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On May 30th, 2024, European Financial Reporting Advisory Group (EFRAG) successfully published an updated Q&A Technical Explanations with 44 new entries and a compilation of previous explanations from February and March 2024.


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On May 30th, 2024, European Financial Reporting Advisory Group (EFRAG) successfully published an updated Q&A Technical Explanations with 44 new entries and a compilation of previous explanations from February and March 2024.

In the following article cleversoft will outline some of the highlights from the Q&A guidelines, with major focus on data and calculations for financial institutions covered by our cleversoft Standard CSRD Service.

Financial market-specific topis

The response clarifies that for sustainability reporting purposes under the ESRS, the scope of an insurance company’s ‘own operations’ includes all activities as defined by financial reporting standards, not strictly limited to the Solvency II framework. It is noted that this includes both insurance and investment activities. The guidance emphasizes that the sustainability report should comprehensively cover all relevant activities of the insurance company, ensuring that both direct insurance operations and broader financial activities such as investments are considered within the reporting boundary. This approach aims to provide a holistic view of the company’s sustainability impacts and performance.

When reporting on their gross Scope 3 greenhouse gas (GHG) emissions, the undertaking discloses the amounts corresponding to the Scope 3 categories that it considers significant. For investments, this will factor in the scale of the investments and the associated indirect GHG emissions. Institutions should adhere to the principles and requirements outlined in the GHG Protocol Corporate Standard and the GHG Protocol Scope 3 Standard, including the specific Scope 3 Calculation Guidance. Additionally, as per ESRS E1 paragraph AR 46(b), financial institutions must also follow the GHG Accounting and Reporting Standard for the Financial Industry from the Partnership for Carbon Accounting Financial (PCAF), specifically the section on ‘Financed Emissions’ from its December 2022 version. This ensures comprehensive and standardized reporting of Scope 3 emissions, enhancing transparency and accountability in environmental impact reporting within the financial sector.

Entity Specific Guidance

Entity should not disregard entity-specific and sector-specific risks, even though sectoral standards are not published. While concrete examples cannot be given due to variations in facts and circumstances among reporting entities, organizations should consider leveraging existing frameworks and standards to guide their entity-specific disclosures. EFRAG suggests the IFRS industry-based guidance (Download SASB® Standards – SASB) and GRI Sector Standards (expected Q4 2024), which could help in detailing sustainability matters specific to an organization’s sector. For example IFRS prescribes in the sector-specific standard for insurance that entities should disclose actions that incentivize health, safety, environmental-friendliness by looking at property & casualty, life, health segments (disclosing e.g. premium discounts, number of policies), and for environmental aspects for example PML (probable maximum loss) of insured products from weather-related catastrophes.

Also, the entity may be required to present lower level of granularity for aspects covered by Disclosure Requirements (DRs). Where ESRS may not require explicit metrics, if an entity considers certain aspects material, it should voluntarily provide such metrics to enhance the transparency and usefulness of the disclosures. This approach is particularly relevant for elements like S2 (workers in the value chain), where detailed metrics might be crucial for stakeholders even if not explicitly required by ESRS.

EFRAG suggests that if the ESRS prescribes metrics only within an entity’s own operations (OO) but the entity considers these metrics also relevant for the value chain (VC), it should include them as part of their entity-specific disclosures. The provided example covers water consumption, highlighting the need for metrics that extend beyond the company’s own operations to include the entire value chain when relevant.

The response clarified that incorporating quantitative data into qualitative disclosures can enhance the depth and clarity of the information provided. Quantitative data, when included with qualitative analysis, offers a more comprehensive view and supports the accuracy of the disclosures. This approach is not only permissible but recommended where it adds value to the stakeholders’ understanding of the company’s sustainability performance. The guidance emphasized the importance of aligning these disclosures with the qualitative characteristics of the information as outlined by the ESRS to ensure completeness, relevance, and reliability of sustainability reporting.

ESRS2 overlap with topical

ESRS 2 Disclosure Requirements are cross-cutting and should be reported regardless of their inclusion in topical standards. These requirements apply across all topics to ensure comprehensive disclosure. The answer also mentioned that while topical standards might specify additional requirements, the core ESRS 2 requirements remain applicable across all disclosures. This approach ensures that essential governance, strategy, risk management, and metrics information is consistently provided across all areas of sustainability reporting.

ESRS 2-related Disclosure Requirements in topical standards must be reported in the general section of the sustainability statement as they are part of the general disclosures of ESRS 2. The answer emphasizes the importance of ensuring that these disclosure requirements are consistently and clearly positioned within topical standards to maintain the integrity and completeness of the sustainability reporting. This ensures that all necessary disclosures related to governance, strategy, and risk management are comprehensively covered across different sustainability topics.

Comparatives

The response emphasizes the importance of including comparative information in sustainability reports to provide context and enable stakeholders to assess progress over time. It highlights that ESRS requires entities to present comparative information for the preceding period for all metrics and disclosures unless there are specific circumstances which can explain the omission. This inclusion is relevant for maintaining transparency, enabling trend analysis, and enhancing the overall understandability of the sustainability performance reported by entities.

CSRD Service offering by cleversoft

At cleversoft, we closely monitor the regulatory developments related to the CSRD and ensure that these are implemented in the CSRD service. cleversoft is already finalizing the service implementation based on the current regulatory status and is preparing for the first clients onboarding.

Our team of CSRD specialists is actively involved in all relevant workshops and events, including those hosted by EFRAG, to acquire firsthand insights that inform our service’s continuous enhancement.

We offer a holistic 360-degree service designed to guide financial institutions through the complexities of the CSRD. For more information about our CSRD Services, we invite you to explore our website.