the undertaking has or may have access.
       
       
70. A quantification of the financial effects that arise from opportunities is not required if such a disclosure does not meet the qualitative characteristics of useful information included under ESRS 1 Appendix B Qualitative characteristics of information.

[1] This information is aligned with Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation). ⁴⁹ This disclosure requirement is consistent with the requirements included in Commission Implementing Regulation (EU) 2022/2453 - Template 5: Banking book - Climate change physical risk: Exposures subject to physical risk.

[2] This disclosure requirement is consistent with the requirements included in Commission Implementing Regulation (EU) 2022/2453 - Template 5: Banking book - Climate change physical risk: Exposures subject to physical risk.

[3] This disclosure requirement is consistent with the requirements included in Commission Implementing Regulation (EU) 2022/2453- Template 2: Banking book - Climate change transition risk: Loans collateralised by immovable property - Energy efficiency of the collateral.

[4] This information is aligned with Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation).

Application Requirements

Anticipated financial effects from material physical and transition risks

AR 67. Material climate-related physical risks and transition risks may affect the undertaking’s financial position (e.g., owned assets, financially-controlled leased assets, and liabilities), performance (e.g., potential future increase/decrease in net revenue and costs due to business interruptions, increased supply prices resulting in potential margin erosions), and cash flows. The low probability, high severity and long-term time horizons of some climate- related physical risk exposures and the uncertainty arising from the transition to a sustainable economy mean that there will be associated material anticipated financial effects that are outside the scope of the requirements of applicable accounting standards.

AR 68. Currently, there is no commonly accepted methodology to assess or measure how material physical risks and transition risks may affect the undertaking’s future financial position, financial, performance and cash flows. Therefore, the disclosure of the financial effects (as required by paragraphs 64, 66 and 67) will depend on the undertaking’s internal methodology and the exercise of significant judgement in determining the inputs, and assumptions needed to quantify their anticipated financial effects. 

Calculation guidance - Anticipated financial effects from material physical risks

AR 69. When disclosing the information required under paragraphs 64 (a) and 66, the undertaking shall explain whether and how:

1. it assessed the anticipated financial effects for assets and business activities at material physical risk, including the scope of application, time horizons, calculation methodology, critical assumptions and parameters and limitations of the assessment; and
2. the assessment of assets and business activities considered to be at material physical risk relies on or is part of the process to determine material physical risk as required under paragraphs 20 (b) and AR 11 and to determine climate scenarios as required under paragraphs 19 and AR 13 to AR 14. In particular, it shall explain how it has defined medium- and long-term time horizons and how these definitions are linked to the expected lifetime of the undertaking’s assets, strategic planning horizons and capital allocation plans.

AR 70. When preparing the information on assets at material physical risk that is required to be disclosed under paragraph 66 (a), the undertaking shall:

1. Calculate the assets at material physical risk in terms of monetary amount and as a proportion (percentage) of total assets at the reporting date (i.e., the proportion is an estimate of the carrying value of assets at material physical risk divided by total carrying value as stated in the statement of financial position or balance sheet). The estimate of assets at material physical risk shall be derived starting from the assets recognised in the financial statements. The estimate of monetary amounts and proportion of assets at physical risk may be presented as either a single amount or
2. All types of assets including finance-lease / right-of-use assets shall be considered when determining the assets at material physical risk.
3. To contextualise this information, the undertaking shall:
   1. disclose the location of its significant assets at material physical risk. Significant assets located (59) in the EU territory shall be aggregated by NUTS codes 3 level digits (Nomenclature of Territorial Units for Statistics). For significant assets located outside EU territory, the breakdown by NUTS code will only be provided where applicable.
   2. disaggregate the monetary amounts of assets at risk by acute and chronic physical risk (60).
4. calculate the share of assets at material physical risk resulting from paragraph 66 (a) that is addressed by the climate change adaptation actions based on the information disclosed under Disclosure Requirement E1-3. This aims at approximating net risks.

59 This disclosure requirement is consistent with the requirements of Commission Implementing Regulation (EU) 2022/2453 - Template 5 exposures subjects to physical risk.
60 This disclosure requirement is consistent with the requirements of Commission Implementing Regulation (EU) 2022/2453 - Template 5 exposures subjects to physical risk.

AR 71. When preparing the information required under paragraph 64 (a) and 66 (d), the undertaking may assess and disclose the share of net revenue from business activities at physical risk. This disclosure

1. shall be based on the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP.
2. may include a breakdown of the undertaking’s business activities with the corresponding details of the associated percentage of total net revenue, the risk factors (hazards, exposure and sensitivity) and, if possible, the magnitude of the anticipated financial effects in terms of margin erosion over the short-, medium- and long-term time horizons. The nature of business activities may also be disaggregated by operating segments if the undertaking has disclosed the contribution of margins by operational segments in its segment reporting in the financial statements.

Calculation guidance - Anticipated financial effects from transition risk

AR 72. When disclosing the information required under paragraphs 64 (b) and 67 (a), the undertaking shall explain whether and how:

1. it has assessed the potential effects on future financial performance and position for assets and business activities at material transition risk, including the scope of application, calculation methodology, critical assumptions and parameters, and limitations of the assessment; and
2. the assessment of assets and business activities considered to be at material transition risk relies on or is part of the process to determine material transition risks as described under paragraphs 20 (c) and AR 11 and to determine scenarios as required under paragraphs AR 12 to AR 13. In particular, it shall explain how it has defined medium- and long-term time horizons and how these definitions are linked to the expected lifetime of the undertaking’s assets, strategic planning horizons and capital allocation plans.

AR 73. When disclosing the information on assets at material transition risk as required under paragraphs 67 (a) and (b):

1. the undertaking shall at the very least include an estimate of the amount of potentially stranded assets (in monetary amounts and as a proportion/percentage) from the reporting year until 2030 and from 2030 to 2050. Stranded assets are understood as the active or firmly planned key assets of the undertaking with significant locked-in GHG emissions over their operating Firmly planned key assets are those that the undertaking will most likely deploy within the next 5 years. The amount may be expressed as a range of asset values based on different climate and policy scenarios, including a scenario aligned with limiting climate change to 1.5°C.
2. the undertaking shall disclose a breakdown of the carrying value of its real estate assets, including rights-of-use assets, by energy efficiency classes. The energy efficiency shall be represented in terms of either the ranges of energy consumption in kWh/m² or the EPC (61) (Energy Performance Certificate) (62) label class. If the undertaking cannot obtain this information on a best-effort basis, it shall disclose the total carrying amount of the real estate assets for which the energy consumption is based on internal
3. the undertaking shall calculate the proportion (percentage) of total assets (including finance lease/right-of-use assets) at material transition risk addressed by the climate change mitigation actions based on the information disclosed under Disclosure Requirement E1-3. The total assets amount is the carrying amount on the balance sheet at the reporting date.

61 Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings (OJ L 153, 18.6.2010, p. 13).
62 This disclosure requirement is consistent with the requirements of Commission Implementing Regulation (EU) 2022/2453 - Template 2 immovable property, energy efficiency of the collateral.

AR 74. When disclosing the information on potential liabilities from material transition risks required under paragraph 67(d):

1. undertakings that operate installations regulated under an emission trading scheme may include a range of potential future liabilities originating from these schemes;
2. undertakings subject to the EU ETS, may disclose the potential future liabilities that relate to their allocation plans for the period before and until 2030. The potential liability may be estimated on the basis of:
   1. the number of allowances held by the undertaking at the beginning of the reporting period;
   2. the number of allowances to be purchased in the market yearly, i.e., before and until 2030;
   3. the gap between estimated future emissions under various transition scenarios and free allocations of allowances that are known for the period until 2030, and
   4. the estimated yearly cost per tonne of CO2 for which an allowance needs to be purchased;
3. In assessing its potential future liabilities, the undertaking may consider and disclose the number of Scope 1 GHG emission allowances within regulated emission trading schemes and the cumulative number of emission allowances stored (from previous allowances) at the beginning of the reporting period;
4. undertakings disclosing volumes of carbon credits planned to be cancelled in the near future (Disclosure Requirement E1-7) may disclose the potential future liabilities associated with those based on existing contractual agreements;
5. the undertaking may also include its monetised gross Scope 1, 2 and total GHG emissions (in monetary units) calculated as follows:
   1. monetised Scope 1 and 2 GHG emissions in the reporting year by the following formula:
      
      1. (𝑔𝑟𝑜𝑠𝑠 𝑆𝑐𝑜𝑝𝑒 1 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 (𝑡 𝐶𝑂2𝑒𝑞) + 𝑔𝑟𝑜𝑠𝑠 𝑆𝑐𝑜𝑝𝑒 2 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛 (𝑡 𝐶𝑂2𝑒𝑞)) × 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛 cost rate (€ / 𝑡 𝐶𝑂2𝑒𝑞)
   2. monetized total GHG emissions in the reporting year by the following formula:
      (b) 𝑇𝑜𝑡𝑎𝑙 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 (𝑡 𝐶𝑂2𝑒𝑞) × 𝐺𝐻𝐺 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛 𝑐𝑜𝑠𝑡 𝑟𝑎𝑡𝑒 (€ / 𝑡 𝐶𝑂2𝑒𝑞)
   3. by use of a lower, middle and upper cost rate (63) for GHG emissions (e.g., market carbon price and different estimates for the societal costs of carbon) and reasons for selecting them.

63 The cost rate is the factor used to convert non-monetary impacts like tonnes, hectares, m3 etc. into monetary units. Cost rates should be based on monetary valuation studies, need to be science-based and the methods used to obtain them transparent. Guidance on these methods can be obtained, e.g., from the EU-LIFE-funded TRANSPARENT project.

AR 75. Other approaches and methodologies may be applied to assess how transition risks may affect the future financial position of the undertaking. In any case, the disclosure of anticipated financial effects shall include a description of the methodologies and definitions used by the undertaking.

AR 76. When preparing the information required under paragraph 67 (e), the undertaking may assess and disclose the share of net revenue from business activities at transition risks. This disclosure:

1. shall be based on the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP.
2. may include a breakdown of the undertaking’s business activities with the corresponding details of the associated percentage of current net revenue, risk factors (events and exposure), and when possible, the anticipated financial effects related to margin erosion over the short-, medium- and long-term. The nature of business activities may also be disaggregated by operating segments if the undertaking has disclosed the contribution of margins by operational segments in its segment reporting in the financial statements.

Connectivity with financial reporting information

AR 77. The reconciliation of the significant amount of assets, liabilities, and net revenue (vulnerable to either material physical risks or transition risks) to the relevant line item or disclosure (e.g., in segment reporting) in the financial statements (as required by paragraph 68) may be presented by the undertaking as follows:

1. as a cross-reference to the related line item or disclosure in the financial statements if these amounts are identifiable in the financial statements; or
2. If these cannot be directly cross-referenced, as a quantitative reconciliation of each to the relevant line item or disclosure in the financial statement using the below tabular format:

AR 78. The undertaking shall ensure the consistency of data and assumptions to assess and report the anticipated financial effects from material physical risks and transition risks in the sustainability statement with the corresponding data and assumptions used for the financial statements (e.g., carbon prices used for assessing impairment of assets, the useful life of assets, estimates and provisions). The undertaking shall explain the reasons for any inconsistencies (e.g., if the full financial implications of climate-related risks are still under assessment or are not deemed material in the financial statements).

AR 79. For potential future effects on liabilities (as required by paragraph 67 (d)), if applicable, the undertaking shall cross-reference the description of the emission trading schemes in the financial statements.

Climate-related opportunities

AR 80. When disclosing the information under paragraph 69 (a), the undertaking shall explain the nature of the cost savings (e.g., from reduced energy consumption), the time horizons and the methodology used, including the scope of the assessment, critical assumptions, and limitations, and whether and how scenario analysis was applied.

AR 81. When disclosing the information required under paragraph 69 (b), the undertaking shall explain how it has assessed the market size or any expected changes to net revenue from low-carbon products and services or adaptation solutions including the scope of the assessment, the time horizon, critical assumptions, and limitations and to what extent this market is accessible to the undertaking. The information on the market size may be put in perspective to the current taxonomy-aligned revenue disclosed under the provisions of Regulation (EU) 2020/852. The entity may also explain how it will pursue its climate-related opportunities and, where possible, this should be linked to the disclosures on policies, targets and actions under Disclosure Requirements E1-2, E1-3 and E1-4.

11. The undertaking shall describe the process to identify material impacts, risks and opportunities and shall provide information on:
    1. whether the undertaking has screened its site locations and business activities in order to identify its actual and potential pollution-related impacts, risks and opportunities in its own operations and upstream and downstream value chain, and if so, the methodologies, assumptions and tools used in the screening;
    2. whether and how the undertaking has conducted consultations, in particular with affected communities.

Application Requirements

AR 1. When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of pollution in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

1. Phase 1: locate where in its own operations and its upstream and downstream value chain the interface with nature takes place;
2. Phase 2: evaluate the pollution-related dependencies and impacts;
3. Phase 3: assess the material risks and opportunities; and
4. Phase 4: prepare and report the results of the materiality

AR 2. The materiality assessment for ESRS E2 corresponds to the first three phases of this LEAP approach. The fourth phase addresses the outcome of the process.

AR 3. The process to assess the materiality of impacts, dependencies, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities, and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

AR 4.    The sub-topics covered by the materiality assessment under ESRS E2 include:

1. pollution of air, water and soil (excluding GHG emissions and waste), microplastics, and substances of concern;
2. dependencies on ecosystem services that help to mitigate pollution-related

AR 5. In Phase 1, to locate where in its own operations and its upstream and downstream value chain the interface with nature takes place, the undertaking may consider:

1. the site locations of direct assets and operations and related upstream and downstream activities across the value chain;
2. the site locations where emissions of water, soil and air pollutants occur; and
3. the sectors or business units related to those emissions or to the production, use, distribution, commercialisation and import/export of microplastics, substances of concern, and substances of very high concern, on their own, in mixtures or in

AR 6. Phase 2 relates to the evaluation of the undertaking’s impacts and dependencies for each material site or sector/business unit including by assessing the severity and likelihood of impacts on the environment and human health.

