[Draft] ESRS 1 General principles

DISCLAIMER
This Exposure Draft has to be read in conjunction with the cover note for ESRS public consultation.
It has been prepared solely by the EFRAG PTF-ESRS and is submitted to public consultation by
EFRAG SRB to inform the upcoming standard-setting steps. It, therefore, does not reflect the
EFRAG SRB’s position at this stage, nor the position of the European Union or European
Commission DG Financial Stability, Financial Services and Capital Markets Union (DG FISMA), nor
the position of organisations with which the EFRAG PTF-ESRS has cooperated. The final versionof the [draft] Standard will be produced by the EFRAG SRB starting from this Exposure Draft, taking
into consideration the outcome of the public consultation and the requirements of the final CSRD.
[Draft] ESRS 1 General principles is set out in paragraphs 1–155 and Appendix A: Defined terms,
Appendix B: Application Guidance, Appendix C: Explanations on sustainability due diligence,
Appendix D: Classification of ESRS reporting areas and sub-topics, and Appendix E: Illustrative
examples. All the paragraphs, including those in Appendices A and B, have equal authority. Each
Disclosure Requirement is stated in a bold paragraph, followed by a paragraph that illustrates theprinciple to be followed in the preparation of the respective disclosures. The [draft] Standard alsouses terms defined in other [draft] ESRS and should be read in the context of its objective.

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Table of contents
Objective

5

General principles
5
1. Reporting under European Sustainability Reporting Standards (ESRS)
5
1.1 Complying with ESRS
5
1.2 Standardised and entity-specific disclosures
6
1.3 Sector-agnostic and sector-specific Standards
6
1.4 Relationship between cross-cutting standards and topical Standards
6
1.5 Developing entity-specific disclosures
8
2 Applying CSRD concepts
9
2.1 Characteristics of information quality
10
2.2 Double materiality as the basis for sustainability disclosures
11
2.3 Boundaries and value chain
15
2.4 Time horizon
18
2.5 Due diligence under the CSRD
19
3 Disclosure Principles on implementation
20
3.1 Objective of disclosures on implementation
20
3.2 Reference principles for implementation of policies, targets, actions, action plans andresources
21
Disclosure Principle 1-1 – On policies adopted to manage material sustainability matters
21
Disclosure Principle 1-2 – On targets, progress and tracking effectiveness21
Disclosure Principle 1-3 – Actions, action plans and resources in relation to policies andtargets
22
4 Basis for preparing and presenting sustainability information
23
4.1 General presentation principles
23
4.2 Presenting comparative information
24
4.3 Estimating under conditions of uncertainty
24
4.4 Updating disclosures about events after the end of the reporting period
24
4.5 Changes in preparing or presenting sustainability information
25
4.6 Reporting errors in prior periods
25
4.7 Adverse impacts and financial risks
26
4.8 Optional disclosures26
4.9 Consolidated reporting and subsidiary exemption
26
4.10 Additional reporting in part or in full under other sustainability reporting
pronouncements
26
5 Providing linkage with other parts of corporate reporting27
5.1 General cohesiveness27[Draft] ESRS 1 General principles
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5.2 Connectivity with financial statements
28
6 Structure of the sustainability statements
29
6.1 Content of the sustainability statements
29
6.2 Structure of the sustainability statements
29
APPLICATION PROVISIONS
30
1.5 Developing entity-specific disclosures30
4.2 Presenting comparative information
30
Appendix A: Defined terms
31
Appendix B: Application guidance
33
Application guidance for chapter 3 - D0isclosure principles on implementation
33
Application guidance for chapter 6 - 06 Structure of the sustainability statements
36
Appendix C: Explanations on sustainability due diligence
39
Appendix D: Classification of ESRS reporting areas and sub-topics
43
Appendix E: Illustrative examples
44
Single separately identifiable section of the management report (paragraph 148 (a))
44
Aggregating the disclosures into four separately identifiable parts of the management
report (Paragraph 148 (b))
45
Aggregation of the sector-agnostic disclosures required by each ESRS as non-separable
blocks in identifiable parts of the management report (Paragraph 148 (c))
47

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Objective
1.

This [draft] Standard prescribes the mandatory concepts and principles to apply for
preparation of sustainability statements under the [draft] Corporate Sustainability
Reporting Directive (CSRD).

2.

It covers the applicable general principles:(a) when reporting under European Sustainability Reporting Standards;(b) on how to apply CSRD concepts;(c) when disclosing policies, targets, actions and action plans, and resources;(d) when preparing and presenting sustainability information;(e) on how sustainability reporting is linked to other parts of corporate reporting; and(f) specifying the structure of the sustainability statements building upon the disclosure
requirements of all ESRS.

General principles
1. Reporting under European Sustainability Reporting Standards (ESRS)
1.1 Complying with ESRS3.

The undertaking shall disclose all material information on its sustainability-related impacts,
risks and opportunities in accordance with applicable ESRS. Applicable ESRS mandate
reporting under standardised sector-agnostic and sector-specific disclosures. These
disclosures are complemented by entity-specific disclosures to be developed asprescribed under the principles established by this [draft] Standard.

4.

The undertaking assesses its sustainability-related material impacts, risks andopportunities in consideration of the disclosure requirements mandated by ESRS as wellas in consideration of the undertaking’s specific facts and circumstances justifying entityspecific disclosures.

5.

Standardised disclosure requirements are stipulated in ESRS that apply to all undertakings(sector-agnostic Standards) and in ESRS that apply for undertakings doing business in
one or several specific sectors (sector-specific Standards). The undertaking shall disclosematerial sustainability-related information comprising sector-agnostic, sector-specific andentity-specific information.

6.

The undertaking shall cover the following sustainability topics:(a) environmental matters;(b) social matters; and(c) governance matters.

7.

The undertaking shall cover in its sustainability reporting the following reporting areas:[Draft] ESRS 1 General principles
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[Draft] ESRS 1 General principles(a) strategy and business model in relation to sustainability;(b) governance and organisation in relation to sustainability;(c) materiality assessment of its sustainability-related impacts, risks and opportunities;(d) implementation measures, covering policies, targets, actions and action plans,
allocation of resources; and(e) performance metrics.
The first three reporting areas are covered by cross-cutting Standards since they address
several or all topics. The last two reporting areas are covered by topical Standards.
8.

The undertaking shall present sustainability information in Sustainability Statements thatare part of the management report (see chapter 6 Structure of the sustainability
statements).

1.2 Standardised and entity-specific disclosures
9.

The undertaking shall disclose sustainability-related information following standardised
disclosures prescribed by ESRS and when relevant through entity-specific disclosures.

10.

To achieve a high degree of comparability, disclosure requirements that are mandated for
all undertakings or undertakings in a specific sector are standardised on a sector-agnostic
and sector-specific bases. However, as every undertaking operates under specific facts
and circumstances and deals with a unique combination of impacts, risks andopportunities, disclosure requirements mandated by ESRS may not be sufficient for theundertaking to depict in a faithful manner all its material sustainability-related impacts, risks
and opportunities following its double materiality assessment (see chapter 2.2 Double
materiality as the basis for sustainability disclosures).

11.

The undertaking shall therefore define, when necessary, additional entity-specificdisclosures that best illustrate its unique situation (see chapter 1.5 Developing entityspecific disclosures).

1.3 Sector-agnostic and sector-specific Standards
12.

Sector-agnostic Standards define disclosures that are considered relevant across all
sectors. The undertaking shall also follow disclosure requirements specific to its sector
mandated by sector-specific Standards, to address impacts, risks and opportunities notcovered, or not sufficiently covered, by sector-agnostic sustainability disclosure
requirements.

1.4 Relationship between cross-cutting standards and topical Standards
13.

The undertaking shall comply with cross-cutting and topical Standards. Sustainability
reporting topics, as described in paragraph 6, are structured groups of sustainability
matters that at the highest topical level reflect the interaction between the undertaking andits sustainability impacts, risks and opportunities beyond what is already reflected infinancial statements. To define sustainability-related disclosure requirements, topics arefurther divided in sub-topics (and when necessary, in sub-sub-topics) covering sectoragnostic and sector-specific levels and reflecting an adequate granular approach to[Draft] ESRS 1 General principles
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disclosures related to environmental, social and governance matters. Sustainability related
topics and sub-topics may also be referred to as sustainability-related matters. Disclosure
requirements prescribed by sector-agnostic or sector-specific topical ESRS are organisedin accordance with this topical approach.
14.

Topical ESRS organise disclosure requirements in accordance with reporting areas (seeparagraph 7):(a) topical application guidance in certain cases expand disclosure requirements
mandated by cross-cutting ESRS (strategy and business model, governance andorganisation, materiality assessment) with additional topic-specific information;(b) disclosure requirements related to the undertaking’s implementation of its
sustainability-related objectives: policies, targets, actions and action plans, andallocation of resources; and(c) disclosure requirements related to performance metrics.

15.

The topical approach is complemented by a cross-cutting approach defining all disclosure
requirements that address information related to several or all sustainability matters.
These disclosure requirements cover:(a) the interaction between sustainability matters and the undertaking’s strategy andbusiness model(s), including its transition plans;(b) how the undertaking governs and organises its material sustainability-related impacts,
risks and opportunities; and(c) the undertaking’s assessment of its material sustainability impacts, risks andopportunities.

16.

When reporting on implementation the undertaking shall describe how it manages its
material matters and their related impacts, risks, and opportunities. This covers information
on policies and targets, actions and action plans, and resources allocation, whereby:(a) policies refer to an operational set of implementation decisions with defined related
objectives, specific coverage of activities and an accountable person in oversight;(b) targets refer to goals to be achieved at a (sub-)topic level in relation to impacts, risks
or opportunities that can be absolute or intensity based, with specific time frames, abase year, key performance indicators used to assess progress as well as a
description of the methodologies and assumptions used to define the scenarios andcalculate targets;(c) actions and action plans refer to activities that are undertaken to ensure that theundertaking delivers against the targets set; and(d) allocation of resources refers to the decisions taken to support actions and actionplans with identified financial, human or technological resources.
(see chapter 3 Disclosure Principles on implementation).

