30 September 2022

A pragmatic approach to getting started with the ESRS

By Christoph Töpfer, policy and research officer at the German Environment Agency (UBA) and former member of the EFRAG Project Task Force. Interview by Vincent Huck

The German Environment Agency (UBA) has started to look at how the ESRS compare to existing and planned EU and national environmental legislation, according to Christoph Töpfer, policy and research officer at UBA and former member of the EFRAG Project Task Force.

Christoph TöpferCompanies should be able to use data for sustainability reporting they already generate for compliance with environmental legislation or within environmental management systems, such as the European Eco-Management and Audit Scheme (EMAS) or ISO 14001, he says.

"To companies with limited experience in sustainability management and reporting, I would recommend approaching the ESRS from the sustainability topics they cover. Directly diving into the rather detailed disclosure requirements has a good chance of getting overwhelming.

"ESRS E2 – Pollution", for example, defines disclosure requirements with regards to pollution of air, water and soil, among others. So a company may, in the first instance, assess if and how it causes or contributes to pollution of air, water or soil (e.g. due to the release of water pollutants from its production processes), how it depends on clean air, water or soil (e.g. due to the need for high quality water in production) and what the business risks and opportunities related to these impacts and dependencies are (e.g. rising costs in water preparation because of deteriorating water quality).

"Based on such an initial review, the company will be in a position to assess the significance of impacts, risks and opportunities – by considering the criteria and provisions of ESRS 2 (Application Guidance 64 ff.) – and apply the ESRS disclosure requirements. It will also help to plan actions to address significant impacts, risks and opportunities.

"Companies will typically start by assessing their own operations and processes because they have a good understanding of them and direct control over them. If a company already has an environmental, energy or occupational health and safety management system in place, this can be a good starting point. Even starting from a quality management system will make things easier than starting from scratch.

"Management systems create transparency on operational processes, which can then be assessed for sustainability impacts or risks, may they be related to energy consumption, chemical use, waste generation or workers' rights. In addition to their own operations, it will be important that companies endeavour to understand their value chains and the impacts, risks and opportunities related to the lifecycle of their products and services. For many companies, significant sustainability impacts and business risks are situated in the value chain and the CSRD is requiring companies to create transparency on those. Relevant data and knowledge are often already available in the company, for example in the procurement or logistics departments, but conducting a robust materiality assessment on the value chain is likely to go beyond information already available. Luckily, there is abundant guidance on sustainable supply chain management and tools that can help to map supply chains, estimate impacts and identify risks.

"Overall, however, I think we need to manage expectations among preparers, users, auditors and regulators. It should be acknowledged that, especially for first time preparers, not everything will be complete and perfect from the start. Sustainability management and reporting remain – even with mandatory standards – an ongoing improvement and learning process. Reporting standards and report users should encourage and reward companies for being transparent on gaps and problems, especially if they can present credible plans to address them."