AR 7.    In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may :

1. identify transition risks and opportunities in its own operations and its upstream and downstream value chain by the categories of:
   1. policy and legal: e.g., introduction of regulation, exposure to sanctions and litigation (e.g., negligence towards ecosystems), enhanced reporting obligations;
   2. technology: e.g., substitution of products or services by products or services with a lower impact, transition away from substances of concern;
   3. market: e.g., shifting supply, demand and financing, volatility or increased costs of some substances; and
   4. reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s role in pollution prevention and control;
2. identify physical risks, e.g., sudden interruption of access to clean water, acid rain, or other pollution incidents that are likely to lead to or that have led to pollution with subsequent effects on the environment and society;
3. identify opportunities related to pollution prevention and control categorised by:
   1. resource efficiency: decrease quantities of substances used or improve efficiency of production process to minimise impacts;
   2. markets: g., diversification of business activities;
   3. financing: g., access to green funds, bonds or loans;
   4. resilience: e.g., diversification of substances used and control of emissions through innovation or technology; and
   5. reputation: positive stakeholder relations as a result of a proactive stance on managing risks.

AR 8. In order to assess materiality, the undertaking may consider Commission Recommendation (EU) 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organisations.

AR 9. When providing information on the outcome of its materiality assessment, the undertaking shall consider:

1. a list of site locations where pollution is a material issue for the undertaking’s own operations and its upstream and downstream value chain; and
2. a list of business activities associated with pollution material impacts, risks and

12. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to pollution prevention and control.
    
    
13. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of material pollution-related impacts, risks and
    
    
14. The disclosure required by paragraph 12 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to pollution in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.
    
    
15. The undertaking shall indicate, with regard to its own operations and its upstream and downstream value chain, whether and how its policies address the following areas where material:
    1. mitigating negative impacts related to pollution of air, water and soil including prevention and control;
    2. substituting and minimising the use of substances of concern, and phasing out substances of very high concern, in particular for non-essential societal use and in consumer products; and
    3. avoiding incidents and emergency situations, and if and when they occur, controlling and limiting their impact on people and the environment.

Application Requirements

AR 10. The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 11. The description  of  the  policies  shall include  information  on the  pollutant(s)  or substance(s) covered.

AR 12. When disclosing information under paragraph 11, the undertaking may include contextual information on the relations between its policies implemented and how they may contribute to the EU Action Plan “Towards a Zero Pollution for Air, Water and Soil” with for instance elements on:

1. how it is or may be affected by the targets and measures of the EU Action Plan and the revision of existing directives (e.g., the Industrial Emissions Directive);
2. how it intends to reduce its pollution footprint to contribute to these targets.

16. The undertaking shall disclose its pollution-related actions and the resources allocated to their implementation.
    
    
17. The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the pollution-related policy objectives and targets.
    
    
18. The description of the pollution-related action plans and resources shall contain the information prescribed in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.
    
    
19. In addition to ESRS 2 MDR-A, the undertaking may specify to which layer in the following mitigation hierarchy an action and resources can be allocated:
    1. avoid pollution including any phase out of materials or compounds that have a negative impact (prevention of pollution at source);
    2. reduce pollution, including: any phase-out of materials or compounds; meeting enforcement requirements such as Best Available Techniques (BAT) requirements; or meeting the Do No Significant Harm criteria for pollution prevention and control according to the EU Taxonomy Regulation and its Delegated Acts (minimisation of pollution); and
    3. restore, regenerate and transform ecosystems where pollution has occurred (control of the impacts both from regular activities and incidents).

Application Requirements

AR 13. Where actions extend to upstream or downstream value chain engagements, the undertaking shall provide information on the types of actions reflecting these engagements.

AR 14. When considering resources, examples of operational expenditures could be investments in research and development to innovate and develop safe and sustainable alternatives to the use of substances of concern or to decrease emissions in a production process.

AR 15. Where relevant to achieve its pollution-related policy objectives and targets, the undertaking may provide information on site-level action plans.

20. The undertaking shall disclose the pollution-related targets it has set.
    
    
21. The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has set to support its pollution-related policies and to address its material pollution-related impacts, risks and opportunities.
    
    
22. The description of targets shall contain the information requirements defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.
    
    
23. The disclosure required by paragraph 20 shall indicate whether and how its targets relate to the prevention and control of:
    1. air pollutants and respective specific loads;
    2. emissions to water and respective specific loads;
    3. pollution to soil and respective specific loads; and
    4. substances of concern and substances of very high concern.
       
       
24. In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds (e.g., the biosphere integrity, stratospheric ozone-depletion, atmospheric aerosol loading, soil depletion, ocean acidification) and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:
    1. the ecological thresholds identified, and the methodology used to identify such thresholds;
    2. whether or not the thresholds are entity-specific and if so, how they were determined; and
    3. how responsibility for respecting identified ecological thresholds is allocated in the undertaking.
       
       
25. The undertaking shall specify as part of the contextual information, whether the targets that it has set and presented are mandatory (required by legislation) or voluntary.

Application Requirements

AR 16. If the undertaking refers to ecological thresholds when setting targets, it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020), or any other guidance with a scientifically acknowledged methodology that allows setting of science-based targets by identifying ecological thresholds and, if applicable, entity-specific allocations. Ecological thresholds can be local, national and/or global.

AR 17. The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Pollution Prevention and Control as defined in delegated acts adopted pursuant to Article 14(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Pollution Prevention and Control as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 13(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

AR 18. Where relevant to support the policies it has adopted, the undertaking may provide information on the targets set at site level.

AR 19. The targets may cover the undertaking’s own operations and/or the value chain.

26. The undertaking shall disclose the pollutants that it emits through its own operations, as well as the microplastics it generates or uses.
    
    
27. The objective of this Disclosure Requirement is to provide an understanding of the emissions that the undertaking generates to air, water and soil in its own operations, and of its generation and use of microplastics.
    
    
28. The undertaking shall disclose the amounts of:
    1. each pollutant listed in Annex II of Regulation (EC) No 166/2006 of the European Parliament and of the Council^[1] (European Pollutant Release and Transfer Register “EPRTR Regulation”)emitted to air, water and soil, with the exception of emissions of GHGs which are disclosed in accordance with ESRS E1 Climate Change^[2];
    2. microplastics generated or used by the undertaking.

29. The amounts referred in paragraph 28 shall be consolidated amounts including the emissions from those facilities over which the undertaking has financial control and those over which it has operational control. The consolidation shall include only the emissions from facilities for which the applicable threshold value specified in Annex II of Regulation (EC) No 166/2006 is exceeded.
    
    
30. The undertaking shall put its disclosure into context and describe:
    1. the changes over time,
    2. the measurement methodologies; and
    3. the process(es) to collect data for pollution-related accounting and reporting, including the type of data needed and the information sources.
       
       
31. When an inferior methodology compared to direct measurement of emissions is chosen to quantify emissions, the reasons for choosing this inferior methodology shall be outlined by  the undertaking. If the undertaking uses estimates, it shall disclose the standard, sectoral  study or sources which form the basis of its estimates, as well as the possible degree of uncertainty and the range of estimates reflecting the measurement uncertainty.
    
    

[1] Regulation (EC) No 166/2006 of the European Parliament and of the Council of 18 January 2006 concerning the establishment of a European Pollutant Release and Transfer Register and amending Council Directives 91/689/EEC and 96/61/EC (OJ L 033 4.2.2006, p. 1)

[2] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from: (a) an additional indicator related to principal adverse impacts as set out by indicator #2 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Emissions of air pollutants”); (b) indicator #8 in Table I of Annex I (“Emissions to water); (c) indicator #1 in Table II of Annex I ( “Emissions of inorganic pollutants”); and (d) indicator #3 in Table II of Annex I (“Emissions of ozone- depleting substances”)

.

Application Requirements

AR 20. The information to be provided on microplastics under paragraph 28(b) shall include microplastics that have been generated or used during production processes or that are procured, and that leave the undertaking’s facilities as emissions, as products, or as part of products or services. Microplastics may be unintentionally produced when larger pieces of plastics like car tires or synthetic textiles wear and tear or may be deliberately manufactured and added to products for specific purposes (e.g., exfoliating beads in facial or body scrubs).

AR 21. The volume of pollutants shall be presented in appropriate mass units, for example tonnes or kilogrammes.

AR 22. The information required under this Disclosure Requirement shall be provided at the level of the reporting undertaking. However, the undertaking may disclose additional breakdown including information at site level or a breakdown of its emissions by type of source, by sector or by geographical area.

AR 23. When providing contextual information on the emissions, the undertaking may consider:

1. the local air quality indices (AQI) for the area where the undertaking’s air pollution occurs;
2. the degree of urbanisation (DEGURBA)⁶⁶ for the area where air pollution occurs; and
3. the undertaking’s percentage of the total emissions of pollutants to water and soil occurring in areas at water risk, including areas of high-water stress.

⁶⁶ According to Eurostat, the Degree of urbanisation (DEGURBA) is a classification that indicates the character of an area. Based on the share of local population living in urban clusters and in urban centres, it classifies Local Administrative Units (LAU or communes) into three types of area: i) Cities (densely populated areas), ii) Towns and suburbs (intermediate density areas), and iii) Rural areas (thinly populated areas).

AR 24. The information provided under this Disclosure Requirement may refer to information the undertaking is already required to report under other existing legislation (i.e., IED, E- PRTR, etc.).

AR 25. Where the undertaking’s activities are subject to Directive 2010/75/EU of the European Parliament and of the Council on industrial emissions (IED)⁶⁷ and relevant Best Available Techniques Reference Documents (BREFs), irrespective of whether the activity takes place within the European Union or not, the undertaking may disclose the following additional information:

1. a list of installations operated by the undertaking that fall under the IED and EU-BAT Conclusions;
2. a list of any non-compliance incidents or enforcement actions necessary to ensure compliance in case of breaches of permit conditions;
3. the actual performance, as specified in the EU-BAT conclusions for industrial installations, and comparison of the undertaking’s environmental performance against “emission levels associated with the best available techniques” the (BAT- AEL) as described in EU-BAT conclusions;
4. the actual performance of the undertaking against “environmental performance levels associated with the best available techniques” (BAT-AEPLs) provided that they are applicable to the sector and installation; and
5. a list of any compliance schedules or derogations granted by competent authorities according to Art. 15(4) Directive 2010/75/EU that are associated with the implementation of BAT-AELs.

⁶⁷ Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions (integrated pollution prevention and control) (OJ L 334, 17.12.2010, p. 17).

Methodologies

AR 26. When providing information on pollutants, the undertaking shall consider approaches for quantification in the following order of priority:

1. direct measurement of emissions, effluents or other pollution through the use of recognised continuous monitoring systems (e.g., AMS Automated Measuring Systems);
2. periodic measurements;
3. calculation based on site-specific data;
4. calculation based on published pollution factors; and
5. estimation.

AR 27. Regarding the disclosure of methodologies required by paragraph 30, the undertaking shall consider:

• whether its monitoring is carried out in accordance with EU BREF Standards or another relevant reference benchmark; and
• whether and how the calibration tests of the AMS were undertaken and the verification of periodic measurement by independent labs were ensured.

32. The undertaking shall disclose information on the production, use, distribution, commercialisation and import/export of substances of concern and substances of very high concern, on their own, in mixtures or in articles.
    
    
33. The objective of this Disclosure Requirement is to enable an understanding of the impact of the undertaking on health and the environment through substances of concern and through substances of very high concern on their own. It is also to enable an understanding of the undertaking’s material risks and opportunities, including exposure to those substances and risks arising from changes in regulations.
    
    
34. The disclosure required by paragraph 32 shall include the total amounts of substances of concern that are generated or used during the production or that are procured, and the total amounts of substances of concern that leave its facilities as emissions, as products, or as part of products or services split into main hazard classes of substances of concern.
    
    
35. The undertaking shall present separately the information for substances of very high concern.

Application Requirements

List of substances to be considered

AR 28. In order for the information to be complete, substances in the undertaking’s own operations and those procured shall be included (e.g., embedded in ingredients, semi- finished products, or the final product).

AR 29. The volume of pollutants shall be presented in mass units, for example tonnes or kilogrammes or other mass units appropriate for the volumes and type of pollutants being released.

Contextual information

AR 30. The information provided under this Disclosure Requirement may refer to information the undertaking is already required to report under other existing legislation (i.e., Directive 2010/75/EU, Regulation (EC) No 166/2006 “E-PRTR”, etc.).

36. The undertaking shall disclose the anticipated financial effects of material pollution-related risks and opportunities.
    
    
37. The information required by paragraph 36 is in addition to the information on current financial effects on the undertaking’s, financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d).
    
    
38. The objective of this Disclosure Requirement is to provide an understanding of:
    1. anticipated financial effects due to material risks arising from pollution-related impacts and dependencies and how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s , financial position financial performance and cash flows, over the short-, medium- and long-term.
    2. anticipated financial effects due to material opportunities related to pollution prevention and control.
       
       
39. The disclosure shall include:
    1. a quantification of the anticipated financial effects in monetary terms before considering pollution-related actions, or where not possible without undue cost or effort, qualitative information. For financial effects arising from opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);
    2. a description of the effects considered, the related impacts and the time horizons in which they are likely to materialise; and
    3. the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.
       
       
40. The information provided under paragraph 38(a) shall include:
    1. the share of net revenue made with products and services that are or that contain substances of concern, and the share of net revenue made with products and services that are or that contain substances of very high concern;
    2. the operating and capital expenditures incurred in the reporting period in conjunction with major incidents and deposits;
    3. the provisions for environmental protection and remediation costs, e.g., for rehabilitating contaminated sites, recultivating landfills, removal of environmental contamination at existing production or storage sites and similar measures.
       
       
41. The undertaking shall disclose any relevant contextual information including a description of material incidents and deposits whereby pollution had negative impacts on the environment and/or is expected to have negative effects on the undertaking’s financial cash flows, financial position and financial performance with short-, medium- and long-term time horizons.
    
    

Application Requirements

AR 31. The operating and capital expenditures related to incidents and deposits may include for instance:

1. cost for eliminating and remediating the respective pollution of air, water and soil including environmental protection;
2. damage compensation costs including payment of fines and penalties imposed by regulators or government authorities.

AR 32. Incidents may include for instance interruptions of production, whether arising from the supply chain and/or from own operations, which resulted in pollution.

AR 33. The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 34. The quantification of the anticipated financial effects in monetary terms under paragraph 38(a) may be a single amount or a range.

8. The undertaking shall describe the process to identify material impacts, risks and opportunities and shall provide information on:
   1. whether and how the undertaking it has screened its assets and activities in order to identify its actual and potential water and marine resources-related impacts, risks and opportunities in its own operations and its upstream and downstream value chain, and if so the methodologies, assumptions and tools used in the screening;
   2. whether and how it has conducted consultations, in particular, with affected communities^[1].
      
      

[1] Source: IFC Performance Standard 6, 2012.