17.

In this context, a transition plan is a specific type of action plan that is adopted by theundertaking in conjunction with a strategic decision and target setting that addresses:(a) a public policy objective; and/ or[Draft] ESRS 1 General principles
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[Draft] ESRS 1 General principles(b) an entity-specific action plan that the undertaking decides to organise as a structured
set of targets and actions and is associated toi. a key strategic decision;ii. a major change in the business model; and/oriii. a particularly important action plan in terms of objectives or allocation of
resources.
18.

When reporting on performance the undertaking shall provide key indicators in relation toits impacts, risks and opportunities and explain how it delivers against its related policies
and targets. They reflect its trajectory based on its past performance and in relation to its
forward-looking perspective. Reporting on performance measurement refers to the current
achievements (qualitative and/or quantitative) and results (performance-oriented) of theundertaking’s operations and activities based on metrics/KPIs. Performance measurement
is most useful in monitoring and assessing progress against targets and supporting
comparability across undertakings and sectors.

1.5 Developing entity-specific disclosures
19.

For material impacts, risks and opportunities not covered by topical Standards andtherefore not mandated, the undertaking shall develop disclosures (entity-specificdisclosures). They shall meet the characteristics of information quality: relevance, faithfulrepresentation, comparability, verifiability and understandability (see chapter 2.1
Characteristics of information quality).

20.

The undertaking shall comply with the principles set under paragraphs 6, 7, 16 and 18 formaterial entity-specific disclosures.

21.

When developing its entity-specific disclosures the undertaking shall pay attention to thefollowing:(a) at entity-specific level comparability between undertakings may be limited. However
available and relevant references, frameworks, initiatives, reporting standards andbenchmarks shall be considered to provide elements of comparability to the maximum
extent possible;(b) comparability over time is a key aspect of comparability. Consequently, consistencyof methodologies and disclosures is a key comparability factor and changes inmethodologies or disclosures shall be duly explained and justified; and(c) no meaningful aspect/angle of an identified entity-specific material impact, risk oropportunity shall be omitted. This may include disclosing, as applicable, relevant
information in relation to strategy, governance, policies, targets, actions and actionplans, resources and/or metrics. In this regard guidance can be found by comparing
the information required under ESRS addressing similar sustainability matters.
Disclosures shall follow, when applicable, the definitions mandated by chapter 3
Disclosure Principles on implementation.

22.

The undertaking shall scrutinise the capacity of any metric or indicator to provide valuable
insight to the users of reporting:[Draft] ESRS 1 General principles
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[Draft] ESRS 1 General principles(a) performance metrics shall provide relevant indications as to the likelihood that theundertaking’s practices are reducing negative outcomes and increasing positive
outcomes for people and the environment;(b) in the case of quantitative metrics, due consideration shall be given to whether theissue at hand can reasonably be measured by the undertaking without an excessive
amount of conjecture and unknowns that would render it too arbitrary to be of value;and(c) due consideration shall also be given to (i) the extent to which an indicator can berelied upon for insight absent contextual information to enable its interpretation and (ii)the extent to which variations in such contextual information mean that a quantitative
indicator does not provide for comparability over time.
23.

When developing entity-specific disclosures the undertaking shall:(a) determine them based on its materiality assessment of its impacts, risks andopportunities and the matters covered by ESRS requirements;(b) provide information on how its strategy and business model, as well as its governance,
relate to those material entity-specific impacts, risks and opportunities and present thisinformation in accordance with ESRS 2, together with those that are sector-agnostic
and sector-specific;(c) provide information on its policies, targets, action plans, and resources that relate tothose material entity-specific impacts, risks and opportunities in accordance with thedisclosure principles of chapter 3.2 Reference principles for implementation ofpolicies, targets, actions, action plans and resources of this [draft] Standard; and(d) design appropriate disclosures for them to measure performance considering theconcepts of paragraph 18.

2 Applying CSRD concepts
24.

The undertaking shall comply with the concepts of information quality, double materiality,
boundaries and value chain, time horizons and due diligence (CSRD concepts):(a) Information to be reported shall be relevant, represented in a faithful manner,comparable, verifiable and understandable (information quality).
(b) The undertaking shall report the material information necessary to allow users of its
sustainability report to understand its impacts on sustainability matters, and how
sustainability matters affect the undertaking’s development, performance and position(double materiality).
(c) Material actual or potential (adverse) impacts, risks and opportunities connected withthe undertaking’s value chain, including its products and services, its business
relationships and its supply chain, shall be considered (boundaries and value chain).
(d) Sustainability matters shall be considered over an appropriate short-, medium-, andlong-term time horizon containing retrospective and forward-looking information (timehorizon).
(e) Sustainability due diligence is the process that undertakings carry out to identify,
assess, prevent, mitigate and remediate the actual and potential adverse impacts
connected with its operations, products or services through its own activities and its
business relationships.

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2.1 Characteristics of information quality
25.

When preparing its sustainability report, when following ESRS and when developing its
entity-specific disclosures the undertaking shall apply the fundamental principles of
information quality (relevance and faithful representation) as well as the enhancing
qualities of information (comparability, verifiability, and understandability).

Relevance
26.

Sustainability information is relevant when it has substantive influence on the assessments
and decisions of users of sustainability reports under a double materiality approach (seechapter 2.2 Double materiality as the basis for sustainability disclosures).

27.

Sustainability information can make a difference in decisions made by stakeholders if it
has predictive value, confirmatory value or both. Information has predictive value when it
is valuable input allowing stakeholders to form a view on and assess future outcomes.
Information has confirmatory value when it provides valuable feedback about the qualityof previously reported information.

28.

Materiality is an enabling factor of relevance. The undertaking should assess the extent towhich a required disclosure can provide insight that is decision-useful for stakeholders thatare users of the sustainability report, whether from the perspective of material impacts on
people and the environment, or from the perspective of financial materiality, or both.

Faithful representation
29.

Sustainability information should faithfully represent the reality it depicts. Faithfulrepresentation requires information to be (i) complete, (ii) neutral and (iii) accurate.

30.

A complete depiction includes all material aspects related to the reportable content,
including appropriate descriptions and explanations.

31.

A neutral depiction is without bias in its selection and/or presentation of sustainability
information. It should be balanced, so as to cover favourable/positive andunfavourable/negative aspects: both negative and positive material impacts from an
impact materiality perspective as well as the risks and opportunities from a financial
materiality perspective should receive equal attention. Neutrality is supported by theexercise of prudence which implies the exercise of caution and clarity on the assumptions
when making judgements under conditions of uncertainty or in relation to forward-looking
information. Information shall, a priori, not be netted or compensated to be neutral. The
undertaking may present net information if such presentation does not obscure relevant
information and includes a clear explanation about the effects of the netting.

32.

Accurate information implies that the undertaking has implemented adequate processes
and internal controls to reduce errors or material misstatements. As such, estimatesshould be presented with a clear emphasis on their possible limitations and associateduncertainty (see chapter 4.3 Estimating under conditions of uncertainty).

Comparability
33.

Sustainability information is comparable when it is consistent over time and, to the greatest
extent possible, presented in a way that enables comparisons between undertakings(across sectors and within a specific sector). A point of reference for comparison can be a

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target, a baseline, an industry benchmark, comparable information from either otherentities or from an internationally recognized organisation, etc.
34.

Consistency refers to the use of the same approaches or methods for the same
sustainability matter, from period to period by the undertaking (as well as by other
undertakings to the maximum extent possible).

Verifiability
35.

Sustainability information is verifiable if it is possible to corroborate such information itself
or the inputs used to derive it.

36.

Verifiability is about ensuring the reliability of the presented information and of the processof its generation. Reliability is when different independent observers with reasonable
expertise would be able to reach a similar conclusion and consider that a particular
disclosure conveys a faithful representation.

37.

Information is verifiable if it is possible to trace it, which is a prerequisite of information
being auditable, as it allows for appropriate evidence on the audit assertions to beobtained.

Understandability
38.

Sustainability information is understandable when it is clear and concise.

39.

Understandable information enables all (knowledgeable) intended users to readily
comprehend the information being communicated.

40.

For sustainability disclosures to be concise, they need to (i) avoid generic ‘boilerplate’information, that is not specific to the undertaking; (ii) avoid unnecessary duplication of
information, including information also provided in financial statements; and (iii) use clear
language and well-structured sentences and paragraphs. Concise disclosures should only
include material information. Any immaterial information or complementary information
presented pursuant paragraph 147 shall be provided in a way that avoids obscuring
material information.

41.

Some disclosures might be best understood in the context of information in the related
financial statements. If sustainability risks and opportunities discussed in financial
statements have implications for sustainability reporting, the undertaking shall include theinformation necessary for users to assess those implications and present appropriate links
to the financial statements (see chapter 5 Providing linkage with other parts ofcorporate reporting). The level of information, granularity and technicality should bealigned with the needs and expectations of users. Abbreviations should be avoided andthe units of measure should be defined and disclosed.

2.2 Double materiality as the basis for sustainability disclosures
42.

The undertaking shall report sustainability matters on the basis of the double materiality
principle.

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Information materiality
43.

Materiality is to be understood as the criterion for the inclusion of specific information insustainability reports. It reflects (i) the significance of the information in relation to thephenomenon it purports to depict or explain, as well as (ii) its capacity to meet the needsof the stakeholders of the undertaking, allowing for proper decision-making, and moregenerally (iii) the needs for transparency corresponding to the European public good. The
implementation of materiality implies the use of thresholds and/or criteria.

Stakeholders
44.

Stakeholders are those who can affect or be affected by the undertaking’s decisions andactions. The undertaking shall identify its two main groups of stakeholders:(a) affected stakeholders: individuals or groups that have interests that are affected or
could be affected – positively or negatively – by the undertaking’s activities andthrough its value chain; and(b) users of sustainability reporting: stakeholders with an interest in the undertaking:i. existing and potential investors, lenders and other creditors (including asset
managers, credit institutions, insurance undertakings); andii. business partners of the undertakings, trade unions and social partners, civilsociety organisations and non-governmental organisations.

