Introduction
To help KEY ESG users in their CSRD reporting journey, our experts continuously share relevant market and regulatory updates. This FAQ document outlines answers to frequently asked questions regarding the implementation of the ESRS standards and EFRAG guidance. This note does not represent any legal advice.
1. What is an appropriate number of topics to report as material in the CSRD Double Materiality Assessment?
The regulations do not define a minimum list of material topics, nor does it prescribe at what level topics need to be disclosed (topic, sub-topic or sub-sub-topic level). Hence, it is helpful to review the emerging market standard to see what others are doing.
Several companies have voluntarily disclosed their CSRD Double Materiality Assessment (DMA) during the FY 2023 reporting season. In total, ~8% of the STOXX Europe 600 show early adoption of CSRD and in total ~7% have publicly disclosed their DMA in accordance with ESRS.
Out of the 45 disclosing companies, on average 7 topical standards are material; E1 Climate Change and S1 Own Workforce are material for all firms. G1 Business Conduct is material for most firms. Different companies have reported at different levels, and we’re assuming that a high-level topic is material whenever any sub-topic or sub-sub-topic is material.
The following sub-topic are most often designated as material: Working Conditions (S1), Climate Change Mitigation (E1), and Equal Treatment and Opportunities for all (S1). The following sub-sub-topics are most often reported as material: Health and Safety (S1), Training and Skills Development (S1) and Gender Equality and Equal Pay for Work or Equal Value (S1).
In addition to the ESRS long-list, more than half of the firms identify entity-specific topics; Cybersecurity is the most prevalent. The majority (69%) of disclosures rely on the CSRD’s provided (AR16) Long List of topics, which is standard included in the KEY ESG software. Note that only 25% have used classification along the value chain.
The regulations do not prescribe at what topical level the materiality results should be disclosed; the company can decide whether to report at the topic, sub-topic or sub-sub-topic level. This has led to a variety of levels being disclosed across early adopters.
KEY ESG Software approach: The KEY ESG software integrates the AR16 longlist of material topics and with that enables users to follow market practice. Furthermore, users can define unique entity-specific topics within the platform. Materiality assessment can be done along the value chain.
Source: CSRD Materiality Analysis – Early Adopter Insights by Professor Muller and mrs. Valkyser, 2024.
2. What is deemed appropriate stakeholder engagement for the Double Materiality Assessment?
There is no prescribed number of stakeholder groups to consider nor does the ESRS mandate how to engage with such stakeholders. All that the ESRS outlines is that companies need to consider both internal and external stakeholders. Among the early disclosing companies, over 80~ of firms involved both internal and external stakeholders.
Also, it provides us with a definition for stakeholders: ‘individuals or groups that are, or could be, affected by the undertaking’s activities and through its value chain’. This could be positive or negative.
The regulation states that, where appropriate, the undertaking should explain how it engaged with its stakeholders. This can include ongoing processes of engagement as part of the undertaking’s business practices, such as a company’s annual employee survey. Hence, a company may decide to build on past or ongoing engagement for some of its stakeholders, rather than send out bespoke surveys for the purpose of CSRD. In addition, companies can consider scientific research or credible independent experts in case engaging with specific stakeholders directly is not possible.
Finally, companies can decide to engage with different stakeholders on different topics. Since engagement with stakeholders who are not affected by the specific matter is not meaningful.
KEY ESG Software approach: KEY ESG’s Double Materiality functionality has a dedicated Stakeholder section. Users can describe their overall approach to stakeholder engagement, capture engagement per stakeholder with an unlimited number of stakeholder groups to include. The platform enables easy saving of source materials, to show your auditors what process you have taken. Per stakeholder, the user can identify which topics have been deemed material.
Source: EFRAG IG 1: Materiality Assessment Implementation Guidance
CSRD Materiality Analysis – Early Adopter Insights by Professor Muller and mrs. Valkyser, 2024.
3. How often should a company update its Double Materiality Assessment?
The CSRD states that sustainability information needs to be reported annually, hence the company should determine at each reporting date its material topics and hence information to be included in the statements.
If appropriate evidence shows that last year’s assessment is still relevant, the company may re-use the prior year’s information. This means that the company believes there are no material changes in its organisational and operational structure, nor that there have been no material changes in external factors.
The following examples are provided as material changes that would require a new assessment: (i) a major merger or acquisition leading to entering a new sector or yielding a significant change in operations, (ii) a key change in supplier, (iii) a global event such as a pandemic, (iv) entering a new market or starting a new line of business; (v) a shift in social conventions).
KEY ESG Software approach: By performing your Double Materiality Analysis inside KEY ESG relevant future updates can easily be made, whilst still retaining existing knowledge. Save time by not having to repeat assessment of unchanged stakeholders or matters.
Source: EFRAG IG 1: Materiality Assessment Implementation Guidance
4. Disclosure Requirements - What does the regulation state about the use of estimates?
The ESRS state that using reasonable estimates is necessary and unavoidable. When doing so, it is important to clearly and accurately describe which disclosed metrics have a significant estimation and describe how this was estimated.
Overall, ESRS states that sustainability information should faithfully represent the reality it depicts. This implies that the report needs to be (i) complete, (ii) neutral and (iii) accurate. Hence, any estimates used should be presented with clear emphasis on their possible limitations and associated uncertainty.
KEY ESG Software approach: The KEY ESG software enables the user to leverage relevant estimations in case of missing or incomplete source data. The software records when and where estimates have been used and provides detailed methodology notes for such estimates. For instance, the software’s integrated carbon accounting provides multiple collection methods, corresponding to differing degrees of accuracy, to ensure there is always a relevant option available to the user.
Source: Paragraph 2.1, 4.3 and 4.4 in ESRS 1 General principles Exposure Draft, April 2022 ttps://www.efrag.org/sites/default/files/sites/webpublishing/SiteAssets/ED_ESRS_1.pdf
Need support?
Reach out to the KEY ESG team via the in-platform chat function, or by emailing support@keyesg.com if you require support with your CSRD reporting; we're happy to help!