Application Requirements

AR 1. When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of water and marine resources in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

1. Phase 1: locate where in its own operations and along the value chain the interface with nature takes place;
2. Phase 2: evaluate the dependencies and impacts;
3. Phase 3: assess the material risks and opportunities; and
4. Phase 4: prepare and report the results of the materiality

AR 2. The materiality assessment for ESRS E3 corresponds to the first three phases of this LEAP approach, the fourth phase addresses the outcome of the process.

AR 3. The processes to assess the materiality of impacts, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities, and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

AR 4.  The sub-topics related to water and marine resources covered by the materiality assessment include:

1. water, which encompasses the consumption of surface water, groundwater, as well as withdrawals and discharges of water; and
2. marine resources, which encompasses the extraction and use of such resources and associated economic activities.

AR 5. In phase 1, to locate where there are areas at water risk, and areas where there is an interface with marine resources that could lead to material impacts and dependencies in its own operations and along its upstream and downstream value chain, the undertaking may consider:

1. the locations of direct assets and operations and related upstream and downstream activities across the value chain;
2. the sites located in areas at water risk, including areas of high-water stress; and
3. the sectors or business units that are interfacing with water or marine resources in these priority locations.

AR 6. The undertaking shall consider river basins as the relevant level for assessment of locations and combine that approach with an operational risk assessment of its facilities and the facilities of suppliers with material impacts and risks.

AR 7.  The undertaking shall consider the criteria for defining the status of water bodies according to the relevant Annexes of Directive 2000/60/EC (Water Framework Directive) as well as the guidance documents provided for implementation of the Water Framework Directive. The list of guidance documents can be accessed under the European Commission’s Environment home page.

AR 8. In phase 2, to evaluate its impacts and dependencies for each priority location identified under AR 5, the undertaking may:

1. identify business processes and activities that lead to impacts and dependencies on environmental assets and ecosystem services;
2. identify water and marine resources-related impacts and dependencies across the undertaking’s value chain; and
3. assess the severity and likelihood of the positive and negative impacts on water and marine resources.

AR 9. For the identification of water and marine resources-related dependencies, the undertaking may rely on international classifications such as the Common International Classification of Ecosystem Services (CICES).

AR 10. When identifying its marine resources-related dependencies, the undertaking shall consider if it depends upon key marine resources-related commodities, including but not limited to gravels and seafood products.

AR 11. Marine resources are defined according to their use by human societies and must be considered in relation to the pressure they are subject to. Some of the pressure indicators are presented in other ESRS, namely microplastics and emissions to water in ESRS E2 and plastic waste in ESRS E5.

AR 12. Examples of marine resources dependencies which may be considered by the undertaking are:

1. dependencies on commercially exploited fish and shellfish in its own operations and its upstream and downstream value chain; and
2. fishing activity that involves mobile bottom trawling, which can also have negative impacts on the seabed.

AR 13. In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may :

1. identify transition risks and opportunities in its own operations and its value chain by the categories of:
   1. policy and legal: e.g., introduction of regulation or policy (e.g., changes such as increased water protection, increased quality of water regulations, regulation of flows of water supply), ineffective governance of water bodies or marine resources, in particular across boundaries (e.g., transboundary governance and cooperation) resulting in water or oceans degradation, exposure to sanctions and litigation (e.g., non-respect of permits or allocations; negligence towards or killing of threatened marine species), enhanced reporting obligations on marine ecosystems and related services;
   2. technology: e.g., substitution of products or services by products or services with a lower impact on water and marine resources, transition to more efficient and cleaner technologies (i.e., with lower impacts on oceans and water), new monitoring technologies (e.g., satellite), water purification, flood protection;
   3. market: e.g., shifting supply, demand and financing, volatility or increased costs of water or marine resources;
   4. reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s impact on water and marine resources; and
   5. contribution to systemic risks via its own operations and its upstream and downstream value chain, including the risks that a marine ecosystem collapses or the risks that a critical natural system no longer functions (e.g., tipping points are reached, summing physical risks);
2. identify physical risk including water quantity (water scarcity, water stress), water quality, infrastructure decay or unavailability of some marine resources-related commodities (e.g. the rarefaction of some species of fish or other underwater marine living organisms sold as products by the undertaking) leading for instance to the impossibility of running operations in certain geographical areas;
3. identify opportunities categorised by:
   1. resource efficiency: e.g., transition to more efficient services and processes requiring less water and marine resources;
   2. markets: e.g., development of less resource-intense products and services, diversification of business activities;
   3. financing: g., access to green funds, bonds or loans;
   4. resilience: e.g., diversification of marine or water resources and business activities (e.g., starting a new business unit on ecosystem restoration), investing in green infrastructures, nature-based solutions, adopting recycling and circularity mechanisms that reduce the dependencies on water or marine resources; and
   5. reputation: positive stakeholder engagement as a result of a proactive stance on managing nature-related risks (e.g., leading to preferred partner status).

AR 14. The undertaking may rely on primary, secondary or modelled data collection or other relevant approaches to assess material impacts, dependencies, risks and opportunities, including Commission Recommendation 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organisations (Annex I – Product Environmental Footprint; Annex III – Organisation Environmental Footprint).

AR 15. When providing information on the outcome of the materiality assessment, the undertaking shall consider:

1. a list of geographical areas where water is a material issue for the undertaking’s own operations and its upstream and downstream value chain;
2. a list of marine resources-related commodities used by the undertaking which are material to the good environmental status of marine waters as well as for the protection of marine resources; and
3. a list of sectors or segments associated with water and marine resources material impacts, risks and opportunities.

9. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to water and marine resources^[1].
   
   
10. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material water and marine resources-related impacts, risks and opportunities.
    
    
11. The disclosure required by paragraph 9 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to water and marine resources in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.
    
    
12. The undertaking shall indicate whether and how its policies address the following matters where material:
    1. water management including:
       1. the use and sourcing of water and marine resources in its own operations;
       2. water treatment as a step towards more sustainable sourcing of water; and
       3. the prevention and abatement of water pollution resulting from its activities.
    2. product and service design in view of addressing water-related issues and the preservation of marine resources; and
    3. commitment to reduce material water consumption in areas at water risk in its own operations and along the upstream and downstream value chain.

13. If at least one of the sites of the undertaking is located in an area of high-water stress and it is not covered by a policy, the undertaking shall state this to be the case and provide reasons for not having adopted such a policy. The undertaking may disclose a timeframe in which it aims to adopt such a policy.^[2]
14. The undertaking shall specify whether it has adopted policies or practices related to sustainable oceans and seas^[3].

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #7 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Investments in companies without water management policies”).

[2] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #8 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Exposure to areas of high water stress”).

[3] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #12 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments ( “Investments in companies without sustainable oceans/seas practices”).

Application Requirements

AR 16. The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 17. When disclosing information under paragraph 9, the undertaking may disclose whether its policies :

1. prevent further deterioration and protect and enhance the status of water bodies and aquatic ecosystems;
2. promote sustainable water use based on a long-term protection of available water resources;
3. aim at enhanced protection and improvement of the aquatic environment;
4. promote a good environmental status of marine water; and
5. promote reduction of water withdrawals and water discharges.

AR 18. The undertaking may also disclose information about policies which:

1. contribute to good ecological and chemical quality of surface water bodies and good chemical quality and quantity of groundwater bodies, in order to protect human health, water supply, natural ecosystems and biodiversity, the good environmental status of marine waters and the protection of the resource base upon which marine related activities depend;
2. minimise material impacts and risks and implement mitigation measures that aim to maintain the value and functionality of priority services and to increase resource efficiency on own operations; and
3. avoid impacts on affected communities.

15. The undertaking shall disclose its water and marine resources-related actions and the resources allocated to their implementation.
    
    
16. The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the water and marine resources-related policy objectives and targets.
    
    
17. The description of the actions and resources shall follow the principles defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters. In addition to ESRS 2 MDR-A, the undertaking may specify to which layer in the mitigation hierarchy an action and
    
    
18. Resources can be allocated to:
    1. avoid the use of water and marine resources;
    2. reduce the use of water and marine resources such as through efficiency measures;
    3. reclaiming and reuse of water; or
    4. restoration and regeneration of aquatic ecosystem and water bodies.
       
       
19. The undertaking shall specify actions and resources in relation to areas at water risk, including areas of high-water stress.

Application Requirements

AR 19. When disclosing information required under paragraph 15, the undertaking shall consider  the actions, or action plans, contributing to address the material impacts, risks and opportunities identified. Useful guidance is provided by the Alliance for Water Stewardship (AWS).

AR 20. Considering that water and marine resources are shared resources which may require collective actions, or action plans, involving other stakeholders, the undertaking may provide information on those specific collective actions, including information on other parties (competitors, suppliers, retailers, customers, other business partners, local communities and authorities, government agencies…) and specific information on the project, its specific contribution, its sponsors and other participants.

AR 21. When providing information on capital expenditures, the undertaking may consider expenditures related, for example, to stormwater drain rehabilitation, pipelines, or machinery used to manufacture new low water-use products.

20. The undertaking shall disclose the water and marine resources-related targets it has set.
21. The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has adopted to support its water and marine resources-related policies and address its material water and marine resources-related impacts, risks and opportunities.
22. The description of the targets shall contain the information requirements defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.
23. The disclosure required by paragraph 20 shall indicate whether and how its targets relate to:
    • the management of material impacts, risks and opportunities related to areas at water risk, including improvement of the water quality;
    • the responsible management of marine resources impacts, risks and opportunities including the nature and quantity of marine resources-related commodities (such as gravels, deep-sea minerals, seafood) used by the undertaking; and
    • the reduction of water consumption, including an explanation of how those targets relate to areas at water risk, including areas of high water-stress.
24. In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:
    • the ecological thresholds identified, and the methodology used to identify such thresholds;
    • whether or not the thresholds are entity-specific and if so, how they were determined; and
    • how responsibility for respecting identified ecological thresholds is allocated in the undertaking.
25. The undertaking shall specify as part of the contextual information, whether the targets it has set and presented are mandatory (required by legislation) or voluntary.

Application Requirements

AR 22. If the undertaking refers to ecological thresholds when setting targets, it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020). It may also refer to any other guidance with a scientifically acknowledged methodology that enables the setting of science-based targets by identifying ecological thresholds and, if applicable, organisation6specific allocations. Ecological thresholds can be local, national and/or global.

AR 23. The undertaking may provide targets relating to:

1. the reduction of water withdrawals; and
2. the reduction of water discharges.

AR 24. If the undertaking provides targets on withdrawals, it may include water withdrawal from polluted soils and aquifers, and water withdrawn and treated for remediation purposes.

AR 25. If the undertaking provides targets on discharges, it may include water discharges to groundwater such as reinjection to aquifers, or water returning to a groundwater source via a soakaway or a swale.

AR 26. The targets may cover its own operations and/or its upstream and downstream value chain.

AR 27. The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Water and Marine Resources as defined in the Commission delegated acts adopted pursuant to Article 12(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria  for Water and Marine Resources as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 13(2), Article 14(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

26. The undertaking shall disclose information on its water consumption performance related to its material impacts, risks and opportunities.
    
    
27. The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s water consumption and any progress by the undertaking in relation to its targets.
    
    
28. The disclosure required by paragraph 26 relates to own operations and shall include:
    • total water consumption in m3;
    • total water consumption in m3 in areas at water risk, including areas of high-water stress;
    • total water recycled and reused in m3;^[1]
    • total water stored and changes in storage in m3; and
    • any contextual information necessary regarding points (a) to (d), including the water basins’ water quality and quantity, how the data have been compiled, such as any standards, methodologies, and assumptions used, including whether the information is calculated, estimated, modelled, or sourced from direct measurements, and the approach taken for this, such as the use of any sector-specific factors.
29. The undertaking shall provide information on its water intensity: total water consumption in its own operations in m³ per million EUR net revenue⁷⁶.
    
    

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #6.2 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 regarding disclosure rules on sustainable investments (“Water usage and recycling”, 2. Weighted average percentage of water recycled and reused by investee companies). ⁷⁶ This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #6.1 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Water usage and recycling”, 1. Average amount of water consumed by the investee companies (in cubic meters) per million EUR of revenue of investee companies).

⁷⁶This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #6.1 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Water usage and recycling”, 1. Average amount of water consumed by the investee companies (in cubic meters) per million EUR of revenue of investee companies).

Application Requirements

AR 28. The undertaking may operate in various areas at water risk. When disclosing information under paragraph 28 (b), the undertaking shall include such information only for those areas that have been identified as material in accordance with ESRS2 IRO-1 and ESRS2 SBM-3. 

AR 29. When disclosing contextual information on water consumption performance required by paragraph 26, the undertaking shall explain the calculation methodologies and more specifically the share of the measure obtained from direct measurement, from sampling and extrapolation, or from best estimates.

AR 30. The undertaking may provide information on other breakdowns (i.e., per sector or segments).

AR 31. When disclosing information required by paragraph 29 the undertaking may provide additional intensity ratios based on other denominators.

AR 32. The undertaking may also provide information on its water withdrawals and water discharges.  

30. The undertaking shall disclose the anticipated financial effects of material water and marine resources-related risks and opportunities.
    
    
31. The information required by paragraph 30 is in addition to the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d).
    
    
32. The objective of this Disclosure Requirement is to provide an understanding of:
    1. anticipated financial effects due to material risks arising from water and marine resources-related impacts and dependencies and how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance and cash flows, over the short-, medium- and long-term; and
    2. anticipated financial effects due to material opportunities related to water and marine resources.
       
       
33. The disclosure shall include:
    1. a quantification of the anticipated financial effects in monetary terms before considering water and marine resources-related actions or where not possible without undue cost or effort, qualitative information. For financial effects arising from opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);
    2. a description of the effects considered, the impacts and dependencies to which they relate, and the time horizons in which they are likely to materialise; and
    3. the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.

Application Requirements

AR 33. The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 34. The quantification of the anticipated financial effects in monetary terms under paragraph 39(a) may be a single amount or a range.

11. The undertaking shall disclose how its biodiversity and ecosystem impacts, dependencies, risks and opportunities originate from and trigger adaptation of its strategy and business model.
    
    
12. The objective of this Disclosure Requirement is to enable an understanding of the resilience of the undertaking’s strategy and business model in relation to biodiversity and ecosystems, and of the compatibility of the undertaking’s strategy and business model with regard to relevant local, national and global public policy targets related to biodiversity and ecosystems.
    
    
13. The undertaking shall describe the resilience of its strategy and business model in relation to biodiversity and ecosystems. The description shall include:
    1. an assessment of the resilience of the current business model and strategy to biodiversity and ecosystems-related physical, transition and systemic risks;
    2. the scope of the resilience analysis in relation to the undertaking’s own operations and its upstream and downstream value chain and in relation to the risks considered in that analysis;
    3. the key assumptions made;
    4. the time horizons used;
    5. the results of the resilience analysis; and
    6. the involvement of stakeholders, including, where appropriate, holders of indigenous and local knowledge.
       