45.

Some, but not all, stakeholders may belong to both groups. The materiality assessment
process should ensure that impact on all affected stakeholders is considered and not only
the needs of users.

Double materiality
46.

Double materiality is a concept which provides criteria for the determination of whether asustainability matter has to be included in the undertaking’s sustainability report. Double
materiality is the union (in mathematical terms, i.e., union of two sets, not intersection) of
impact materiality and financial materiality. A sustainability matter meets therefore thecriteria of double materiality if it is material from either the impact perspective or thefinancial perspective or both perspectives.

47.

Impact materiality and financial materiality assessments are intertwined and theinterdependencies between the two dimensions should be considered in theseassessments. In general, the starting point is assumed to be the assessment of impact
materiality, as a sustainability impact may become financially material when it translates
or is likely to translate into financial effects in the short-, medium-, or long-term. In addition,
beyond considering the actual and potential financial consequences of its material
impacts, the undertaking shall consider how it is affected by sustainability matters which
are external to its activities.

48.

The undertaking shall refer to double materiality for the identification of its principal
impacts, risks and opportunities (see chapter Materiality assessment of sustainability
impacts, risks and opportunities in ESRS 2). In addition, the terms significant andmaterial have the same meaning when referring to impacts, risks and opportunities in
ESRS.

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Impact materiality
49.

Impact materiality is a characteristic of a sustainability matter or information in relation toan undertaking. A sustainability matter is material from an impact perspective if it isconnected to actual or potential significant impacts by the undertaking on people or theenvironment over the short-, medium- or long-term. This includes impacts directly caused
or contributed to by the undertaking in its own operations, products or services and impacts
which are otherwise directly linked to the undertaking’s upstream and downstream value
chain, and not limited to contractual relationships.

50.

An impact is ‘directly linked to’ the undertaking’s operations, products or services, if it
occurs in relation to any tier of business relationships, provided in the value chain. It is not
restricted to direct relationships between the undertaking and another entity and istherefore not limited for instance to direct contractual relationships, such as ‘directsourcing’. For example:(a) Consider the various scopes of GHG emissions: Indirect GHG emissions, i.e., Scope
2 and Scope 3, are still ‘directly linked’ to the undertaking’s operations, products andservices. However, the GHG emissions of a business partner that are not connectedto the undertaking’s value chain, are neither ‘directly linked’, nor part of its Scope 3
emissions.
(b) If the undertaking uses cobalt mined using child labour in its products, the negative
impact (i.e., child labour) is directly linked to its products through the tiers of business
relationships in its supply chain (i.e., through the smelter and minerals trader, to themining enterprise that uses child labour), even though the undertaking has not caused
or contributed to the negative impact itself.

51.

The materiality of an actual impact is determined by the severity of the impact (scale,scope, and irremediable character), while the significance of a potential negative impact
is determined by the severity and likelihood of the impact. In the case of a potential humanrights impact, the severity of the impact takes precedence over its likelihood.

Financial materiality
52.

Financial materiality, as defined in the next paragraph, relates to financial materiality insustainability reporting. The definition of financial materiality for sustainability reporting isdifferent from the concept of materiality used in the process of determining which
information should be included in the undertaking’s financial statements.

53.

Financial materiality in the context of sustainability reporting is a characteristic of asustainability matter or information in relation to the undertaking. For the purposes ofpreparing sustainability reporting, a sustainability matter is material from a financial
perspective if it triggers or may trigger significant financial effects on undertakings, i.e., it
generates or may generate significant risks or opportunities that influence or are likely to
influence the future cash flows and therefore the enterprise value of the undertaking in the
short-, medium- or long-term, but it is not captured or not yet fully captured by financial
reporting at the reporting date.

54.

A sustainability matter which is financially material may refer to risks and opportunities thatderive from past events or future events and may have effects on future cash flows in
relation to (i) assets and liabilities already recognised in financial reporting or that may berecognised as a result of future events or (ii) factors of enterprise value creation that do
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criteria, but contribute to the creation/maintenance of enterprise value. The latter factors
are generally referred to as ‘capitals’ in frameworks promoting a multi-capital approach.
55.

The undertaking relies on the availability of economic, natural and social resources atappropriate prices and quality. Such dependencies are sources of financial risks oropportunities. Triggers of financial effects may be attributed to two groups:(a) they may influence the undertaking’s ability to continue to use or obtain the resources
needed in its business process, as well as the quality and pricing of those resources;and(b) they may affect the undertaking’s ability to rely on relationships needed in its businessprocesses in acceptable terms.

56.

Sustainability-related financial risks or opportunities are measured as a combination of aprobability of occurrence and magnitude of financial effects.

Relationship between double materiality and mandatory disclosure requirements
57.

Sector-agnostic and sector-specific ESRS mandate disclosure requirements for all
undertakings or all undertakings in a particular sector reflecting double materiality.
Therefore, all mandatory disclosure requirements established by ESRS shall be presumed
to be material and, therefore, to justify a full disclosure in accordance with the relevant
ESRS. However, to consider the undertaking’s facts and circumstances and the outcomeof its assessment process, such a presumption is rebuttable based on reasonable andsupportable evidence.

58.

The undertaking shall establish explicit thresholds and/or criteria to determine when adisclosure is complied with through a statement ‘not material for the undertaking’.

59.

Consequently, the undertaking shall assess (see ESRS 2 Disclosure Requirements IRO)
for each ESRS and, when relevant, for a group of disclosure requirements related to a
specific aspect covered by an ESRS if the presumption is rebutted for:(a) all of the mandatory disclosures of an entire ESRS, or(b) a group of disclosure requirements related to a specific aspect covered by an ESRS
based on reasonable and supportable evidence, in which case it is deemed to be compliedwith through an explicit statement that:(a) the ESRS or(b) the group of disclosure requirements
is ‘not material for the undertaking’.

60.

To illustrate the principle in paragraph 59, consider ESRS S1 on ‘Own workforce’ on the
sub-sub-topic ‘other work-related rights’ covering the following specific aspects of the subsub-topic:(a) freedom of association and collective bargaining;(b) child labour;[Draft] ESRS 1 General principles
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[Draft] ESRS 1 General principles(c) forced labour;(d) privacy; and(e) adequate housing.
Based on its materiality assessment described in ESRS 2 the undertaking could conclude
that ‘child labour’ and ‘forced labour’ are aspects with material impact and / or risk to theundertaking but the other aspects of ‘other work-related rights’ are not. It, therefore,
complies with (i) all disclosure requirements related to ‘child labour’ and ‘forced labour’and (ii) with the disclosure requirements related to ‘freedom of association and collective
bargaining’, ‘privacy’ and ‘adequate housing’ with a statement that these specific aspects
are ‘not material for the undertaking’.
61.

The rebuttable presumption is not applicable to the Disclosure Requirements related to
ESRS 2 Disclosure Requirements SBM, GOV and IRO.

62.

In addition to the implementation of paragraph 59, an individual disclosure requirement, oran individual datapoint mandated by a disclosure requirement, of a topical or sectorspecific Standard that is below materiality criteria / thresholds (see paragraph 43) and thatis not part of an ESRS or a group of disclosure requirements for which the presumption
has been rebutted may be omitted and therefore considered implicitly disclosed as ‘notmaterial for the undertaking’.

2.3 Boundaries and value chain
Reporting boundary63.

The undertaking’s reporting boundary for its sustainability reporting is the one retained for
its financial statements expanded to its upstream and downstream value chain. Associates
and joint ventures accounted for under the equity method are considered as part of the
upstream or downstream value chain. Entities accounted for under the proportional
consolidation method are considered as part of the boundary for the consolidated portion.

64.

The undertaking’s reporting boundary is expanded when the integration of information on
impacts, risks and opportunities on matters connected to the undertaking by its direct andindirect business relationships in the upstream and/or downstream value chain isnecessary to:(a) allow users of sustainability reporting to understand the undertaking’s material impacts
and how material sustainability-related risks and opportunities affect the undertaking’s
development, performance and position; and(b) produce a set of complete information that meets the qualitative characteristics ofinformation quality (see chapter 2.1 Characteristics of information quality).

65.

When determining at which level (within its own operations and its upstream anddownstream value chain) a material sustainability matter arises, the undertaking shallleverage and rely on its assessment of impacts, risks and opportunities following the
double materiality concept (see chapter 2.2 Double materiality as the basis forsustainability disclosures). In particular:(a) The impact materiality of a sustainability matter is not constrained to matters that arewithin the undertaking’s direct control, but is also determined by:[Draft] ESRS 1 General principles
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i. evidence of a link between the impact and the undertaking’s own operations,products and services, including through its downstream and upstream value
chain; andii. the relative severity of the impact.
(b) The financial materiality of a sustainability matter is not constrained to matters that arewithin the control of the undertaking. In reporting about sustainability matters that areconsidered financially material, the undertaking shall also include risks andopportunities (including those arising from dependencies) and outcomes attributable
to or associated with other undertakings/stakeholders beyond the scope of financial
reporting that have a significant effect on the ability of the undertaking to create value.
66.

When a topical or sector-specific ESRS requires that a disclosure requirement is preparedusing a specific reporting boundary, the topical or sector-specific requirement shall prevail.

Use of all the reasonable and supportable information including peer group or sector data67.

In some circumstances, collecting the information about the undertaking’s upstream anddownstream value chain that is needed to integrate entities in the value chain into thereporting boundary as required by paragraphs 63 and 64 may be impracticable, i.e. theundertaking cannot collect the necessary information after making every reasonable effort.
In these cases, the undertakings should seek to approximate the missing information
about its upstream and downstream value chain, by using all reasonable and supportable
information, including internal and external information, such as peer groups or sector
data.

68.

When doing so, it shall also disclose: the relevant information and indicators for which an
approximation has been used, and the planned actions to reduce the missing data in the
future.

Operational influence over activities and relationships in the upstream and downstream
value chain
69.

