EFRAG European Sustainability Reporting Standards

EFRAG Standard ESRS E1 (“Climate Change”) requires organizations subject to the ESRSs to disclose key aspects of their management of climate risks and opportunities, including their transition plan for climate change mitigation, their energy consumption and energy usage mix, their gross Scopes 1, 2, 3, and total greenhouse gas (GHG) emissions, whether they apply internal carbon pricing schemes, and the impacts of carbon pricing on decision making.

Environmental management of Pollution, Water and Marine Resources, Biodiversity, and Ecosystems. EFRAG creates disclosure requirements related to environmental management across several standards, including ESRS E1 (“Pollution”), ESRS E3 (“Water and Marine Resources”), and ESRS E4 (“Biodiversity and Ecosystems”). Companies following the EFRAG standards would need to disclose their policies, actions, and targets in each of these areas, as well as specific information such as “substances of concern” and “substances of very high concern” as defined by the EU REACH regulation, which means that they’d need to have a good understanding of their chemical inventory.

The term circular economy refers to a lifecycle approach to production focused on eliminating wastes and keeping products in use for as long as possible through reuse, repair/refurbishment, and recycling. It’s the next step in a company’s sustainability journey that depends and builds upon improved efficiency and quality, and reduction of waste. ESRS E5 requires companies following EFRAG’s standards to disclose details such as policies, actions, and targets related to resource use, resource inflows and outflows, and potential financial risks and opportunities related to the circular economy.

ESRS S1 (“Own Workforce”) specifies disclosure requirements related to a company’s impacts on its workforce. Organizations following ESRS S1 would need to specifically disclose details including indicators and metrics related to diversity, wages, work-life balance, health and safety (including accidents, complaints and human rights cases), policies for employees with disabilities, actions and targets to reduce impacts to employee health and safety, and methods for employees to raise concerns. This standard is a reminder that companies can’t establish and sustain ESG maturity without first having good safety management practices.

EFRAG’s ESRSs reflect a growing industry consensus about the importance for organizations to think broadly about the impacts of their operations outside of their own walls. ESRS S2 (“Workers in the Value Chain”) requires companies to disclose aspects of their management of workers outside their own workforce, upstream or downstream of their operations, such as suppliers, distributors, and retailers. ESRS S3 (“Affected Communities”) tasks organizations with understanding and disclosing the impacts of their business on vulnerable communities, processes to reduce negative impacts and promote positive impacts, and channels available for members of affected communities to raise concerns.