       
14. If information specified in this disclosure requirement is disclosed by the undertaking as part of the information required under ESRS 2 SBM-3, the undertaking may refer to the information it has disclosed under ESRS 2 SBM-3.
    
    
15. The undertaking may disclose its transition plan to improve and, ultimately, achieve alignment of its business model and strategy with the vision of the Kunming-Montreal Global Biodiversity Framework and its relevant goals and targets, the EU Biodiversity Strategy for 2030, and with respecting planetary boundaries related to biosphere integrity and land-system change.  

Application Requirements

AR 1. If disclosing a transition plan, the undertaking may:

1. explain how it will adjust its strategy and business model to improve and, ultimately, achieve alignment with relevant local, national and global public policy goals and targets related to biodiversity and ecosystems including the vision of the KunmingMontreal Global Biodiversity Framework and its relevant goals and targets, the EU Biodiversity Strategy for 2030, and Directive 2009/147/EC Council Directive 92/43/EEC (the EU Birds and Habitats Directives) and, as appropriate, planetary boundaries related to biosphere integrity and land-system change;
2. include information about its own operations and also explain how it is responding to material impacts in its upstream and downstream value chain identified in its materiality assessment in accordance with ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities;
3. explain how its strategy interacts with its transition plan;
4. explain how it contributes to addressing biodiversity and ecosystem impact drivers and its possible mitigation actions following the mitigation hierarchy and the main path-dependencies and locked-in assets and resources (e.g., plants, raw materials) that are associated with biodiversity and ecosystems change;
5. explain and quantify its investments and funding supporting the implementation of its transition plan, with a reference to the key performance indicators of taxonomy-aligned CapEx, and where relevant the CapEx plans, that the undertaking discloses in accordance with Commission Delegated Regulation (EU) 2021/2178;
6. if it has economic activities that are covered by delegated regulations on biodiversity under the Taxonomy Regulation, explain any objective or plans (CapEX, CapEx plans) that it has for aligning its economic activities (revenues, CapEx) with the criteria established in those delegated regulations;
7. explain how biodiversity offsets are used as part of the transition plan, and if so, where the offsets are planned to be used, the extent of use in relation to the overall transition plan, and whether the mitigation hierarchy was considered;
8. explain how the process of implementing and updating the transition plan is managed;
9. explain how it measures progress, namely indicate the metrics and methodologies it uses for that purpose; 
10. indicate whether the administrative, management and supervisory bodies have approved the transition plan; and
11. indicate current challenges and limitations to draft a plan in relation to areas of significant impact and how the company is addressing those challenges.

AR2. If disclosing a transition plan, the undertaking may, for example, refer to the following targets from the EU Biodiversity Strategy for 2030:

1. The decline of pollinators is reversed.
2. The risk and use of chemical pesticides is reduced by 50%, and the use of more hazardous pesticides is reduced by 50%.
3. At least 25% of agricultural land is under organic farming management, and the uptake of agro-ecological practices is significantly increased.
4. Three billion additional trees are planted in the EU, in full respect of ecological principles.
5. Significant progress in the remediation of contaminated soil sites.
6. At least 25,000 km of free-flowing rivers are restored.
7. The losses of nutrients from fertilisers are reduced by 50%, resulting in the reduction of the use of fertilisers by at least 20%.
8. The negative impacts on sensitive species and habitats, including on the seabed through fishing and extraction activities, are substantially reduced to achieve good environmental status.

AR3. If disclosing a transition plan, the undertaking may also refer to the Sustainable Development Goals, in particular:

1. SDG 2 - End hunger, achieve food security and improved nutrition and promote sustainable agriculture;
2. SDG 6 - Ensure availability and sustainable management of water and sanitation for all;
3. SDG 14 - Conserve and sustainably use the oceans, seas and marine resources for sustainable development; and
4. SDG 15 - Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.

16. The undertaking shall disclose:

1. a list of material sites in its own operations, including sites under its operational control, based on the results of paragraph 17(a). The undertaking shall disclose these locations by:
   1. specifying the activities negatively affecting biodiversity sensitive areas^[1];
   2. providing a breakdown of sites according to the impacts and dependencies identified, and to the ecological status of the areas (with reference to the specific ecosystem baseline level) where they are located; and
   3. specifying the biodiversity-sensitive areas impacted, for users to be able to determine the location and the responsible competent authority with regards to the activities specified in paragraph 16(a) i.
2. whether it has identified material negative impacts with regards to land degradation, desertification or soil sealing^[2]; and
3. whether it has operations that affect threatened species^[3].
   
   

[1] This information supports the information needs of financial markets participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #7 in Table 1 Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments ( “Activities negatively affecting biodiversity-sensitive areas”). 

[2] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impact as set out by indicator #10 in Table 2 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (“Land degradation, desertification, soil sealing”). 

[3] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impact as set out by indicator #14 in Table 2 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (“Natural species and protected areas”). 

17. The undertaking shall describe its process to identify material impacts, risks, dependencies and opportunities. The description of the process shall include whether and how the undertaking:
    1. identified and assessed actual and potential impacts on biodiversity and ecosystems at own site locations and in the upstream and downstream value chain, including assessment criteria applied;
    2. identified and assessed dependencies on biodiversity and ecosystems and their services at own site locations and in the upstream and downstream value chain, including assessment criteria applied, and, if this assessment includes ecosystem services that are disrupted or likely to be;
    3. identified and assessed transition and physical risks and opportunities related to biodiversity and ecosystems, including assessment criteria applied based on its impacts and dependencies;
    4. considered systemic risks;
    5. conducted consultations with affected communities on sustainability assessments of shared biological resources and ecosystems and, in particular:
       1. when a site, a raw material production or sourcing is likely to negatively impact biodiversity and ecosystems, the identification of the specific sites, raw materials production or sourcing with negative or potentially negative impacts on affected communities;
       2. when affected communities are likely to be impacted, the undertaking, shall disclose how these communities were involved in the materiality assessment; and
       3. with respect to impacts on ecosystem services of relevance to affected communities in its own operations, the undertaking shall indicate how negative impacts may be avoided. If these impacts are unavoidable, the undertaking may indicate its plans to minimise them and implement mitigation measures that aim to maintain the value and functionality of priority services.

18. The undertaking may disclose whether and how it has used biodiversity and ecosystems scenario analysis to inform the identification and assessment of material risks and opportunities over short-, medium- and long-term time horizons. If the undertaking has used such scenario analysis, it may disclose the following information:
    1. why the considered scenarios were selected;
    2. how the considered scenarios are updated according to evolving conditions and emerging trends; and
    3. whether the scenarios are informed by expectations published by authoritative intergovernmental bodies, such as the Convention for Biological Diversity and, where relevant, by scientific consensus, such as that expressed by the Intergovernmental Science-policy Platform on Biodiversity and Ecosystem Services (IPBES).
19. The undertaking shall specifically disclose:
    1. whether or not it has sites located in or near biodiversity-sensitive areas and whether activities related to these sites negatively affect these areas by leading to the deterioration of natural habitats and the habitats of species and to the disturbance of the species for which a protected area has been designated; and
    2. whether it has been concluded that it is necessary to implement biodiversity mitigation measures, such as those identified in: Directive 2009/147/EC of the European Parliament and of the Council on the conservation of wild birds; Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora; an Environmental Impact Assessment (EIA) as defined in Article 1(2), point (g), of Directive 2011/92/EU of the European Parliament and of the Council^[1] on the assessment of the effects of certain public and private projects on the environment; and for activities located in third countries, in accordance with equivalent national provisions or international standards, such as the International Finance Corporation (IFC) Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources.
       
       

[1] Directive 2011/92/EU of the European Parliament and of the Council of 13 December 2011 on the assessment of the effects of certain public and private projects on the environment (OJ L 26, 28.1.2012, p. 1). 

Application Requirements

AR 4. The materiality assessment under ESRS E4 includes the undertaking’s:

1. contribution to direct impact drivers on biodiversity loss^[1]:
   1. climate change;
   2. land-use change (e.g., land artificialisation), freshwater-use change and sea-use change;
   3. direct exploitation;
   4.  invasive alien species;
   5. pollution; and
   6. others.
2. impacts on the state of species (i.e., species population size, species global extinction risk);
3. impacts on the extent and condition of ecosystems including through land degradation, desertification and soil sealing); and
4. impacts and dependencies on ecosystem services.

AR5. When assessing the materiality of impacts, dependencies, risks and opportunities the undertaking shall consider the provisions in ESRS 2 IRO-1 and ESRS 1 Chapter 3 Double materiality as the basis for sustainability disclosures and describe its considerations.

AR6. The undertaking shall assess the materiality of biodiversity and ecosystems in its own operations and its upstream and downstream value chain, and may conduct its materiality assessment in line with the first three phases of the LEAP approach: Locate (paragraph AR 7), Evaluate (paragraph AR 8) and Assess (paragraph AR 9). 

AR7. Phase 1 relates to the localisation of relevant sites regarding its interface with biodiversity and ecosystems. To identify these relevant sites the undertaking may:

1. develop a list of locations of direct assets and operations and related upstream and downstream value chain that are relevant to the undertakings business activities. Furthermore, the undertaking may provide information about sites for which future operations have been formally announced;
2. list the biomes and ecosystems it is interfacing with based on the list of locations identified under paragraph AR 7(a);
3. identify the current integrity and importance of biodiversity and ecosystem at each location taking into consideration the information provided in paragraphs 16 and 17;
4. develop a list of locations where the undertaking is interfacing with locations in or near biodiversity-sensitive areas taking into consideration the information provided in paragraphs 16 and 17; and
5. identify which sectors, business units, value chains or asset classes are  interfacing with biodiversity and ecosystems in these material sites. Instead of identifying these interfaces per site, the undertaking may choose to identify them per raw material procured or sold by weight in tons, if such practice offers greater transparency.

AR 8. In Phase 2, to evaluate its actual or potential impacts and dependencies on biodiversity and ecosystems for relevant sites, the undertaking may:

1. identify business processes and activities that interface with biodiversity and ecosystems;
2. identify actual and potential impacts and dependencies;
3. indicate the size, scale, frequency of occurrence and timeframe of the impacts on biodiversity and ecosystems taking into consideration the disclosures under paragraphs 16 and 17. Furthermore, the undertaking may disclose:
   1. the percentage of its suppliers’ facilities which are located in risk prone areas (with threatened species on the IUCN Red List of Species, the Birds and Habitats Directive or nationally list of threatened species, or in officially recognised Protected Areas, the Natura 2000 network of protected areas and Key Biodiversity Areas);
   2. the percentage of its procurement spend from suppliers with facilities which are located in risk prone areas (with threatened species on the IUCN Red List of Species, the Birds and Habitats Directive or nationally list of threatened species, or in officially recognised Protected Areas, the Natura 2000 network of protected areas and Key Biodiversity Areas); and
4. indicate the size and scale of the dependencies on biodiversity and ecosystems, including on raw materials, natural resources and ecosystem services. The undertaking may rely on the international classifications such as the Common International Classification of Ecosystem Services (CICES).

AR 9.   In Phase 3, to assesses its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may consider the following categories:

1. physical risks:
   1. acute risks (e.g., natural disasters exacerbated by loss of coastal protection from ecosystems, leading to costs of storm damage to coastal infrastructure, disease or pests affecting the species or variety of crop the undertaking relies on, especially in the case of no or low genetic diversity, species loss and ecosystem degradation); and
   2. chronic risks (e.g., loss of crop yield due to decline in pollination services, increasing scarcity or variable production of key natural inputs, ecosystem degradation due to operations leading to, for example, coastal erosion and forest fragmentation, ocean acidification, land loss to desertification and soil degradation and consequent loss of soil fertility, species loss).
2. transition risks, including:
   1. policy and legal: e.g. introduction of regulation or policy (e.g. changes such as increased land protection); exposure to sanctions and litigation (e.g. spills of polluting effluents that damage human and ecosystem health; or violation of biodiversity-related rights, permits or allocations; or negligence towards or killing of threatened species); enhanced reporting obligations on biodiversity, ecosystems and related services;
   2. technology: e.g. substitution of products or services by products or services with a lower impact on biodiversity or dependence on ecosystem services, lack of access to data or access to poor quality data that hamper biodiversity-related assessments, transition to more efficient and cleaner technologies (i.e. with lower impacts on biodiversity), new monitoring technologies (e.g. satellite), requirements to use certain technologies (e.g. climate resistant crops, mechanical pollinators, water purification, flood protection);
   3. market: e.g., shifting supply, demand and financing, volatility or increased costs of raw materials (e.g., biodiversity-intense inputs for which price has risen due to ecosystem degradation);
   4. reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s role in loss of biodiversity, violation of nature-related rights through operations, negative media coverage due to impacts on critical species and/or ecosystems, biodiversity-related social conflicts over endangered species, protected areas, resources or pollution.
3. systemic risks, including:
   1. ecosystem collapse risks that a critical natural system no longer functions, e.g., tipping points are reached and the collapse of ecosystems resulting in wholesale geographic or sector losses (summing physical risks);
   2. aggregated risk linked to fundamental impacts of biodiversity loss to levels of transition and physical risk across one or more sectors in a portfolio (corporate or financial); and
   3. contagion risks that financial difficulties of certain corporations or financial institutions linked to failure to account for exposure to biodiversity-related risks spill over to the economic system as a whole.
4. opportunities, including for example:
   1. business performance categories: resource efficiency; products and services; markets; capital flow and financing; reputational capital; and
   2. sustainability performance categories: ecosystem protection, restoration and regeneration; sustainability use of natural resources.

Presentation of information:

 AR 10. The undertaking may consider the tables below to facilitate its materiality assessment of material sites identified under paragraph AR 7:

With regard to AR 7(e), the undertaking may consider using the table below:

[1] The direct driver climate change is to be reported under ESRS E1 Climate Change and pollution under ESRS E2 Pollution.

20. The undertaking shall describe its adopted policies to manage its material impacts, risks, dependencies, and opportunities related to biodiversity and ecosystems.
    
    
21. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material biodiversity and ecosystem- related impacts, dependencies, risks and opportunities.
    
    
22. The disclosure required by paragraph 20 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks, dependencies and opportunities related to biodiversity and ecosystems in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters).
    