The undertaking’s level of operational influence on entities involved in its upstream anddownstream value chain and the level of access to their sustainability-related information
may vary, depending on the undertaking’s position in the value chain. The undertaking’s
contractual arrangements, its buying power (for direct suppliers), and the effectiveness of
its own systems, among other factors, influence the level of access to the relevant
information. As regards policies, targets, actions, action plans, resources, and quantitative
performance measures, it is more likely that the undertaking will have access to
information in relation to entities under its operational influence belonging to either its
upstream or downstream value chain. However, the undertaking shall make every
reasonable effort to obtain relevant data from entities under its operational influence, as
well as from entities beyond its operational influence and shall disclose a clear indicationof the reliability of data obtained and approximations made.

70.

The undertaking’s boundary is expanded to its upstream and downstream value chain,following the provisions in paragraphs 63 and 64, regardless of the level of control or
influence.

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Reporting policy adopted for the definition and changes of reporting boundaries
71.

The undertaking shall, on a regular basis, reassess the definition of its reporting
boundaries, to make sure it remains appropriate. When a change has occurred in theundertakings’ boundaries, such as a change in its legal or operational structure or its
products and services, business relationships and supply chain, the definition of thereporting boundaries shall be adjusted accordingly. To facilitate the understanding of theundertaking’s performance and developments, it shall restate the comparative information,
unless the undertaking assesses that this is impracticable, after making every reasonable
effort.

Level of disaggregation72.

In addition to the distinction between information in relation to its own operations andinformation in relation to its downstream and upstream value chain, the undertaking shallconsider all relevant facts and circumstances, in defining the appropriate level ofdisaggregation for information in sustainability reports.

73.

Due to the dynamics and causal connections between levels within the undertaking’sreporting boundary, material information is not constrained to one particular level.
However, the undertaking shall first and foremost adopt a level of disaggregation that is
consistent with the ESRS sector classification and the sector-specific disclosure
requirements mandated by sector-specific ESRS.

74.

When relevant for a proper understanding of its material impacts, risks and opportunities,
a disaggregation shall be adopted:(a) by country when material impacts, risks and opportunities are linked to laws,
regulations or prevailing business practices in a country; or(b) in relation to a significant site or a significant asset when relevant in respect of otherEU regulations.

75.

Where data from different levels, or multiple locations within a level, is aggregated, theundertaking shall ensure that this is done in a way that avoids obscuring the specificity
and context necessary to interpret the information and that avoids aggregating material
items with different natures.

76.

As such, data relevant to the existence or severity of impacts frequently does not sit only
at one level in the value chain but involves dynamics across different levels, including theundertaking’s own operations. Disclosures should enable undertakings to accuratelyreflect these connections and dynamics. The undertaking shall illustrate the dynamics andcausal connections that exist between levels and provide information that reflect
connections to the undertaking’s strategy and business model and its role in generating
positive or negative impacts on people and the environment and creating or destroying
value for the undertaking as a result.

77.

When a topical or sector-specific ESRS requires that a specific level of disaggregation isadopted in preparing a specific item of information, the topical or sector-specificrequirement shall prevail.

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2.4 Time horizon
Reporting period78.

The undertaking shall retain a reporting period in its sustainability report consistent withthe one retained for its financial statements.

Linking past, present and future
79.

The undertaking shall link in its sustainability report retrospective and forward-looking
information, to foster a clear understanding of how historical data relate to future-oriented
data.

Reporting progresses against the base year80.

A base year is the reference date or period to track backward-looking information overtime. The undertaking shall use in its sustainability report a base year consistent with theone used to monitor its progress against each target.

81.

When reporting the developments and progress realised for a given sustainability matter,unless the relevant disclosure requirement already defines how to report for progress, theundertaking shall compare the most recent results with the equivalent information for thebase year. The undertaking may also include backward-looking information about
achieved milestones between the base year and the reporting period when this supports
the provision of more relevant information.

82.

Base years shall be regularly reassessed by the undertaking to make sure they are still
appropriate. When no longer appropriate, the base year shall be adjusted. It can be thecase when significant changes in the undertaking’s legal structure or boundaries haveoccurred or when new targets are set.

Definition of short-, medium- and long-term for reporting purposes
83.

When preparing its sustainability report, the undertaking shall adopt the following timeintervals as of the end of the reporting period:(a) one year for short-term;(b) two to five years for medium-term; and(c) more than five years for long-term.

84.

In its processes of identification and management of material impacts, risks andopportunities, the undertaking shall adopt time horizons that reflect the expected impacts
on people or the environment or the expected financial effects, including an additional
breakdown for the long-term when necessary. When defining its action plans and setting
targets, the undertaking shall adopt time horizons that reflect its strategic planninghorizons and resource allocation plans. When preparing its sustainability report, the entity
shall:(a) present its material impacts, risks and opportunities classifying them in the relevanttime horizon; and(b) present its action plans and targets classifying them in the relevant time horizon.

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2.5 Due diligence under the CSRD
85.

A summarised explanation of the key elements of due diligence is provided in Appendix C.

86.

ESRS provide disclosure requirements concerning due diligence, organised in thefollowing categories that correspond to the main aspects of due diligence:(a) embedding due diligence in governance and organisation;(b) engaging with stakeholders;(c) identifying and assessing adverse impacts;(d) taking actions to address those adverse impacts; and(e) tracking the effectiveness of these efforts and communicating.

Embedding due diligence in governance and organisation
87.

Key disclosures concerning the embedding of due diligence shall be provided under the
ESRS 2 Disclosure Requirements GOV. The undertaking shall in particular:(a) report on management levels and/or functions within the undertaking to which
responsibility for addressing impacts is assigned and on how the internal decisionmaking, budget allocations and oversight procedures enable responding to impacts;(b) explain how the senior management and board are informed of severe actual andpotential impacts, and whether those with daily responsibility for addressing humanrights issues have adequate access to senior decision-making levels and appropriate
means to escalate issues where necessary; and(c) explain how performance incentives reflect the objectives of preventing and mitigating
negative impacts on the environment or people.

Engaging with stakeholders
88.

Engaging with affected stakeholders (refer to paragraph 44) is relevant in all steps andaddressed in the ESRS 2 Disclosure Requirements GOV and IRO as well as in chapter 3
Disclosure Principles on implementation of this [draft] Standard, and in the topicalStandards reflecting the different stages and purposes of stakeholder engagement
throughout the due diligence process.

Identifying and assessing adverse impacts
89.

This step of due diligence is reflected in the ESRS 2 Disclosure Requirements IRO
whereby the undertaking identifies instances where it is, or is at risk of being, involved withadverse impacts on the environment or people, and then assesses the nature of thoseactual or potential impacts (their context, causes, severity etc). In addition, in the ESRS 2
Disclosure Requirements SBM, the undertaking shall provide additional information on the
results of the assessment of how the undertaking’s business model and strategy play arole in creating or exacerbating the identified impacts, and the adopted changes to thebusiness model and strategy. Due diligence is an on-going practice that responds tochanges in the undertaking’s activities, business model, business relationships, operating,sourcing and selling contexts. It is independent of the undertaking's reporting processes
but a source of critical inputs to them.

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Taking action
90.

This step of due diligence is addressed following the principles described in chapter 3
Disclosure Principles on implementation of this [draft] Standard related to policies,
targets, actions and action plans and resources. It is further addressed in topicalStandards. Consequently, the undertaking shall report on implementation measures taken
to prevent and mitigate identified adverse impacts, and on the processes and actions tosecure remedy for those harmed.

Tracking effectiveness and communicating
91.

This step of due diligence is addressed in chapter 3 Disclosure Principles on
implementation of this [draft] Standard and in the topical Standards. The undertaking
shall provide information on how it verifies through qualitative and quantitative indicators
whether the negative impacts are being addressed. Tracking effectiveness of due
diligence is based on performance measurement in relation to sustainability matters andevaluated as part of measuring progress in achieving the objective of the undertaking's
policy.

3 Disclosure Principles on implementation
3.1 Objective of disclosures on implementation
92.

Disclosing on the implementation of the undertaking’s strategy following the decisions
taken through its governance processes and the assessment of its impacts, risks andopportunities is a key dimension of sustainability reporting. Understanding theundertaking’s implementation approach encompasses information on the following
aspects:(a) the policies adopted by the undertaking to manage its material sustainability-related
impacts, risks and opportunities;(b) the targets the undertaking has set to define what it wants to achieve;(c) the actions and action plans, including transition plans, the undertaking has put inplace; and(d) the resources, operational expenses and capital expenses the undertaking isdedicating to the action plans.

93.

The objective of this chapter is to specify, from a generic perspective, the key aspects todisclose (i) when the undertaking is required by topical ESRS to describe policies, targets,actions and action plans, and resources in relation to sustainability matters and (ii) when
the undertaking decides to describe policies, targets, actions and action plans, andresources in relation to entity-specific sustainability matters.

94.

This chapter, therefore, provides a common reference for the implementation of other
ESRS and sets the required content for disclosure on policies, targets, actions and actionplans, and resources concerning entity-specific material matters, for which other ESRS do
not provide specific disclosure requirements.

95.

The disclosure principles in this [draft] Standard can be grouped under three overarching
disclosures, which serve as reference content for other ESRS.

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3.2 Reference principles for implementation of policies, targets, actions, action plans
and resources
Disclosure Principle 1-1 – On policies adopted to manage material sustainability
matters
96.

This Disclosure Principle defines the aspects that are to be described for the relevant
policies in respect of each sustainability matter identified as material following themateriality assessment performed by the undertaking and described pursuant to ESRS 2.
The undertaking shall disclose the policy in a concise manner to provide information which
is necessary and relevant for users to understand how the undertaking intends to address
the identified material sustainability impacts, risks and opportunities.

97.

The disclosure of a policy to manage a material sustainability matter shall include thefollowing information:(a) a description of the policy, including its general objectives;(b) a description of the scope of the policy, including the policy’s perimeter with regard to
the undertaking’s operations and the upstream and downstream value chain, andgeographical boundaries;(c) a description of the allocation of responsibilities, including oversight, for the
implementation of the policy across the undertaking;(d) a description of third-party standards of conduct, if any, that the undertaking commits
to respect through the implementation of the policy;(e) a description of the consideration given to the interests of stakeholders in setting thepolicy; and(f) a description of if and how the undertaking makes the policy available to potentiallyaffected stakeholders, and stakeholders who need to help implement the policy.