    
23. In addition to the provisions of ESRS 2 MDR-P the undertaking shall describe whether and how its biodiversity and ecosystems-related policies:
    1. relate to the matters specified in ESRS E4 AR 4;
    2. relate to its material biodiversity and ecosystems-related impacts;
    3. relate to material dependencies and material physical and transition risks and opportunities;
    4. support traceability of products, components and raw materials with material actual or potential impacts on biodiversity and ecosystems along the value chain;
    5. address production, sourcing or consumption from ecosystems that are managed to maintain or enhance conditions for biodiversity, as demonstrated by regular monitoring and reporting of biodiversity status and gains or losses; and
    6. address social consequences of biodiversity and ecosystems-related impacts.
       
       
24. The undertaking shall specifically disclose whether it has adopted:
    1. biodiversity and ecosystem protection policy covering operational sites owned, leased, or managed in or near a biodiversity sensitive area;
    2. sustainable land / agriculture practices or policies^[1];
    3. sustainable oceans / seas practices or policies^[2]; and
    4. policies to address deforestation^[3].
       
       

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impact as set out by indicator #11 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Investments in companies without sustainable land/agriculture practices”).

[2] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impact as set out by indicator #12 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Investments in companies without sustainable oceans/seas practices”).

[3] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impact as set out by indicator #15 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Deforestation”).

Application Requirements

AR 11. The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 12. The undertaking may also provide information on how the policy refers to the production, sourcing or consumption of raw materials, and in particular how it:

1. limits procurement from suppliers that cannot demonstrate that they are not contributing to significant damage to protected areas or key biodiversity areas (e.g., through certification);
2. refers to recognised standards or third-party certifications overseen by regulators; and
3. addresses raw materials originating from ecosystems that have been managed to maintain or enhance conditions for biodiversity, as demonstrated by regular monitoring and reporting of biodiversity status and gains or losses.

AR 13. The undertaking may disclose connections and alignment with other global goals and agreements such as the SDGs 2, 6, 14 and 15 or any other well established global convention related to biodiversity and ecosystems.

AR 14. When disclosing policies related to social consequences of biodiversity and ecosystems related dependencies and impacts under 23 (f), the undertaking may notably refer to the Nagoya Protocol and the Convention for Biological Diversity (CBD).

AR 15. When disclosing information about whether and how its policies address the social consequences of biodiversity and ecosystems-related impacts under paragraph 23(f), the undertaking may provide information in relation to:

1. the fair and equitable sharing of the benefits arising from the utilisation of genetic resources; and
2. the free, prior and informed consent for access to genetic resources.

AR 16. The undertaking may also explain how its policy enables it to:

1. avoid negative impacts on biodiversity and ecosystems in its own operations and related upstream and downstream value chain;
2. reduce and minimise its negative impacts on biodiversity and ecosystems in its operations and throughout the upstream and downstream value chain that cannot be avoided;
3. restore and rehabilitate degraded ecosystems or restore cleared ecosystems following exposure to impacts that cannot be completely avoided and/or minimised; and
4. mitigate its contribution to material biodiversity loss

AR 17. When disclosing its policies, if referring to third-party standards of conduct, the undertaking may disclose whether the standard used:

1. is objective and achievable based on a scientific approach to identifying issues, and realistic in assessing how these issues can be addressed on the ground under a variety of practical circumstances;
2. is developed or maintained through a process of ongoing consultation with stakeholders with balanced input from all relevant stakeholder groups, including producers, traders, processors, financiers, local people and communities, indigenous peoples, and civil society organisations representing consumer, environmental and social interests, with no group holding undue authority or veto power over the content;
3. encourages a step-wise approach and continuous improvement, both in the standard and its application of better management practices, and requires the establishment of meaningful targets and specific milestones to indicate progress against principles and criteria over time;
4. is verifiable through independent certifying or verifying bodies, which have defined and rigorous assessment procedures that avoid conflicts of interest, and are compliant with ISO guidance on accreditation and verification procedures or Article 5(2) of Regulation (EC) No 765/2008; and
5. conforms to the ISEAL Code of Good Practice.

25. The undertaking shall disclose its biodiversity and ecosystems-related actions and the resources allocated to their implementation.
    
    
26. The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned that significantly contribute to the achievement of biodiversity and ecosystems-related policy objectives and targets.
    
    
27. The description of key actions and resources shall follow the mandatory content defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.
    
    
28. In addition, the undertaking :
    1. may disclose how it has applied the mitigation hierarchy with regard to its actions (avoidance, minimisation, restoration/rehabilitation, and compensation or offsets);
    2. shall disclose whether it used biodiversity offsets in its action plans. If the actions contain biodiversity offsets, the undertaking shall include the following information:
       1. the aim of the offset and key performance indicators used;
       2. the financing effects (direct and indirect costs) of biodiversity offsets in monetary terms; and;
       3. a description of offsets including area, type, the quality criteria applied and the standards that the biodiversity offsets comply with;
    3. shall describe whether and how it has incorporated local and indigenous knowledge and nature- based solutions into biodiversity and ecosystems-related actions.

Application Requirements

AR 18. The undertaking may relate significant monetary amounts of CapEx and OpEx required to implement the actions taken or planned to: 

1. the relevant line items or notes in the financial statements;
2. the key performance indicators required under article 8 of Regulation (EU) 2020/852 and under Commission Delegated Regulation (EU) 2021/2178; and
3. if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178.

AR 19. The undertaking may disclose whether it considers an “avoidance” action plan, which prevents damaging actions before they take place. Avoidance often involves a decision to deviate from the business-as-usual project development path. An example of avoidance is altering the biodiversity and ecosystem footprint of a project to avoid destruction of natural habitat on the site and/or establishing set-asides where priority biodiversity values are present and will be conserved. At a minimum, avoidance should be considered where there are biodiversity and ecosystem-related values that are in one of the following categories: particularly vulnerable and irreplaceable, of particular concern to stakeholders, or where a cautious approach is warranted due to uncertainty about impact assessment or about the efficacy of management measures. The three main types of avoidance are defined below:

1. avoidance through site selection (Locate the entire project away from areas recognised for important biodiversity values);
2. avoidance through project design (Configure infrastructure to preserve areas at the project site with important biodiversity values); and
3. avoidance through scheduling (Time project activities to account for patterns of species behaviour (e.g., breeding, migration) or ecosystem functions (e.g., river dynamics).

AR 20. With regard to key actions, the undertaking may disclose:

1. a list of key stakeholders involved (e.g., competitors, suppliers, retailers, other business partners, affected communities and authorities, government agencies) and how they are involved, mentioning key stakeholders negatively or positively impacted by actions and how they are impacted, including impacts or benefits created for affected communities, smallholders, indigenous peoples or other persons in vulnerable situations;
2. where applicable, an explanation of the need for appropriate consultations and the need to respect the decisions of affected communities;
3. a brief assessment of whether the key actions may induce significant negative sustainability impacts;
4. an explanation of whether the key action is intended to be a one-time initiative or systematic practice;
5. an explanation of whether the key action plan is carried out only by the undertaking, using the undertaking’s resources, or whether it is part of a wider initiative to which the undertaking significantly contributes. If the key action plan is part of a wider initiative, the undertaking may provide more information on the project, its sponsors and other participants;
6. a description of how it contributes to systemwide change, notably to alter the drivers of biodiversity and ecosystem change, e.g., through technological, economic, institutional, and social factors and changes in underlying values and behaviours; 

AR 21. In the context of this Disclosure Requirement, “local and indigenous knowledge” refer to  the understandings, skills and philosophies developed by societies with long histories of interaction with their natural surroundings. For rural and indigenous peoples, local knowledge informs decision-making about fundamental aspects of day-to-day life.

29. The undertaking shall disclose the biodiversity and ecosystem-related targets it has set.
    
    
30. The objective of this Disclosure Requirement is to allow an understanding of the targets the undertaking has adopted to support its biodiversity and ecosystems policies and address its material related impacts, dependencies, risks and opportunities.
    
    
31. The description of the targets shall follow the mandatory content defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.
    
    
32. The disclosure required by paragraph 29 shall include the following information:
    1. whether ecological thresholds and allocations of impacts to the undertaking were applied when setting If so, the undertaking shall specify:
       1. the ecological thresholds identified and the methodology used to identify such thresholds;
       2. whether or not the thresholds are entity-specific and if so, how they were determined; and
       3. how responsibility for respecting identified ecological thresholds is allocated in the undertaking;
    2. whether the targets are informed by, and/or aligned with the Kunming-Montreal Global Biodiversity Framework, relevant aspects of the EU Biodiversity Strategy for 2030 and other biodiversity and ecosystem-related national policies and legislation;
    3. how the targets relate to the biodiversity and ecosystem impacts, dependencies, risks and opportunities identified by the undertaking in relation to its own operations and its upstream and downstream value chain;
    4. the geographical scope of the targets, if relevant;
    5. whether or not the undertaking used biodiversity offsets in setting its targets; and
    6. to which of the layers of the mitigation hierarchy the target can be allocated (i.e., avoidance, minimisation, restoration and rehabilitation, compensation or offsets).

Application Requirements

AR 22. The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Biodiversity as defined in the delegated acts adopted pursuant to Article 15(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria  for Biodiversity as defined in  delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 13(2), and Article 14(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

AR 23. When disclosing information required under paragraph 29 for the purpose of setting targets the undertaking shall consider the need for an informed and willing consent of local and indigenous peoples, the need for appropriate consultations and the need to respect the decisions of these communities.

AR 24. The targets related to material impacts may be presented in a table as illustrated below:

AR 25. The targets related to the potentially material sustainability matters listed in paragraph AR 4 of this Standard, may be presented in a table as illustrated below:

AR 26. Measurable targets related to biodiversity and ecosystems may be expressed as:

1. size and location of all habitat areas protected or restored, whether directly or indirectly controlled by the undertaking, and whether the success of the restoration measure was or is approved by independent external professionals;
2. recreated surfaces (environments in which management initiatives are implemented so as to create a habitat on a site where it did not exist initially); or
3. number or percentage of projects / sites whose ecological integrity was improved (e.g., installation of fish passes, wildlife corridors).

33. The undertaking shall report metrics related to its material impacts on biodiversity and ecosystems.
    
    
34. The objective of this Disclosure Requirement is to enable an understanding of the performance of the undertaking against impacts identified as material in the materiality assessment on biodiversity and ecosystems.
    
    
35. If the undertaking identified sites located in or near biodiversity-sensitive areas that it is negatively affecting (see paragraph 19(a)), the undertaking shall disclose the number and area (in hectares) of sites owned, leased or managed in or near these protected areas or key biodiversity and ecosystems change.
    
    
36. If the undertaking has identified material impacts with regards to land-use change, or impacts on the extent and condition of ecosystems, it may also disclose their land-use based on a Life Cycle Assessment.
    
    
37. For datapoints specified in paragraphs 38 to 41, the undertaking shall consider its own operations.
    
    
38. If the undertaking has concluded that it directly contributes to the impact drivers of land-use change, freshwater-use change and/or sea-use change, it shall report relevant The undertaking may disclose metrics that measure:
    1. the conversion over time (e.g. 1 or 5 years) of land cover (e.g. deforestation or mining);
    2. changes over time (e.g. 1 or 5 years) in the management of the ecosystem (e.g., through the intensification of agricultural management, or the application of better management practices or forestry harvesting);
    3. changes in the spatial configuration of the landscape (e.g. fragmentation of habitats, changes in ecosystem connectivity);
    4. changes in ecosystem structural connectivity (e.g. habitat permeability based on physical features and arrangements of habitat patches); and
    5. the functional connectivity (e.g. how well genes or individuals move through land, freshwater and seascape).
       
       
39. If the undertaking concluded that it directly contributes to the accidental or voluntary introduction of invasive alien species, the undertaking may disclose the metrics it uses to manage pathways of introduction and spread of invasive alien species and the risks posed by invasive alien species.
    
    
40. If the undertaking identified material impacts related to the state of species, the undertaking may report metrics it considers relevant. The undertaking may:
    1. refer to relevant disclosure requirements in ESRS E1, ESRS E2, ESRS E3, and ESRS E5;
    2. consider population size, range within specific ecosystems as well as extinction risk. These aspects provide insight on the health of a single species’ population and its relative resilience to human induced and naturally occurring change;
    3. disclose metrics that measure changes in the number of individuals of a species within a specific area;
    4. disclose metrics on species at extinction risk^[1] that measure:
       1. the threat status of species and how activities/pressures may affect the threat status; or
       2. changes in the relevant habitat for a threatened species as a proxy for the undertaking’s impact on the local population’s extinction risk.

41. If the undertaking identified material impacts related to ecosystems, it may disclose:
    1. with regard to ecosystems extent, metrics that measure area coverage of a particular ecosystem without necessarily considering the quality of the area being assessed, such as habitat For example, forest cover is a measure of the extent of a particular ecosystem type, without factoring in the condition of the ecosystem (e.g., provides the area without describing the species diversity within the forest).
    2. with regard to ecosystems condition:
       1. metrics that measure the quality of ecosystems relative to a pre-determined reference state;
       2. metrics that measure multiple species within an ecosystem rather than the number of individuals within a single species within an ecosystem (for example: scientifically established species richness and abundance indicators that measure the development of (native) species composition within an ecosystem against the reference state at the beginning of the first reporting period as well as the targeted state outlined in the Kunming-Montreal  Global Biodiversity Framework, or an aggregation of species’ conservation status if relevant); or iii. metrics that reflect structural components of condition such as habitat connectivity (i.e., how linked habitats are to each other).
          
          

[1] As indicated in the IUCN Red List of Threatened Species and the European Red List published by the European Commission. 

Application Requirements

AR 27. When preparing the information required under this Disclosure Requirement, the undertaking shall consider and may describe:

1. the methodologies and metrics used and an explanation for why these methodologies and metrics are selected, as well as their assumptions, limitations and uncertainties, and any changes in methodologies made over time and why they occurred;
2. the scope of the metrics and methodologies, for example:
   1. undertaking, site, brand, commodity, corporate business unit, activity;
   2.  aspects (as set out in paragraph AR 4) covered.
3. the biodiversity components of the metrics: species specific, ecosystem specific;
4. the geographies covered by the methodology and an explanation of why any relevant geographies were omitted;
5. how the metrics integrate ecological thresholds (e.g., the biosphere integrity and land-system change, planetary boundaries) and allocations;
6. the frequency of monitoring, key metrics being monitored, and the baseline condition/value and baseline year/period, as well as the reference period;
7. whether these metrics rely on primary data, secondary data, modelled data or on expert judgement, or a mixture of these;
8. an indication of which action is measured and monitored via the metrics and how they relate to the achievement of targets;
9. whether metrics are mandatory (required by legislation) or voluntary. If they are mandatory, the undertaking may indicate the relevant legislation; if voluntary, the undertaking may refer to any voluntary standard or procedure used; and
10. whether the metrics are informed by or correspond to expectations or recommendations of relevant and authoritative national, EU-level or intergovernmental guidelines, policies, legislation or agreements, such as the Convention for Biological Diversity (CBD) or IPBES.

AR 28. The undertaking shall disclose metrics that are verifiable and that are technically and scientifically robust considering the appropriate time scales geographies, and may disclose how its selected metrics correspond to those criteria. To ensure that the metric is relevant there should be a clear relationship between the indicator and the purpose of the measurement. Uncertainties should be reduced as far as possible. Data or mechanisms used should be supported by well-established organisations and updated over time. Robust modelled data and expert judgment can be used where data gaps exist. The methodology shall be sufficiently detailed to allow for meaningful comparison of impacts and mitigation activities over time. Information gathering processes and definitions must be systematically applied. This enables a meaningful review of the undertaking’s performance over time and helps internal and peer comparison.

AR 29. If a metric corresponds to a target, the baseline for both shall be aligned. The biodiversity baseline is an essential component of the larger biodiversity and ecosystems management process. The baseline is necessary to inform impact assessment and management planning, as well as monitoring and adaptive management.

AR 30. Methodologies available to collect data and measure the undertakings’ impacts on biodiversity and ecosystems may be separated into three categories as follows:

1. primary data: collected in-situ using on the ground surveys;
2. secondary data: including geospatial data layers that are overlaid with geographic location data of business activities.
   1. At the species level, data layers on the ranges of different species can be used to predict the species that may be present at different locations. This includes operation sites and sourcing locations. Different range layers will have different levels of accuracy depending on certain factors (e.g., whether species ranges have been refined based on availability of habitat). Information on the threat status of the species, and the activities that threaten them, can provide an indication of the likely contribution that business activities may be having on driving population trends and threat status.
   2. At the ecosystem level, data layers reflecting change in the extent and condition of ecosystems can be applied, including levels of habitat fragmentation and connectivity.
3. modelled biodiversity state data: Model-based approaches are commonly used for measuring ecosystem level indicators (e.g., extent, condition, or function). Models quantify how the magnitude of different pressures affects the state of biodiversity. These are referred to as pressure-state relationships and are based on globally collected data. Modelling results are applied locally to estimate how undertaking-level pressures will cause changes in ecosystem condition. An impact driver generally has three main characteristics: magnitude (e.g., amount of contaminant, noise intensity), spatial extent (e.g., area of land contaminated) and temporal extent (duration of persistence of contaminant).

AR 31. With regard to life cycle assessment for land-use, the undertaking may refer to the “Land-use related environmental indicators for Life Cycle Assessment” by the Joint Research Center.

AR 32. With regard to the introduction of invasive alien species, the undertaking may disclose the pathways and number of invasive alien species and the extent of surface covered by invasive alien species.

AR 33. With regard to metrics on the extent and condition of ecosystems, useful guidance can be found in the work of the United Nations System of Environmental Economic Accounting Ecosystem Accounting (UN SEEA EA).

AR 34. The undertaking may disclose in units of area (e.g., m2 or ha) on land-use using guidance provided by the Eco-Management and Audit Scheme (EMAS)^[1]:

1. total use of land;
2. total sealed area;
3. total nature-oriented area on site; and (d) total nature-oriented area off site.

AR 35. The undertaking may disclose, for example, land cover change, which is the physical representation of the drivers “habitat modification” and “industrial and domestic activities”, i.e., the man-made or natural change of the physical properties of the earth’s surface at a specific location.

AR 36. Land cover is a typical variable that can be assessed with earth observation data. 

AR 37. When reporting on material impacts related to the ecosystems, the undertaking may, in addition to the extent and condition of ecosystems, also consider the functioning of ecosystems by using:

1. a metric that measures a process or function that the ecosystem completes, or that reflects the ability of the ecosystem to undertake that specific process or function: e.g., net primary productivity, which is a measure of plant productivity based on the rate at which energy is stored by plants and made  available to other species in the ecosystem. It is a core process that occurs for ecosystems to function. It is related to many factors, such as species diversity, but does not measure these factors directly; or
2. A metric that measures changes to the population of scientifically identified species under threat.

AR 38. At the ecosystem level, data layers reflecting change in the extent and condition of ecosystems may be applied, including levels of habitat fragmentation and connectivity.

[1] As proposed by Commission Regulation (EU) 2018/ 2026 of 19 December 2018 amending Annex IV to Regulation (EC) No 1221/2009 of the European Parliament and of the Council on the voluntary participation by organisations in a Community ecomanagement and audit scheme (EMAS) (OJ L 325, 20.12.2018, p. 18). 

42. The undertaking shall disclose its anticipated financial effects of material biodiversity- and ecosystem-related risks and opportunities.
    
    
43. The information required by paragraph 42 is in addition to the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d).
    
    
44. The objective of this Disclosure Requirement is to provide an understanding of:
    1. anticipated financial effects due to material risks arising from biodiversity- and ecosystem-related impacts and dependencies and how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance and cash flows over the short-, medium- and long-term; and
    2. anticipated financial effects due to material opportunities related to biodiversity- and ecosystem.
       
       
45. The disclosure shall include:
    1. a quantification of the anticipated financial effects in monetary terms before considering biodiversity and ecosystems-related actions or where not possible without undue cost or effort, qualitative information. For financial effects arising from material opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information). The quantification of the anticipated financial effects in monetary terms may be a single amount or a range;
    2. a description of the effects considered, the impacts and dependencies to which they relate and the time horizons in which they are likely to materialise; and
    3. the critical assumptions used to quantify the anticipated financial effects as well as the sources and the level of uncertainty of those assumptions.

Application Requirements

AR 39. The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 40. The quantification of the anticipated financial effects in monetary terms under paragraph 45(a) may be a single amount or a range.

11. The undertaking shall describe the process to identify material impacts, risks and opportunities related to resource use and circular economy, in particular regarding resource inflows, resource outflows and waste, and shall provide information on:

1. whether the undertaking has screened its assets and activities in order to identify its actual and potential impacts, risks and opportunities in its own operations and its upstream and downstream value chain, and if so, the methodologies, assumptions and tools used in the screening;
2. whether and how the undertaking has conducted consultations, in particular, with affected communities.

Application Requirements

AR 1. When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of resource use and circular economy in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

1. Phase 1: locate where in the undertaking’s own operations and along its upstream and downstream  value chain the interface with nature takes place;
2. Phase 2: evaluate the dependencies and impacts;
3. Phase 3: assess the material risks and opportunities;
4. Phase 4: prepare and report the results of the materiality assessment.

AR 2. With regard to ESRS E5, phases 1 and 2 rely mainly on the materiality assessments conducted under ESRS E1 (including energy consumption), ESRS E2 (pollution), ESRS E3 (marine resources, water consumption) and ESRS E4 (biodiversity, ecosystems, raw materials). Indeed, circular economy eventually aims at reducing the environmental impact of the use of products, materials and other resources, minimizing waste and the release of hazardous substances and hence at reducing impacts on nature. This application requirement focuses mainly on the third phase of this LEAP approach, while the fourth phase addresses the outcome of the process. 

AR 3. The process to assess the materiality of impacts, dependencies, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

AR 4. The sub-topics related to resource use and circular economy covered by the materiality assessment include:

1. resource inflows including the circularity of material resource inflows, considering resource use optimisation, intensity of materials and products and renewable and non-renewable resources;
2. resource outflows related to products and services; and
3. waste, including hazardous waste and non-hazardous waste management.

AR 5. In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may:

1. identify transition risks and opportunities in its own operations and its upstream and downstream value chain, including the risk of staying in a business-as-usual scenario:
   1. policy and legal, e.g., bans on the extraction and use of non-renewable resources, regulations on waste treatment;
   2. technology, e.g., introduction on the market of new technologies to replace existing use of products and materials;
   3. market, e.g., shifting supply, demand and financing;
   4. reputation, e.g. changing societal, customer or community perceptions.
2. identify physical risks including depletion of stock and use of virgin and non-virgin renewable resources, and of non-renewable resources;
3. identify opportunities categorised by:
   1. resource efficiency: e.g., transition to more efficient services and processes requiring less resources, eco-design for longevity, repair, reuse, recycle, by- products, take-back systems, decoupling activity from extraction of materials, intensifying circular material use, creation of a system that allows for dematerialization (e.g., digitisation, improving utilisation rates, weight reduction); practices to ensure products and materials are collected, sorted, and reused, repaired, refurbished, remanufactured;
   2. markets: e.g., demand for less resource-intense products and services, and new consumption models such as product-as- a-service, pay-per-use, sharing, leasing;
   3. financing: e.g., access to green funds, bonds or loans;
   4. resilience: e.g., diversification of resources and business activities (e.g., start a new business unit to recycle new materials), investing in green infrastructures, adopting recycling and circularity mechanisms that reduce the dependencies, capability of the undertaking to safeguard future stocks and flows of resources; and
   5. reputation.

AR 6. The undertaking may consider the following methodologies to assess its impacts, risks and opportunities in its own operations and along its upstream and downstream value chain: 

1. Commission Recommendation 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organizations (Annex I – Product Environmental Footprint; Annex III – Organisation Environmental Footprint); and 
2. Material Flow Analysis (MFA) from the European Environment Agency.

AR 7. When providing information on the outcome of the materiality assessment, the undertaking shall consider:

1. a list of business units associated to resource use and circular economy material impacts, risks and opportunities in the context of the products and services of the undertaking and the waste it generates;
2. a list and prioritisation of the material resources used by the undertaking;
3. the material impacts and risks of staying in business as usual;
4. the material opportunities related to a circular economy;
5. the material impacts and risks of a transition to a circular economy; and
6. the stages of the value chain where resource use, risks and negative impacts are concentrated.

12. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to resource use and circular economy.
    
    
13. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material impacts, risks and opportunities related to resource use and circular economy.
    
    
14. The disclosure required by paragraph 12 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to resource use and circular economy in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.
    
    
15. In the summary, the undertaking shall indicate whether and how its policies address the following matters where material:
    1. transitioning away from use of virgin resources, including relative increases in use of secondary (recycled) resources;
    2. sustainable sourcing and use of renewable resources.
       
       
16. Policies shall address material impacts, risks and opportunities in its own operations and along its upstream and downstream value chain.
    
    

Application Requirements

AR 8. The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 9. When providing information on its policies, the undertaking shall consider whether and how its policies address:

1. the waste hierarchy: (a) prevention; (b) preparing for re-use; (c) recycling; (d) other recovery, e.g., energy recovery; and (e) disposal. In this context, the waste treatment cannot be considered as a recovery;
2. the prioritisation of the avoidance or minimisation waste (Re-use, Repair, Refurbish, Remanufacture and Repurpose) over waste treatment (Recycling). The concepts of eco-design^[1], waste as a resource or post- consumer waste (at the end of a consumer-product lifecycle), should also be taken into consideration.

AR 10. When defining its policies, the undertaking may consider the Paper on “Categorisation system for the circular economy”, which describes circular design and production models, circular use models, circular value recovery models and circular support along the principles of the nine circular economy “R” strategies or principles: refuse, rethink, reduce, re-use, repair, refurbish, remanufacture, repurpose and recycle.

[1] As established by Directive 2009/125/EC.Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009 establishing a framework for the setting of ecodesign requirements for energy-related products (OJ L 285, 31.10.2009, p. 10). 

17. The undertaking shall disclose its resource use and circular economy actions and the resources allocated to their implementation.
    
    
18. The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the resource use and circular economy-related policy objectives and targets.
    
    
19. The description of the resource use and circular economy-related actions and resources allocated shall follow the principles defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.
    
20. In addition to ESRS 2 MDR-A, the undertaking may specify whether and how an action and resources cover:
    1. higher levels of resource efficiency in use of technical and biological materials and water, particularly in relation to critical raw materials and rare earths as listed in the Raw Materials Information System;
    2. higher rates of use of secondary raw materials (recyclates);
    3. application of circular design, leading to increased product durability and optimisation of use, and higher rates of: Reuse, Repair, Refurbishing, Remanufacture, Repurposing and Recycling.
    4. application of circular business practices such as (i) value retention actions (maintenance, repair, refurbishing, remanufacturing, component harvesting, upgrading and reverse logistics, closed loop systems, second-hand retailing), (ii) value maximisation actions (product-service systems, collaborative and sharing economy business models), (iii) end-of-life actions (recycling, upcycling, extended producer responsibility), and (iv) systems efficiency actions (industrial symbiosis);
    5. actions taken to prevent waste generation in the undertaking’s upstream and downstream value chain; and
    6. optimistation of waste management in line with the waste hierarchy.

Application Requirements

AR 11. When providing information under paragraph 17 and considering that resources are shared and that circular economy strategies may require collective actions, the undertaking may specify the actions taken to engage with its upstream and downstream value chain and/or its local network on the development of collaborations or initiatives increasing the circularity of products and materials.

AR 12. In particular, the undertaking may specify the following:

1. how it contributes to circular economy, including for instance smart waste collection systems;
2. the other stakeholders involved in the collective actions: competitors, suppliers, retailers, customers, other business partners, local communities and authorities, government agencies;
3. a description of the organisation of the collaboration or initiative, including the specific contribution of the undertaking and the roles of the different stakeholders in the project.

AR 13. The actions may cover the undertaking’s own operations and/or its upstream and downstream value chain.

21. The undertaking shall disclose the resource use and circular economy-related targets it has set.
    
    
22. The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has adopted to support its resource use and circular economy policy and to address its material impacts, risks and opportunities.
    
    
23. The description of the targets shall contain the information requirements defined in ESRS 2 MDR-T Tracking effectiveness of policies and actions through targets.
    
    
24. The disclosure required by paragraph 21 shall indicate whether and how the undertaking’s targets relate to resource inflows and resource outflows, including waste and products and materials, and, more specifically to:
    1. the increase of circular product design (including for instance design for durability, dismantling, reparability, recyclability etc);
    2. the increase of circular material use rate;
    3. the minimisation of primary raw material;
    4. sustainable sourcing and use (in line with the cascading principle) of renewable resources;
    5. the waste management, including preparation for proper treatment; and (f) other matters related to resource use or circular economy.
       
       
25. The undertaking shall specify to which layer of the waste hierarchy the target relates.
    
    
26. In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:
    1. the ecological thresholds identified, and the methodology used to identify such thresholds;
    2. whether or not the thresholds are entity-specific and if so, how they were determined; and
    3. how responsibility for respecting identified ecological thresholds is allocated in the undertaking.
       