98.

If the undertaking cannot disclose the above required information, because it has not
adopted a policy and objectives as outlined in paragraph 97 (a), it shall disclose this to be
the case and provide reasons for not having adopted a policy or objectives. The
undertaking may indicate a timeframe in which a policy will be adopted.

Disclosure Principle 1-2 – On targets, progress and tracking effectiveness
99.

This Disclosure Principle defines how the undertaking describes:(a) where applicable, its measurable outcome-oriented targets set to meet the policy’s
objectives, in terms of expected results for people, the environment and theundertaking concerning material impacts, risks and opportunities;(b) the overall progress towards the adopted targets over time; and(c) if no measurable outcome-oriented targets exist, how it tracks the effectiveness of its
actions and measures the progress in achieving its policy objectives.

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100. For each measurable outcome-oriented target, the undertaking shall include a descriptionof:(a) the relationship of the target to the policy objectives;(b) the defined level of ambition (quantitative and qualitative depending on the nature of
the target) to be achieved, including, where applicable, whether the target is absoluteor relative and in which unit it is measured;(c) the scope of the target, including an explanation of any limitations as to its operations,value chain and geographical boundaries or activities;(d) if applicable, the baseline value and base year from which progress is measured;(e) the timeframe to achieve the target, including any milestones or interim targets;(f) the methodologies and significant assumptions used to define targets, including whereapplicable, the selected scenario, data sources, alignment with science-based
methodologies, and national, EU or international policy goals;(g) any changes in targets or underlying methodologies and assumptions adopted within
the defined time horizon together with an explanation of the rationale for thosechanges and their effect on comparability; and(h) the overall progress towards the defined target, including information on how the target
is monitored and reviewed, whether the progress is in line with what had been initiallyplanned, and an analysis of trends or significant changes in the performance of theundertaking towards achieving the target.
101. If the undertaking has not adopted any measurable outcome-oriented target in line withparagraph 99, it shall describe whether (i) measurable outcome-oriented targets are notapplicable, in which case it shall explain how the outcomes will be assessed as comparedto the policy objectives, (ii) whether such targets will be adopted and the timeframe for
their adoption, or (iii) the reasons why the undertaking does not plan to adopt such targets.
102. The undertaking shall describe if it monitors the effectiveness of its policies and actions
and measures progress in achieving the policy’s objectives without a specific target, andif so, how and what progress has been achieved in terms of the results for people, theenvironment and the undertaking concerning the material impacts, risks and opportunities.

Disclosure Principle 1-3 – Actions, action plans and resources in relation to policies
and targets
103. This Disclosure Principle defines the aspects that are to be described for the actions,action plans and allocation of resources to meet the undertaking’s policy objectives andtargets to address material impacts, risks and opportunities by providing an understandingof (i) the stand-alone actions and action plans comprising closely interrelated management
measures being undertaken in the framework of the policy, including where applicable
engagement with third parties, through the exercise of leverage or collective action, and(ii) the related allocation of resources.
104. For key polices, the undertaking shall include:(a) a list of key actions taken in the reporting year and planned for the future and how
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[Draft] ESRS 1 General principles(b) the scope of the key actions about the undertaking’s operations and the upstream anddownstream value chain, and geographical boundaries;(c) the time horizons under which the undertaking intends to complete each key action;(d) the expected outcomes of actions in relation to the contribution of the actions to theachievement of the underlying policy objectives and targets;(e) if applicable, any actions taken (along with results) to provide for, cooperate insecuring or support the provision of remedy for those harmed by the actual material
impacts;(f) if applicable, a brief explanation on whether and how key actions may induce
significant adverse impacts on other sustainability matters or financial risks for theundertaking; and(g) if applicable, an explanation of changes in the action plan and any further explanation
deemed useful to understand key actions.
105. Where the implementation of an action plan requires significant operational expenses
and/or investments the undertaking shall:(a) describe the type and amount of current and future financial and other resources
allocated to the action plan, including information on sustainable finance instruments
such as green bonds and green loans; and(b) provide complementary explanatory information, where the ability to implement theaction plan depends on specific preconditions, e.g., granting of financial support or
public policy and market developments.
106. If the undertaking cannot disclose the information required by paragraph 103, because it
has not adopted any action plans or stand-alone actions, the undertaking shall disclose
this to be the case and provide reasons for not having adopted them. The undertaking
may indicate a timeframe in which action plans or actions will be adopted.

4 Basis for preparing and presenting sustainability information
107. This chapter provides principles to be applied when preparing and presenting sustainability
information covering:(a) general situations; and(b) specific circumstances.

4.1 General presentation principles
108. Sustainability information shall be presented:(a) in a way that allows a clear distinction between information resulting from theimplementation of ESRS and other information included in the management report;and(b) under a structure that facilitates access to and understanding of the sustainability
statements, both in human and machine-readable formats.

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109. Detailed presentation prescriptions are included in chapter 6 Structure of the sustainability
statements of this [draft] Standard.

4.2 Presenting comparative information
110. The undertaking shall present comparative information in respect of the preceding period
for all amounts including metrics and key performance indicators reported in the actual
period. Comparative information shall also be disclosed for narrative and descriptive
information when relevant to the understanding of the current period’s information.
111. When a topical (or sector-specific) Standard requires to present more than one
comparative period for a metric or key performance indicator, the requirements of that
Standard shall prevail.

4.3 Estimating under conditions of uncertainty
112. Measurement uncertainty arises when metrics cannot be quantified directly and can only
be estimated. The use of reasonable estimates is necessary and unavoidable when
preparing sustainability-related information. In order not to compromise the usefulness ofsustainability information, disclosed metrics that have a significant estimation uncertainty
shall be clearly and accurately described and the nature and the factors of the estimation
uncertainty explained.
113. ESRS require information such as explanations about possible future events that havesustainability impacts, that because they might happen in future years involve uncertainty,
or that have not, or not yet, affected the undertaking’s financial performance or position.
The undertaking shall consider when determining estimates regarding such possible future
events:(a) their effect on risks or opportunities that influence or are likely to influence the future
cash flows and therefore the enterprise value of the undertaking;(b) their effect on actual or potential significant impacts on people or the environment;(c) the full range of possible outcomes considering all relevant facts and circumstances;and(d) the likelihood of the possible outcomes within that range including low-probability andhigh-impact outcomes, which when aggregated, could become material.

4.4 Updating disclosures about events after the end of the reporting period
114. Estimation involves judgements based on the latest available reliable data. An estimate
may need revision if changes occur in the circumstances on which the estimate was basedor because of new data or more experience.
115. If the undertaking receives material sustainability data after the reporting period but before
the management report is approved for issuance and the data provides evidence orinsights about conditions that existed at the end of the reporting period, it shall consider
this data and update estimates and sustainability disclosures, in the light of the new
information.

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116. When the data provides evidence or insights about conditions that arise after the end of
the reporting period and may modify the understanding by users of the related disclosure
the undertaking shall provide qualitative or narrative information indicating the existence,nature and potential consequences of these post-year end events.

4.5 Changes in preparing or presenting sustainability information
117. The undertaking shall prepare and present sustainability information (approach, method,
option, metrics used to report, and disclosures reported) consistently overtime. Anychange from one year to another is expected to occur only when the new preparation orpresentation allows to provide more useful information. When a change in preparation orpresentation occurs, the data related to the comparative period should be restatedaccording to the new preparation or presentation.
118. When an undertaking changes the preparation or presentation, in some circumstances, it
might be impracticable to adjust comparative information to achieve comparability with thecurrent period, in which case the undertaking shall disclose that fact (see ESRS 2).

4.6 Reporting errors in prior periods
119. Prior period errors are omissions from, and misstatements in, the undertaking’s
sustainability report for one or more prior periods arising from a failure to use, or misuseof, reliable data that:(a) was available when the management report that includes the sustainability report for
those periods was approved for issuance; and(b) could reasonably be expected to have been obtained and considered in the
preparation of sustainability disclosures included in these reports.
120. Material errors are sometimes not discovered until a subsequent period. These prior period
errors shall be corrected in the comparative information presented in the sustainabilityrelated disclosures for that subsequent period and duly explained.
121. The undertaking shall correct material prior period errors in the first management reportapproved for issuance after their discovery by retrospectively restating the comparative
amounts for the prior period(s) presented in which the error occurred except to the extent
that it is impracticable to determine either the period‐specific effects or the cumulative
effect of the error.
122. When it is impracticable to determine the cumulative effect, at the beginning of the current
period, of an error on all prior periods, the undertaking shall restate the comparative
information to correct the error prospectively from the earliest date practicable.
123. Any information disclosed about prior periods, including any historical summaries ofsustainability-related financial information, shall be restated as far back as is practicable.
Hindsight should not be used when correcting amounts for a prior period, either in making
assumptions about what the undertaking’s intentions would have been in a prior period orin estimating the amounts disclosed in a prior period.
124. Corrections of errors are distinct from changes in estimates. Estimates by their nature areapproximations that may need revision as additional information becomes known.

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4.7 Adverse impacts and financial risks
125. Actions or action plans of the undertaking to avoid sustainability impacts or financial risks
or to benefit from opportunities in relation to a sustainability topic or sub-topic might havematerial adverse impacts or cause material financial risks in relation to anothersustainability topic or sub-topic. For example:(a) an action plan to decarbonise production or products involving abandoning production
or products might have negative impacts on own workforce and financial risks for
redundancy payments; and(b) an action plan of an automotive supplier to focus on the supply for e-vehicles mightlead to stranded assets for the production of supply parts for conventional vehicles.
126. The undertaking shall:(a) mention the existence of material adverse impacts or material financial risk together
with the actions and action plans that generate them, with a cross-reference to the
topic or sub-topic to which the adverse impact or financial risks relate; and(b) a description of the material adverse impact or material financial risks and how they
are addressed under the topic or sub-topic to which the adverse impact or financial
risks relate.