       
27. The undertaking shall specify as part of the contextual information, whether the targets it has set and presented are mandatory (required by legislation) or voluntary.
    
    

Application Requirements

AR 14. If the undertaking refers to ecological thresholds to set targets, it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020) or any other guidance with a scientifically acknowledged methodology that allows to set science-based targets by identifying ecological thresholds and, if applicable, organisation-specific allocations. Ecological thresholds can be local, national and/or global.

AR 15. When providing information on targets, the undertaking shall prioritise targets in absolute value.

AR 16. When providing information targets according to paragraph 24, the undertaking shall consider the production phase, the use phase, and the end of functional life of products and materials. 

AR 17. When providing information on targets related to virgin renewable raw material under paragraph 24(c), the undertaking shall consider how those targets may impact biodiversity loss, also in light of ESRS E4.

AR 18. The undertaking may disclose other targets under paragraph 24(f) including in relation to sustainable sourcing. If so, the undertaking shall explain the definition of sustainable sourcing it has adopted and how it relates to the objective set out in paragraph 22.

AR 19. The targets may cover the undertaking’s own operations and/or its upstream and downstream value chain.

AR 20. The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Circular Economy as defined in the delegated acts adopted pursuant to Article 13(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria  for Circular Economy as defined in  delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 14(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria. 

28. The undertaking shall disclose information on its resource inflows related to its material impacts, risks and opportunities.
    
    
29. The objective of this Disclosure Requirement is to enable an understanding of the resource use in the undertaking’s own operations and its upstream value chain.
    
    
30. The disclosure required by paragraph 28 shall include a description of its resource inflows where material: products (including packaging) and materials (specifying critical raw materials and rare earths), water and property, plant and equipment used in the undertaking’s own operations and along its upstream value chain.
    
    
31. When an undertaking assesses that resource inflows is a material sustainability matter, it shall disclose the following information about the materials used to manufacture the undertaking’s products and services during the reporting period, in tonnes or kilogrammes:
    1. the overall total weight of products and technical and biological materials used during the reporting period;
    2. the percentage of biological materials (and biofuels used for non-energy purposes) used to manufacture the undertaking’s products and services (including packaging) that is sustainably sourced, with the information on the certification scheme used and on the application of the cascading principle; and
    3. the weight in both absolute value and percentage, of secondary reused or recycled components, secondary intermediary products and secondary materials used to manufacture the undertaking’s products and services (including packaging).
       
       
32. The undertaking shall provide information on the methodologies used to calculate the data. It shall specify whether the data is sourced from direct measurement or estimations, and disclose the key assumptions used. 
    
    

Application Requirements

AR 21. Resource inflows may cover the following categories: IT equipment, textiles, furniture, buildings, heavy machinery, mid-weight machinery, light machinery, heavy transport, midweight transport, light transport and warehousing equipment. With regard to materials, resource inflow indicators include raw materials, associated process materials, and semi-manufactured goods or parts.

AR 22. When the undertaking is subject to paragraph 31, it may also provide transparency on the materials that are sourced from by-products/waste stream (e.g., offcuts of a material that has not previously been in a product).

AR 23. The denominator of the percentage indicator required under paragraphs 31(b) and 31(c) is the overall total weight of materials used during the reporting period.

AR 24. The reported usage data are to reflect the material in its original state, and not to be presented with further data manipulation, such as reporting it as “dry weight”.

AR 25. In cases where there is an overlap between categories of reused, recycled, the undertaking shall specify how double counting was avoided and the choices that were made.

33. The undertaking shall disclose information on its resource outflows, including waste, related to its material impacts, risks and opportunities.
    
    
34. The objective of this Disclosure Requirement is to provide an understanding of:
    1. how the undertaking contributes to the circular economy by i) designing products and materials in line with circular economy principles and ii) increasing or maximising the extent to which products, materials and waste processing are recirculated in practice after first use; and
    2. the undertaking’s waste reduction and waste management strategy, the extent to which the undertaking knows how its pre-consumer waste is managed in its own activities.

Products and materials

35. The undertaking shall provide a description of the key products and materials that come out of the undertaking’s production process and that are designed along circular principles, including durability, reusability, repairability, disassembly, remanufacturing, refurbishment, recycling, recirculation by the biological cycle, or optimisation of the use of the product or material through other circular business models.
    
    
36. Undertakings for which outflows are material shall disclose:
    1. The expected durability of the products placed on the market by the undertaking, in relation to the industry average for each product group;
    2. The reparability products, using an established rating system, where possible;
    3. The rates of recyclable content in products and their packaging.

Waste

37. The undertaking shall disclose the following information on its total amount of waste from its own operations, in tonnes or kilogrammes:
    1. the total amount of waste generated ;
    2. the total amount by weight diverted from disposal, with a breakdown between hazardous waste and non-hazardous waste and a breakdown by the following recovery operation types:
       1. preparation for reuse;
       2. recycling; and
       3. other recovery operations.
    3. the amount by weight directed to disposal by waste treatment type and the total amount summing all three types, with a breakdown between hazardous waste and non-hazardous waste. The waste treatment types to be disclosed are: i. incineration; ii. landfill; and iii. other disposal operations;
    4. the total amount and percentage of non-recycled waste^[1].

38. When disclosing the composition of the waste, the undertaking shall specify:
    1. the waste streams relevant to its sector or activities (e.g. tailings for the undertaking in the mining sector, electronic waste for the undertaking in the consumer electronics sector, or food waste for the undertaking in the agriculture or in the hospitality sector); and;
    2. the materials that are present in the waste (e.g. biomass, metals, non-metallic minerals, plastics, textiles, critical raw materials and rare earths).
39. The undertaking shall also disclose the total amount of hazardous waste and radioactive waste generated by the undertaking, where radioactive waste is defined in Article 3(7) of Council Directive 2011/70/Euratom^[2].
    
    
40. The undertaking shall provide contextual information on the methodologies used to calculate the data and in particular the criteria and assumptions used to determine and classify products designed along circular principles under paragraph 35. It shall specify whether the data is sourced from direct measurement or estimations; and disclose the key assumptions used.
    
    

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #13 in Table II of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Non-recycled waste ratio”).

[2] Council Directive 2011/70/Euratom of 19 July 2011 establishing a Community framework for the responsible and safe management of spent fuel and radioactive waste (OJ L 199, 2.8.2011, p. 48). This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from a mandatory indicator related to principal adverse impacts as set out by indicator #9 in Table I of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Hazardous waste and radioactive waste ratio”).

Application Requirements

AR 26. Products and materials information to be provided under paragraph 35 refers to all materials and products that come out of the undertaking’s production process and that a company puts on the market (including packaging).

AR 27. When compiling the rate, the undertaking shall use as denominator the overall total weight of materials used during the reporting period.

AR 28. The undertaking may disclose its engagement in product end-of-life waste management, for example through extended producer responsibility schemes or take-back schemes.

AR 29. Type of waste is to be understood as hazardous waste or non-hazardous waste. Some specific waste, such as radioactive waste, may also be presented as a separate type.

AR 30. When considering the waste streams relevant to its sectors or activities, the undertaking may consider the list of waste descriptions from the European Waste Catalogue.

AR 31. Examples of other types of recovery operations under paragraph 37(b)iii may be found in Annex II of Directive 2008/98/EC (Waste Framework Directive).

AR 32. Examples of other types of disposal operations under paragraph 37(c)iii may be found in Annex I of Directive 2008/98/EC (Waste Framework Directive).

AR 33. When providing contextual information under paragraph 40 the undertaking may:

1. explain the reasons for high weights of waste directed to disposal (e.g., local regulations that prohibit landfill of specific types of waste);
2. describe sector practices, sector standards, or external regulations that mandate a specific disposal operation; and
3. specify whether the data has been modelled or sourced from direct measurements, such as waste transfer notes from contracted waste collectors.

41. The undertaking shall disclose the anticipated financial effects of material risks and opportunities arising from resource use and circular economy-related impacts.
    
    
42. The information required by paragraph 41 is in addition the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d). The objective of this Disclosure Requirement is to provide an understanding of:
    1. anticipated financial effects due to material risks arising from material resource use and circular economy-related impacts and dependencies and how these risks have or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance, and cash flows over the short-, medium- and long-term; and
    2. anticipated financial effects due to material opportunities related to resource use and circular economy.

43. The disclosure shall include:
    1. a quantification of the anticipated financial effects in monetary terms before considering resource use and circular economy-related actions, or where not possible without undue cost or effort, qualitative information. For financial effects arising from material opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);
    2. a description of the effects considered, the impacts and dependencies to which they relate and the time horizons in which they are likely to materialize;
    3. the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.

Application Requirements

AR 34. When providing information under paragraph 42(b), the undertaking may illustrate and describe how it intends to strengthen value retention.

AR 35. The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 36. The quantification of the anticipated financial effects in monetary terms under paragraph 43(a) may be a range.

12. When responding to ESRS 2 SBM-2, the undertaking shall disclose how the interests, views, and rights of people in its own workforce, including respect for their human rights, inform its strategy and business model. The undertaking’s own workforce is a key group of affected stakeholders.
    
    

Application Requirements

AR 4. ESRS 2 SBM-2 requires the undertaking to provide an understanding of whether and how it considers the role that its strategy and business model may play in creating, exacerbating or mitigating significant material impacts on its own workforce, and whether and how the business model and strategy are adapted to address such material impacts.

AR 5. While the undertaking’s own workforce may not be engaging with the undertaking at the level of its strategy or business model, their views can inform the undertaking’s assessment of its strategy and business model. The undertaking shall consider the views of workers’ representatives when applicable to fulfil this disclosure.

13. When responding to ESRS 2 SBM-3 paragraph 48, the undertaking shall disclose:
    1. whether and how actual and potential impacts on its own workforce as identified in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities: (i) originate from or are connected to the undertaking’s strategy and business models, and (ii) inform and contribute to adapting the undertaking’s strategy and business model; and
    2. the relationship between its material risks and opportunities arising from impacts and dependencies on own workforce and its strategy and business model.
       
       
14. When fulfilling the requirements of paragraph 48, the undertaking shall disclose whether all people in its own workforce who could be materially impacted by the undertaking are included in the scope of its disclosure under ESRS 2. These material impacts shall include impacts that are connected with the undertaking’s own operations and its value chain, including through its products or services, as well as through its business relationships. In addition, the undertaking shall provide the following information:
    1. a brief description of the types of employees and non-employees in its own workforce subject to material impacts by its operations, and specify whether they are employees, self- employed people, or people provided by third party undertakings primarily engaged in employment activities;
    2. in the case of material negative impacts, whether they are either (i) widespread or systemic in contexts where the undertaking operates (for example, child labour or forced labour or compulsory labour in specific countries or regions outside the EU), or (ii) related to individual incidents (for example, an industrial accident or an oil spill);
    3. in the case of material positive impacts, a brief description of the activities that result in the positive impacts, the types of employees and non-employees in its own workforce that are positively affected or could be positively affected; the undertaking may also disclose whether the positive impacts occur in specific countries or regions;
    4. any material risks and opportunities for the undertaking arising from impacts and dependencies on its own workforce;
    5. any material impacts on its own workforce that may arise from transition plans for reducing negative impacts on the environment and achieving greener and climate- neutral operations, including information on the impacts on own workforce caused by the undertaking’s plans and actions to reduce carbon emissions in line with international agreements. Impacts, risks and opportunities include restructuring and employment loss as well as opportunities arising from job creation and reskilling or upskilling;
    6. operations at significant risk of incidents of forced labour or compulsory labour^[1] either in terms of:
       1. type of operation (such as manufacturing plant); or ii. countries or geographic areas with operations considered at risk;
    7. operations at significant risk of incidents of child labour^[2] either in terms of:
       1. type of operation (such as manufacturing plant); or
       2. countries or geographic areas with operations considered at risk.

15. In describing the main types of people in its own workforce who are or could be negatively affected, based on the materiality assessment set out in ESRS 2 IRO 1, the undertaking shall disclose whether and how it has developed an understanding of how people with particular characteristics, those working in particular contexts, or those undertaking particular activities may be at greater risk of harm.
    
    
16. The undertaking shall disclose which, if any, of its material risks and opportunities arising from impacts and dependencies on people in its own workforce relate to specific groups of people (for example, particular age groups, or people working in a particular factory or country) rather than to all of its own workforce (for example, a general pay cut, or training offered to all people in its own workforce).
    
    

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from additional indicators related to principal adverse impacts as set out by indicator #13 in Table III of

Annex I of  Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Operations and suppliers at significant risk of incidents of forced or compulsory labour”).

[2] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from additional indicators related to principal adverse impacts as set out by indicator #12 in Table III of

Annex I of  Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Operations and suppliers at significant risk of incidents of child labour”).

Application Requirements

AR 6. Impacts on the undertaking’s own workforce can originate in its strategy or business model in a number of different ways. For example, impacts may relate to the undertaking’s value proposition (such as providing lowest cost products or services, or high-speed delivery, in ways that put pressure on labour rights in its own operations), or its cost structure and the revenue model (such as shifting inventory risk to suppliers, with knock-on effects on the labour rights of people who work for them).

AR 7. Impacts on the undertaking’s own workforce that originate in the strategy or business model can also bring material risks to the undertaking. For example, risks arise if some people in the workforce are at risk of forced labour, and the undertaking is importing products into countries where the law allows for the confiscation of imported goods that are suspected of being made with forced labour. An example of opportunities for the undertaking may result from providing opportunities for the workforce such as job creation and upskilling in the context of a “just transition”. Another example, in the context of a pandemic or other severe health crisis, relates to the undertaking potentially relying on contingent labour with little to no access to sick care and health benefits that may face severe operational and business continuity risks as workers have no choice but to keep working while sick, further exacerbating the spread of the disease and causing major supply chain breakdowns. Reputational and business opportunity risks linked to the exploitation of low-skilled, low-paid workers in sourcing geographies with minimal protections for them are also increasing with media backlash and consumer preferences moving to more ethically sourced or sustainable goods.

AR 8. Examples of particular characteristics of people in the undertaking’s own workforce that may be considered by the undertaking when responding to paragraph 15 relate to young people that may be more susceptible to impacts on their physical and mental development, or women in a context where women are routinely discriminated against in the terms and conditions of work, or migrants in a context where the market for the supply of labour is poorly regulated and workers are routinely charged recruitment fees. For some people in the workforce, the inherent nature of the activity that they are required to undertake may put them at risk (for example, people required to handle chemicals or operate certain equipment or low paid employees who are on “zero hours” contracts).