4.8 Optional disclosures127. ESRS may leave some disclosures optional but include provisions on how to prepare
them. If an undertaking decides to disclose on those matters, it shall follow the provisions
on those optional disclosures given in ESRS.

4.9 Consolidated reporting and subsidiary exemption
128. When the undertaking is reporting at a consolidated level and one or more of its
subsidiaries is using the subsidiary exemption of the CSRD the undertaking shall perform
its assessment of material impacts, risks and opportunities for the entire consolidated
group, regardless of its group legal structure, making sure that all subsidiaries are covered
in a way that allows for the unbiased identification of material impacts, risks andopportunities.
129. Criteria and thresholds for assessing an impact, risk or opportunity as material shall be
determined based on chapter 2.2 Double materiality as the basis for sustainability
disclosures.

4.10 Additional reporting in part or in full under other sustainability reporting
pronouncements
130. In addition to preparing its sustainability statements in accordance with ESRS, theundertaking may decide to report in part or in full under generally accepted sustainability
reporting pronouncements of other standard setting bodies and non-mandatory guidance
including sector-specific. It may include such reporting in its sustainability statements inaccordance with paragraph 147 subject to paragraph 40.

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5 Providing linkage with other parts of corporate reporting
5.1 General cohesivenessCohesiveness, incorporation by reference, and specific EU regulations
131. The undertaking shall adopt presentation practices that promote cohesiveness between
its sustainability report and:(a) the information provided in the other parts of the management report in accordancewith chapter 5 and article 29 of chapter 6 of Directive 2013/34/EU;(b) its financial statements; and(c) other sustainability-related regulated information.
132. To promote effective communication and avoid duplications appropriate cross-referencing
shall be put in place by the undertaking.
133. Listed undertakings or financial undertakings that comply with specific EU regulations must
disclose information related to sustainability matters following the requirements specified
in such specific EU regulations. In these cases, the undertaking shall:(a) include in its sustainability report information that is consistent with the information
disclosed under such specific EU regulations; and(b) refer in its sustainability report to, and include where appropriate additional
explanations of, the information disclosed under such specific EU regulations.
134. Examples of disclosure requirements relevant to sustainability matters required in specificEU regulations are:(a) the information to be disclosed in the registration document as required by the
2017/1129 Regulation of the European Parliament and the Council (the Prospectus
Regulation);(b) the remuneration report required by the 2007/36/EC directive on the exercise ofcertain rights of shareholders in listed companies; and(c) public disclosures under regulation 575/2013 (Pillar 3 disclosures).

Incorporation by reference
135. Elements of information mandated by a disclosure requirement of an ESRS (including a
specific datapoint mandated by a disclosure requirement) may be incorporated byreference in the sustainability statements to another section of the management report,
provided that such disclosures constitute a separate element of information clearly
identified in the other section of the management report as addressing the relevant
disclosure requirement (or the relevant specific datapoint mandated by a disclosure
requirement). Without the information incorporated by reference, the sustainability
statements are incomplete. Incorporation by reference in the sustainability statementsfrom reports other than the management report is not allowed.

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136. When the undertaking uses incorporation by reference, it has to disclose a list of thedisclosure requirements of the ESRS (or the specific datapoints mandated by a disclosure
requirement) that have been incorporated by reference.

5.2 Connectivity with financial statements
137. Financial data and assumptions presented in the sustainability report shall be consistent
with the corresponding financial data and assumptions included in the undertaking’s
financial statements.
138. When the sustainability report includes monetary amounts or other quantitative data points
that are directly presented in financial statements, the undertaking shall include areference to the relevant paragraph of its financial statements where the corresponding
information can be found.
139. When sustainability reporting includes monetary amounts or other quantitative data points
that are either an aggregation of or a part of monetary amounts or quantitative data
presented in the undertaking’s financial statements, the undertaking shall explain how
these relate to the most relevant amount(s) presented in the financial statements, includinga reference to the line item and/or to the relevant paragraph(s) of its financial statements
where the corresponding information can be found. Where appropriate, a reconciliation,
including in a tabular form, may be provided.
140. When a link cannot be made either directly or indirectly (including through a reconciliation
if applicable) the undertaking shall state, where needed, the consistency of data,assumptions used, and qualitative information included in its sustainability report with thecorresponding data, assumptions and qualitative information included in the financial
statements. This may occur when the sustainability report includes:(a) monetary amounts or other quantitative data linked or interdependent with monetaryamounts or other quantitative data presented in financial statements, but a directreconciliation is not possible; and(b) qualitative information linked or interdependent with qualitative information presented
in financial statements.
141. Consistency as required by paragraph 140 above shall be at the level of a single data point
and shall include a reference to the relevant line item / paragraph of a footnote of thefinancial statements. When the data, assumptions and qualitative information are notconsistent, the undertaking shall state that fact and explain the reason.
142. Examples of items for which the statement in paragraph 140 above is required are:(a) when the same KPI is presented as of the reporting date in financial statements andin forecast for future periods in the sustainability report; and(b) when macroeconomic or business projections are used to develop key indicators inthe sustainability report and they are also relevant in estimating the recoverable
amount of assets, the amount of liabilities or provisions in financial statements.
143. Topical and sector-specific Standards may include requirements to include reconciliations
or consistent explanations for specific disclosure requirements. In such cases, therequirements in these Standards shall prevail.

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6 Structure of the sustainability statements
144. This chapter provides the basis for the presentation of the information related tosustainability matters (i.e. sustainability reporting) within the management report.
Appendix E provides illustrative guidance on the requirements of this chapter.

6.1 Content of the sustainability statements
145. The undertaking shall report all the applicable disclosures (sector-agnostic, sector-specificand entity-specific) required by ESRS within identifiable parts of the management reportconstituting the ‘Sustainability Statements’.
146. The undertaking shall report within the sustainability statements the disclosures pursuant
to Article 8 of Regulation 2020/852 on the establishment of a framework to facilitatesustainable investment.
147. Subject to the provision of paragraph 40, the undertaking may include in its sustainability
statements additional disclosures stemming from local legislation, generally acceptedsustainability reporting pronouncements of other standard setting bodies and nonmandatory guidance including sector-specific. Such disclosures shall be clearly identified
with an appropriate reference to the related legislation, pronouncement or guidance andshall complement ESRS disclosure requirements.

6.2 Structure of the sustainability statements
Presentation of disclosures required by sector-agnostic ESRS
148. When reporting the disclosures required by sector-agnostic ESRS, the undertaking shallchoose one of the following three options:(a) reporting the disclosures within a single separately identifiable section of the
management report;(b) aggregating the disclosures into four separately identifiable parts of the management
report:iii. general information;
iv. environmental information;
v. social information; andvi. governance information; or(c) aggregating the disclosures required by each ESRS and reporting them as nonseparable blocks in identifiable parts of the management report ‘on a standard-bystandard basis’.
149. Option 148 (a) is the preferred option. Any undertaking that elects to apply the options laid
down in paragraphs 148 (b) or (c) shall report a location table within the management
report using a tabular format allowing to identify where the sector-agnostic disclosures arepresented in the management report.

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Presentation of disclosures required by sector-specific ESRS
150. When reporting the disclosures required by sector-specific ESRS, the undertaking shallgroup those disclosures by cross-cutting reporting areas and, where applicable, bysustainability sub-topics and report them alongside the relevant sector-agnostic
disclosures.

Presentation of entity-specific disclosures required by ESRS
151. Where the undertaking shall develop material entity-specific disclosures in accordancewith chapter 1.5 Developing entity-specific disclosures, it shall exercise judgment andreport those disclosures alongside the most relevant sector-agnostic and sector-specificdisclosures.

Presentation of the disclosures pursuant to article 8 of the Taxonomy regulation (2020/852)
152. The undertaking shall report the disclosures pursuant to article 8 of the Taxonomy
regulation (2020/852) in a dedicated and identifiable part of the management report.

APPLICATION PROVISIONS
1.5 Developing entity-specific disclosures153. The way sustainability matters are addressed is expected to evolve as ESRS aredeveloped. Therefore, the need for entity-specific disclosures is likely to decrease with the
expanded coverage of sustainability matters by mandatory sector-agnostic and sectorspecific disclosure requirements.
154. Because of the above, the undertaking is allowed when defining its entity-specificdisclosures to adopt transitional measures for their preparation in the first two annual
sustainability reports. It shall as a priority:(a) introduce in its reporting entity-specific disclosures (i) that have been reported on by
the undertaking in prior periods (ii) if these disclosures meet or are adapted to meetthe characteristics of quality referred to under chapter 2.1 Characteristics ofinformation quality;(b) limit the entity-specific disclosures to facts and circumstances that are unique to its
activities and, as such, will likely be needed in the future, after the incorporation of
additional sector-agnostic and sector-specific disclosure requirements in future setsof Standards; and(c) in addition, consider the available best practices and/or frameworks to complement,in an appropriate manner, its sustainability reporting with a reasonable set ofprioritised disclosures additional to the ones covered by ESRS.

4.2 Presenting comparative information
155. To ease the first-time application of this [draft] Standard, an undertaking may defer thepresentation of comparative information as required by chapter 4.2 Presenting
comparative information for one reporting period by one year.

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Appendix A: Defined terms
This appendix is an integral part of the proposed [draft] ESRS 1 [General Principles].
Actions, andaction plans

Doublemateriality

Downstream
entity(s)Due diligence

Financialmateriality

Impactmateriality

PolicyActions refer to activities that are undertaken to ensure that the undertaking delivers
against targets set. An action plan is a structured group of actions that areconsidered necessary to achieve a specific policy objective or a target, to manage
principal impacts, risks and opportunities.
Double materiality provides criteria for the determination of whether or not
information on a sustainability matter has to be included in the undertaking’s
sustainability report. A sustainability matter meets the criteria of double materiality
if it is material from the impact perspective or the financial perspective or both ofthese two perspectives. Impact materiality and financial materiality assessments areintertwined and interdependencies between the two dimensions should beconsidered in the assessments. In general, the starting point is assumed to be theimpact materiality assessment, as a sustainability impact is likely to translate into
financial effects in the short-, medium-, or long-term. However, beyond the actualand potential financial consequences for the undertaking of its material impacts, theundertaking shall consider how it is affected by sustainability matters which areexternal to its activities.
An entity is considered downstream from the undertaking (e.g., distributors,
customers) when it receives products or services from the undertaking (GRI).
Process(es) that the undertaking carries out to identify, assess, prevent, mitigate
and remediate the material actual and potential adverse impacts connected with its
operations, products or services through its own activities and its business
relationships.
A sustainability matter is material from a financial perspective if it triggers or may
trigger financial effects on undertakings, i.e., it generates or may generate risks oropportunities that influence or are likely to influence the future cash flows andtherefore the enterprise value of the undertaking in the short-, medium- or long-term,
but it is not captured or not yet fully captured by financial reporting at the reporting
date. The undertaking relies on the availability of economic, natural and social
resources of an appropriate pricing and quality. Such dependencies are sources offinancial risks or opportunities.
A sustainability matter is material from an impact perspective if the undertaking isconnected to actual or potential significant impacts related to the matter on peopleor the environment over the short-, medium- or long-term. This includes impacts
directly caused or contributed to by the undertaking in its own operations, products
or services and impacts which are otherwise directly linked to the undertaking’s
upstream and downstream value chain, not limited to direct contractual
relationships.
A policy is a set or framework of general objectives and management principles thatthe undertaking uses for decision-making. A policy implements the undertaking’s
strategy or management decisions related to a material sustainability matter. Eachpolicy is under the responsibility of defined person(s), specifies its perimeter ofapplication, and includes one or more objectives (linked when applicable tomeasurable targets). A policy is validated and reviewed following the undertakings’[Draft] ESRS 1 General principles
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Policyobjectives
Stakeholder(s)Sustainability
matters

Sustainability
statements
Transition
planapplicable governance rules. A policy is implemented through actions or actionplans.
Objectives are specific, direction setting, outcome-based statements. Objectives aredefined in the policies translating the undertaking’s strategy.
Stakeholders are those who have interests in the undertaking.
Two main groups of stakeholders may be identified:a) ‘affected stakeholders - individuals or groups that have interests that are
affected or could be affected – positively or negatively – by theundertaking’s activities and through its value chain;b) users of sustainability reporting – stakeholders with an interest in theundertaking, which includes: (i) existing and potential investors, lenders andother creditors (including asset managers, credit institutions, insurance
undertakings), and (ii) business partners of the undertakings, trade unions
and social partners, civil society organisations and non-governmentalorganisations.
Some, but not all, stakeholders may belong to both groups.
Sustainability factors as defined in Article 2, point (24) of Regulation (EU) 2019/2088
of the European Parliament and the Council, that is environmental, social andemployee matters, respect for human rights, anti‐corruption and anti‐bribery
matters; and governance factors.
A separately identifiable section or the parts of the management report that containthe sustainability information required by the applicable ESRS.
A transition plan is a specific type of action plan that is adopted by the undertaking
in relation to a strategic decision and that addresses:a) a public policy objective; and/ orb) an entity-specific action plan that the undertaking decides to organise as astructured set of targets and actions and is associated to (i) a key strategic
decision; (ii) a major change in business model; and/or (iii) a particularly
important action plan in terms of objectives or allocation of resources.

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Appendix B: Application guidanceThis appendix is an integral part of the proposed [draft] ESRS 1 [General principles] and has the sameauthority as the [draft] Standard. It describes the application of the requirements of chapter 3
Disclosure Principles on implementation and chapter 6 Structure of the sustainability
statements.

Application guidance for chapter 3 - Disclosure principles on implementation
Disclosure Principle 1-1 – On policies adopted to manage material sustainability matters
AG 1. A policy is a set or framework of general objectives and management principles that theundertaking uses for making decisions. Within the context of this ESRS, a policy
implements the undertaking’s strategy or management decisions related to a material
sustainability matter. Such material sustainability matters are identified by the undertaking
as disclosed following ESRS 2.
AG 2. Due to the interdependency between impacts on people and the environment, risks andopportunities, a single policy may apply to several material matters, including mattersaddressed by more than one ESRS. The undertaking shall report the required information
once in the relevant ESRS whilst providing information required by other applicable ESRS,
with a clear explanation of the disclosures covered and appropriate cross-references toother disclosures (e.g. the undertaking may enact a single policy to address several
interconnected material human rights or environmental issues in its value chain, provided
the policy is specific with respect to the management of the underlying material impacts,
risks, and opportunities as outlined in this chapter).
AG 3. This Disclosure Principle concerns the policy the undertaking has adopted specifically forthe related material matter. The undertaking shall not describe generic policy
commitments, values, and principles, such as those concerning norms of responsible
business conduct or, respecting human rights in general. Such disclosures shall be
provided, when applicable, pursuant to the ESRS 2 Disclosure Requirement SBM.
AG 4. For the reported information to meet the necessary qualitative characteristics, the policy
description should be concise and include relevant information, which is necessary forunderstanding how it addresses the identified significant impacts, risks and opportunities.
The level of detail of the policy description should correspond to the severity of theidentified impacts and the importance of the risks and opportunities which underpin themateriality of the sustainability matter addressed. The undertaking shall not provide a
detailed list or content of all related policy documents, such as codes of conduct, that canbe located on the undertaking’s website as an example. Instead, the undertaking should
prioritise and summarise relevant content from across the undertaking’s applicable
documents.
AG 5. Within the description of the policy, the undertaking shall provide information on theobjectives of the policy defined in terms of outcomes for people and the environment or
the effect on the undertaking’s business, corresponding to the impacts, risks oropportunities underpinning the materiality of the matter. When applicable the undertaking
shall explain whether the objectives of its policy are based on regulatory compliance or
extend beyond it. The undertaking shall further outline the key decisions on how theundertaking intends to achieve such objectives, according to the Disclosure Principles ontargets, progress and tracking effectiveness, and actions, action plans and resources.
Where relevant, the undertaking may describe how the policy is aligned with other[Draft] ESRS 1 General principles
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operational policies and procedures, for example, integration of the sustainability
objectives and principles in purchasing practices and policies.
AG 6. The description of the scope of the policy shall explain which activities and/or segments of
the undertaking’s operations, value chain or other business relationships it concerns. The
description should also explain further boundaries relevant to the specific topic or theundertaking’s circumstances, which may include geographies, life cycles, etc. In certain
cases, when the scope of the value chain perimeter differs from the one defined by other
ESRS and the policy may not cover the full value chain, the undertaking should provide
clear information regarding the extent of the value chain covered by the policy.
AG 7. The description of the allocation of responsibility shall indicate responsibilities at theappropriate levels within the undertaking (for example, senior management or middle
management), insofar as these are related specifically to the disclosed policy. The
undertaking shall not describe the general organisation of sustainability management andgovernance, that is the allocation of responsibilities for the sustainability-related policies,
as this is described in the ESRS 2 Disclosure Requirements GOV. However, theundertaking may explain how the responsibilities for oversight over the policy and its
implementation are connected to such general organisation.
AG 8. The information on the adherence to third-party standards of conduct, if any, shall be
provided insofar as such standards explicitly address the sustainability matter addressedby the undertaking’s policy (e.g., ETI Base Code for supply chain labour rights). The
undertaking shall explain in sufficient detail the extent of its commitment, including whether
it considers the standard to be binding and how it intends to act in case of a breach. Under
this disclosure the undertaking should neither refer to international frameworks that are ofa general nature nor to those with which undertakings are expected to comply by thegovernments and intergovernmental organisations, such as the UN Guiding Principles on
Business and Human Rights or the OECD Guidelines for Multinational Enterprises.
AG 9. Where appropriate, the undertaking should include information on consideration of theinterests of stakeholders. This is the case, for example, with relation to the undertaking’s
most severe impacts which affect specific categories of stakeholders. The undertaking
shall explain how it engaged with the stakeholders affected by the impacts, their legitimate
representatives, or organisations defending their interests, and how their interests arereflected in the policy adopted to address the material sustainability matter. If the policy
concerns change to the undertaking’s business model and strategy, this disclosure must
be provided in conjunction with the corresponding disclosures required in the ESRS 2
Disclosure Requirements SBM.
Disclosure Principle 1-2 – On targets, progress and tracking effectivenessAG 10. This Disclosure Principle specifies how to report on progress and the effectiveness of theundertaking’s policy both when the undertaking has set targets for this purpose as well as
when it has not. Paragraph 100 applies, if measurable outcome-oriented targets are set,and clarifies specific aspects which shall be disclosed for measurable targets and progress
towards those targets. In case the undertaking has not adopted measurable targets, it shallreport on its progress in accordance with paragraph 101.
AG 11. Targets disclosed under the Disclosure Principle in paragraph 100 shall be articulated interms of their relevance to outcomes for affected stakeholders and/or the environment oreffect on the undertaking’s business performance, position or development. Targets thatare not directly related to such outcomes, for example a percentage of employees or[Draft] ESRS 1 General principles
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suppliers who have taken part in an activity such as training, may be articulated anddisclosed as part of the actions under ESRS 1 Disclosure Principle 3.
AG 12. Targets disclosed in accordance with the Disclosure Principle shall not be defined in termsof implementation of processes (e.g., implementing a risk management system; trainingof employees or suppliers) which shall be disclosed as part of the action plan to implement
the undertaking’s policy and/or measurable target under ESRS 1 Disclosure Principle 3.
AG 13. Targets that concern the prevention or mitigation of environmental impacts shall be
specified in terms of reduction of the impacts in absolute and relative terms. Targets thatconcern prevention or mitigation of social impacts shall be specified in terms of the effects
on human rights, welfare and positive action for affected stakeholders.
AG 14. The undertaking shall not include in the calculation of targets any netting or offsetting of
impacts.
AG 15. In the description of the methodology, the undertaking shall describe how the targets areset, whether and how the targets consider the wider context of sustainable development
and/or local situation in which impacts take place and whether the targets are based on
scientific consensus (science-based), where applicable.
AG 16. The information on progress made towards achieving the targets may be provided in acomprehensive table, including information on the baseline and target value, milestones,
and achieved performance over the prior periods.
AG 17. The undertaking shall describe how targets have been tracked and measured, including
any estimations used in calculating performance throughout the relevant time horizon. In
addition, the undertaking should disclose whether progress is satisfactory or not. If a target
has not been achieved, the undertaking should explain why.
AG 18. Where an undertaking describes progress in achieving the objectives of a policy in theabsence of a measurable target, it may specify a baseline against which the progress is
considered. For example, the undertaking may assess an increase of wages by a certain
percentage for those below a fair wage; or may assess the quality of its relationships withlocal communities by reference to the proportion of issues raised by communities that wereresolved to their satisfaction. The baseline and the assessment of the progress shall be
related to the impacts, risks and opportunities which underpin the materiality of the matter
addressed by the policy.
Disclosure Principle 1-3 – Actions, action plans and resources in relation to policies and targets
AG 19. The undertaking shall disclose all relevant actions to meet the policy objectives and its
targets for those implemented in the current period together with forward-looking
information on planned actions across relevant time horizons.
AG 20. The undertaking may adopt stand-alone actions or more comprehensive action plans. A
set of actions which are either connected to a single objective, or a target shall bepresented in a form of an action plan. Where the undertaking reports a stand-alone action,
the disclosure reference contents concerning the action plans apply analogously.
AG 21. The action plan has a retrospective component, including key actions accomplished during
the reporting period, and a forward-looking component, including key actions planned in
the short-, medium- and long-term. The undertaking may include implemented actions
from past periods and their outcomes, if this supports the provision of a faithful[Draft] ESRS 1 General principles
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presentation of the implementation of the climate change mitigation or climate change
adaptation policy.
AG 22. The description of the scope of the action plan shall specify which activities and segmentsof the undertaking’s operations, value chain or other business relationships are
considered. This information provided by the undertaking is to be consistent with AG 6 on
the scope of the policy.
AG 23. For policies for which it is not meaningful to define a measurable outcome-oriented target,
illustrations of the implementation of the undertaking's policy and effectiveness should be
provided. Such illustrations should only be provided for impacts, risks and opportunities
that the undertaking's policy is addressing but not for past impacts. The examples shouldpresent a balanced view of positive and negative aspects concerning the undertaking’s
involvement with the underlying impacts.
AG 24. Information on resources needed and their allocation shall be provided, when applicable,at the level of the undertaking’s action plan. The undertaking should provide suchinformation if the implementation of the action plans requires substantial dedicatedresources, such as significant capital expenditure or operational costs related for instanceto the adoption of new technologies, refurbishment or replacement of industrial facilities(e.g., a climate net-zero transition plan in high-impact sectors), investment in people andorganisation that the undertaking can rely on to effectively implement the action plan andmeet policy objectives or targets. Conversely, where the effectiveness of the action plans
does not depend on specific dedicated resources, the undertaking shall clearly indicate it
instead of disclosing resource allocations. The undertaking shall also provide
complementary explanatory information, where the ability to implement the action plan
depends on specific preconditions, e.g., granting of financial support or public policy andmarket developments.
AG 25. Information on resources needed and allocated may be disclosed at the level of the entire
action plan or by key action taken or planned.
AG 26. Information on resources allocation should be presented in the form of a table and should
be broken down between capital expenditures and operating expenditures, and across therelevant time horizons, at minimum for the current reporting year resources, and theplanned allocation of resources over specific time horizons.