AR 9. With regard to paragraph 16, material risks could also arise because of the undertaking’s dependency on its own workforce where low-likelihood but high-impact events may trigger financial effects; for example, where a global pandemic leads to severe health impacts on the undertaking’s workforce resulting in major disruptions to production and distribution. Other examples of risk related to the undertaking’s dependency on its workforce include a shortage in skilled workers or political decisions or legislation affecting its own operations and own workforce.

17. The undertaking shall describe its policies adopted to manage its material impacts on its own workforce, as well as associated material risks and opportunities.
    
    
18. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of material impacts on the undertaking’s own workforce specifically, as well as policies that cover material impacts, risks and opportunities related to its own workforce.
    
    
19. The disclosure required by paragraph 17 shall contain the information on the undertaking’s policies to manage its material impacts, risks and opportunities related to its own workforce in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters. In addition, the undertaking shall specify if such policies cover specific groups within its own workforce or all of its own workforce.
    
    
20. The undertaking shall describe its human rights policy commitments^[1] that are relevant to its own workforce, including those processes and mechanisms to monitor compliance with the UN Guiding Principles on Business and Human Rights, ILO Declaration on Fundamental Principles and Rights at Work and the OECD Guidelines for Multinational Enterprises^[2]. In its disclosure it shall focus on those matters that are material in relation to, as well as its general approach to:
    1. respect for the human rights, including labour rights, of people in its own workforce;
    2. engagement with people in its own workforce; and
    3. measures to provide and/or enable remedy for human rights impacts.
       
       
21. The undertaking shall disclose whether and how its policies with regard to its own workforce are aligned with relevant internationally recognised instruments, including the UN Guiding Principles on Business and Human Rights^[3].
    
    
22. The undertaking shall state whether its policies in relation to its own workforce explicitly address trafficking in human beings⁹⁹, forced labour or compulsory labour and child labour.
    
    
23. The undertaking shall state whether it has a workplace accident prevention policy or management system^[4].
    
    
24. The undertaking shall disclose:
    1. whether it has specific policies aimed at the elimination of discrimination, including harassment, promoting equal opportunities and other ways to advance diversity and inclusion;
    2. whether the following grounds for discrimination are specifically covered in the policy: racial and ethnic origin, colour, sex, sexual orientation, gender identity, disability, age, religion, political opinion, national extraction or social origin, or other forms of discrimination covered by Union regulation and national law;
    3. whether the undertaking has specific policy commitments related to inclusion or positive action for people from groups at particular risk of vulnerability in its own workforce and, if so, what these commitments are; and
    4. whether and how these policies are implemented through specific procedures to ensure discrimination is prevented, mitigated and acted upon once detected, as well as to advance diversity and inclusion in general.
       
       

[1] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #9 in Table III of

Annex I of  Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Lack of a human rights policy”).

[2] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from a mandatory indicator related to principal adverse impacts as set out by indicator #11 in Table I of Annex I of  Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments.

[3] This information supports the needs of benchmark administrators to disclose ESG factors subject to Regulation (EU) 2020/1816 as set out by indicator “Exposure of the benchmark portfolio to companies without due diligence policies on issues addressed by the fundamental International Labour Organisation Conventions 1 to 8” in section 1 and 2 of Annex II. ⁹⁹ This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impacts as set out by indicator #11 in Table III of Annex I of  Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Lack of processes and measures for preventing trafficking in human beings”).

[4] This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 because it is derived from an additional indicator related to principal adverse impact as set out by indicator #1 in Table III of Annex I of Commission Delegated Regulation (EU) 2022/1288 with regard to disclosure rules on sustainable investments (“Investments in companies without workplace accident prevention policies”).

Application Requirements

AR 10. The undertaking shall consider whether explanations of significant changes to the policies adopted during the reporting year (for example, new expectations for foreign subsidiaries, new or additional approaches to due diligence and remedy) provide contextual information for users and may disclose such explanations. This includes policies and commitments of the undertaking to prevent or mitigate the risks and negative impacts on people in its own workforce of reducing carbon emissions and transitioning to greener and climate-neutral operations as well as to provide opportunities for the workforce such as job creation and upskilling, including explicit commitments to a ‘just transition’.

AR 11. The policy may take the form of a stand-alone policy regarding the undertaking’s own workforce or be included in a broader document such as a code of ethics or a general sustainability policy that has already been disclosed by the undertaking as part of another ESRS. In those cases, the undertaking shall provide an accurate cross-reference to identify the aspects of the policy that satisfy the requirements of this Disclosure Requirement.

AR 12. When disclosing the alignment of its policies with the UN Guiding Principles on Business and Human Rights, the undertaking shall consider that the Guiding Principles refer to the International Bill of Human Rights, which consist of the Universal Declaration of Human Rights and the two Covenants that implement it, as well as the International Labour Organisation’s Declaration on Fundamental Rights and Principles at Work and the core conventions that underpin it, and may report on alignment with these instruments.

AR 13. When explaining how external-facing policies are embedded, the undertaking may, for example, consider internal policies of responsible sourcing, and alignment with other policies relevant to own workers, for example, regarding forced labour. With regard to supplier codes of conduct that the undertaking may have, it shall indicate whether they include provisions addressing the safety of workers, precarious work (i.e., use of workers on short-term or limited hours contracts, workers employed via third parties, sub-contracting to third parties or use of informal workers), human trafficking, the use of forced labour or child labour, and whether such provisions are fully in line with applicable ILO standards. 

AR 14. The undertaking may provide an illustration of the types of communication of its policies to those individuals, group of individuals or entities for whom they are relevant, either because they are expected to implement them (for example, the undertaking’s employees, contractors and suppliers), or because they have a direct interest in their implementation (for example, people in its own workforce, investors). It may disclose communication tools and channels (for example, flyers, newsletters, dedicated websites, social media, face to face interactions, workers’ representatives), aimed at ensuring that the policy is accessible and that different audiences understand its implications. The undertaking may also explain how it identifies and removes potential barriers for dissemination, such as through translation into relevant languages or the use of graphic depictions.

AR 15. Discrimination in employment and occupation occurs when someone is treated differently or less favourably because of characteristics that are not related to merit or the inherent requirements of the job. These characteristics are commonly defined in national laws. Besides the grounds mentioned in the Disclosure Requirement, the undertaking shall consider other grounds for discrimination prohibited under national legislation.

AR 16. Discrimination can arise in a variety of work-related activities. These include access to employment, particular occupations, training and vocational guidance and social security. Moreover, it can occur with respect to the terms and conditions of employment, such as: recruitment, remuneration, hours of work and rest, paid holidays, maternity protection, security of tenure, job assignments, performance assessment and advancement, training opportunities, promotion prospects, occupational safety and health, termination of employment. The undertaking may address these areas specifically when disclosing its policies and underlying procedures to fulfil the disclosure requirement.

AR 17. The undertaking may disclose whether it:

1. has policies and procedures which make qualifications, skills and experience the basis for the recruitment, placement, training and advancement at all levels, while accounting for the fact that some individuals may have more difficulty than others to acquire such qualifications, skills and experience;
2. assigns responsibility at top management level for equal treatment and opportunities in employment, issue clear company-wide policies and procedures to guide equal employment practices, and link advancement to desired performance in this area;
3. provides staff training on non-discrimination policies and practices, with a particular focus on middle and upper management to raise awareness and address resolution strategies for preventing and addressing systemic and incidental discrimination;
4. makes adjustments to the physical environment to ensure health and safety for workers, customers and other visitors with disabilities;
5. evaluates whether job requirements have been defined in a way that could systematically disadvantage certain groups;
6. keeps up-to-date records on recruitment, training and promotion that provide a transparent view of opportunities for employees and their progression within the undertaking;
7. puts in place grievance procedures to address complaints, handle appeals and provide recourse for employees (especially in the context of negotiations and collective agreements) when discrimination is identified, and is alert to formal structures and informal cultural issues that can prevent employees from raising concerns and grievances; and (h) has programs to promote access to skills development. 

25. The undertaking shall disclose its general processes for engaging with people in its own workforce and workers' representatives about actual and potential impacts on its own workforce.
    
    
26. The objective of this Disclosure Requirement is to enable an understanding of how the undertaking engages, as part of its ongoing due diligence process, with people in its own workforce and workers' representatives about material, actual and potential, positive and/or negative impacts that do or are likely to affect them, and whether and how perspectives of its own workforces are taken into account in the decision-making processes of the undertaking.
    
    
27. The undertaking shall disclose whether and how the perspectives of its own workforce inform its decisions or activities aimed at managing the actual and potential impacts on its own workforce. This shall include, where relevant, an explanation of:
    1. whether engagement occurs directly with the undertaking’s own workforce or workers' representatives;
    2. the stage(s) at which engagement occurs, the type of engagement and frequency of the engagement;
    3. the function and the most senior role within the undertaking that has operational responsibility for ensuring that this engagement happens and that the results inform the undertaking’s approach;
    4. where applicable, a Global Framework Agreement or other agreements that the undertaking has with workers' representatives related to the respect of human rights of its own workforce, including an explanation of how the agreement enables the undertaking to gain insight into the perspectives of its own workforce; and
    5. where applicable, how the undertaking assesses the effectiveness of its engagement with its own workforce, including, where relevant, any agreements or outcomes that result.
       
       
28. Where applicable, the undertaking shall disclose the steps it takes to gain insight into the perspectives of people in its own workforce who may be particularly vulnerable to impacts and/or marginalised (for example, women, migrants, people with disabilities).
    
    
29. If the undertaking cannot disclose the above required information because it has not adopted a general process to engage with its own workforce, it shall disclose this to be the case. It may disclose a timeframe in which it aims to have such a process in place.
    
    

Application Requirements

AR 18. When describing what function or role has operational responsibility for such engagement and/or ultimate accountability, the undertaking may disclose whether this is a dedicated role or function or part of a broader role or function, and whether any capacity building activities have been offered to support the staff to undertake engagement. If it cannot identify such a position or function, it may state that this is the case. This disclosure could also be fulfilled by making reference to information disclosed according to ESRS 2 GOV-1 The role of the administrative, management and supervisory bodies.

AR 19. When preparing the disclosures described in paragraph 27 b) and c), the following illustrations may be considered:

1. examples of stages at which engagement occurs are i) determining the approach to mitigation and ii) evaluating the effectiveness of mitigation;
2. for type of engagement, these could be participation, consultation and/or information;
3. for the frequency of the engagement, information may be provided on whether engagement occurs on a regular basis, at certain points in a project or business process, (for example, when a new harvest season begins or a new production line is opened), as well as whether it occurs in response to legal requirements and/or in response to stakeholder requests and whether the result of the engagement is being integrated into the undertaking's decision-making processes; and
4. for the role with operational responsibility, whether the undertaking requires relevant staff to have certain skills, or whether it provides training or capacity building to relevant staff to undertake engagement.

AR 20. Global Framework Agreements (GFA) serve to establish an ongoing relationship between a multinational enterprise and a Global Union Federation to ensure that the undertaking adheres to the same standards in every country in which it operates.

AR 21. To illustrate how the perspectives of its own workforce have informed specific decisions or activities, the undertaking may provide examples from the current reporting period.

AR 22. Where the undertaking has agreements with national, European or international trade unions or works councils related to the rights of people its own workforce, this can be disclosed to illustrate how the agreement enables the undertaking to gain insight into the perspectives of such people.

AR 23. Where possible, the undertaking may disclose examples from the reporting period to illustrate how the perspectives of its own workforce and workers' representatives have informed specific decisions or activities of the undertaking.

AR 24. The undertaking shall consider the following aspects when fulfilling this Disclosure Requirement:

1. The type of engagement (for example, information, consultation or participation) and its frequency (for example, ongoing, quarterly, annually);
2. how feedback is recorded and integrated into decision-making, and how people in the workforce are informed about the way in which their feedback has influenced decisions;
3. whether engagement activities take place at the organisational level or at a lower level, such as at the site or project level, and in the latter case, how information from engagement activities is centralised;
4. the resources (for example, financial or human resources) allocated to engagement; and
5. how it engages with people in its workforce and workers’ representatives on the impacts on its own workforce that may arise from reducing carbon emissions and transitioning to greener and climate-neutral operations, in particular restructuring, employment loss or creation, training and up/reskilling, gender and social equity, and health and safety.

AR 25. The undertaking may also disclose the following information in relation to paragraph 24 on diversity:

1. how it engages with at-risk or persons in vulnerable situations (for example whether it takes specific approaches and gives special attention to potential barriers);
2. how it takes into account potential barriers to engagement with people in its workforce (for example, language and cultural differences, gender and power imbalances, divisions within a community or group);
3. how it provides people in its workforce with information that is understandable and accessible through appropriate communication channels;
4. any conflicting interests that have arisen among its workforce and how the undertaking has resolved these conflicting interests; and
5. how it seeks to respect the human rights of all stakeholders engaged, for example, their rights to privacy, freedom of expression, and peaceful assembly and protest.

AR 26. The undertaking may also report information about the effectiveness of processes for engaging with its own workforce from previous reporting periods. This applies in cases where the undertaking has assessed the effectiveness of these processes or derived lessons during the current reporting period. Processes used to track effectiveness can include internal or external auditing or verification, impact assessments, measurement systems, stakeholder feedback, grievance mechanisms, external performance ratings, and benchmarking.  

30. The undertaking shall describe the processes it has in place to provide for or cooperate in the remediation of negative impacts on people in its own workforce that the undertaking is connected with, as well as channels available to its own workforce to raise concerns and have them addressed.
    
    
31. The objective of this Disclosure Requirement is to enable an understanding of the formal means by which the undertaking’s own workforce can make their concerns and needs known directly to the undertaking and/or through which the undertaking supports the availability of such channels (for example, grievance mechanisms) in the workplace, and how follow up is carried out with the people concerned regarding the issues raised and the effectiveness of these channels.
    
    
32. The undertaking shall describe the processes in place to cover the matters defined within paragraph 2 of the Objective section by disclosing the following information:
    1. its general approach to and processes for providing or contributing to remedy where it has caused or contributed to a material negative impact on people in its own workforce, including whether and how the undertaking assesses that the remedy provided is effective;
    2. any specific channels it has in place for its own workforce to raise their concerns or needs directly with the undertaking and have them addressed, including whether these are established by the undertaking itself and/or through participation in third-party mechanisms;
    3. whether or not the undertaking has a grievance/complaints handling mechanism related to employee matters^[1]; and
    4. the processes through which the undertaking supports the availability of such channels in the workplace of its own workforce; and
    5. how it tracks and monitors issues raised and addressed, and, how it ensures the effectiveness of the channels, including through the involvement of stakeholders who are intended users.