Application guidance for chapter 6 Structure of the sustainability statements
Presentation of disclosures required by sector-agnostic ESRS

Reporting all sector-agnostic disclosures within a single separately identifiable section of the
management report (see paragraph 148 (a))
AG 27. The undertaking applying the option in paragraph 148 (a) shall apply the requirement inparagraphs AG 28 through AG 32 and may apply the option outlined in paragraph AG 33.
AG 28. As a starting point, the undertaking shall group together the disclosures required by eachsector-agnostic ESRS and report them as non-separable blocks. The disclosures shallappear within each block in the order outlined in the sector-agnostic Standards.
AG 29. The title of each block shall be the name of the relevant sector agnostic ESRS. Each
disclosure requirement in the applicable ESRS shall be identified within the block by a[Draft] ESRS 1 General principles
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header. The header shall consist of the code of the sector agnostic Standard as outlinedin Appendix D and the title of the disclosure requirement in the relevant ESRS.
AG 30. Notwithstanding paragraph AG 28, when a topical ESRS Standard provides specificpresentation guidance for a disclosure requirement, this specific requirement shall prevail.
AG 31. The undertaking shall group the blocks referred to in paragraph AG 29 into four identifiable
parts of the management report applying the ESRS classification of reporting areas andsustainability sub-topics set out in Appendix D. The blocks shall appear in the orderprescribed in Appendix D.
AG 32. The undertaking shall report the four parts referred to in paragraph AG 31 in a single
identifiable section of the management report in the order prescribed in Appendix D.
AG 33. The undertaking shall apply the structured presentation outlined in paragraphs AG 28 toAG 32 but may report that it complies with an ESRS disclosure requirement through a
disclosure in one single identifiable part of the management report outside the single
section referred to in paragraph AG 32. The undertaking shall include an explicit crossreference in the sustainability statements and the cross-referred part of the management
report shall also include an explicit reference to the header of the disclosure requirementin the sustainability statements. Furthermore, if the cross-referenced part of the
management report only partially complies with the disclosure requirement, theundertaking shall provide additional information in the sustainability statements.

Aggregation of the sector-agnostic disclosures into four identifiable parts of the
management report (see paragraph 148 (b)))
AG 34. The undertaking applying the option in paragraph 148 (b) shall apply the requirement inparagraphs AG 28 to AG 31 and therefore disaggregate the presentation described in AG
32 into four parts. The undertaking may apply the option in paragraph AG 33 to one ormore ESRS disclosure requirements.

Aggregation of the sector-agnostic disclosures required by each ESRS as non-separable
blocks in identifiable parts of the management report (paragraph 148 (c))
AG 35. Any undertaking applying the option laid down in article 148 (c) shall apply therequirements in paragraphs AG 28 to AG 30 and may apply the option in paragraph AG
33 to one or more ESRS disclosure requirements.
Presentation of disclosures required by sector-specific ESRS (Paragraph 150)
AG 36. The undertaking shall group the disclosures required by each sector-specific ESRS
applying the sector-agnostic ESRS classification set out in Appendix D. It shall report thosegroups of disclosures within the appropriate blocks referred to in paragraph AG 29
immediately after the cross-cutting disclosures and in the order prescribed by theapplicable sector-specific Standard. The undertaking shall identify each sector-specificdisclosure with a header, which shall consist of the code of the sector-specific ESRS andthe title of the disclosure requirement in the relevant ESRS.
Presentation of the entity-specific disclosures required by ESRS (Paragraph 151)

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AG 37. When applying paragraph 151, the undertaking shall group the entity-specific disclosuresthat relate to a sustainability matter and report them within the most relevant blocks inaccordance with paragraph AG 29 after the sector-specific disclosures.
Presentation of the disclosures pursuant to article 8 of the Taxonomy regulation (Paragraph 152)
AG 38. The undertaking that elects to apply the options in paragraphs 148 (a) or (b) shall report
the disclosures pursuant to article 8 of the Taxonomy regulation (2020/852) in a dedicatedidentifiable part of the management report immediately after the topical statement‘Environmental information’ in accordance with paragraph AG 32.

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Appendix C: Explanations on sustainability due diligenceThis appendix provides summarised explanations of the key elements of sustainability due diligence,as they are specified in international guidance and principles. The purpose of this appendix is to explain
the parameters and the procedural steps of due diligence, to help undertakings to apply ESRS
disclosure requirements in relation to sustainability due diligence. It is a factual reflection of the content
of the international guidance and principles and is not intended nor should be construed as adding toor subtracting from them (in case of any doubt, reference should be made to the standards directly).
The application guidance for disclosure requirements is provided in the respective ESRS.
1.

Due diligence is defined in international instruments, including in particular the UN Guiding
Principles on Business and Human Rights (2011) and the OECD Guidelines forMultinational Enterprises (2011) and it is further specified in the OECD Due Diligence
Guidance for Responsible Business Conduct (2018).

2.

The purpose of sustainability due diligence is to identify and address negative impacts withwhich the undertaking either is or risks being involved through its operations, products orservices. This includes both actual and potential negative impacts. It includes impacts theundertaking has caused or may cause, impacts to which it has contributed or may
contribute, and impacts where there is no contribution, but which remain linked to its
operations, products or services through its business relationships. The nature of theundertaking’s involvement affects the actions it will need to take. Due diligence applies
across a company’s full operations and value chain.

The scope of due diligence3.

Due diligence applies across the undertaking’s own operations and upstream anddownstream value chain. It is not constrained to direct relationships in the value chain nor
by the degree of control or influence the undertaking has over a situation or a third party,
nor by the content of national laws and regulations.

4.

Due diligence is an on-going practice that responds to changes in the undertaking’s
activities, business model, business relationships, operating, sourcing and selling
contexts. It should be considered independent of the undertaking’s reporting processes
but a source of critical inputs to them and be initiated as early as possible in thedevelopment of a new activity or relationship, given that risks can be increased or mitigatedalready at the stage of structuring contracts or other agreements, and may be inherited
through mergers or acquisitions.

5.

If an undertaking cannot conduct due diligence across its whole value chain at once, due
to its complexity, it is expected to identify general areas where the risk of negative impacts
is most significant, and take these as the first focus of due diligence, before broadening toother areas over time. In identifying such areas, it is expected to consider impacts it has
been involved with in the past or knows are likely, as well as impacts commonly associatedwith its sector, its products, geographic locations, or with organisations it works with.

Embedding due diligence in governance and organisation
6.

It is expected that the undertaking embeds due diligence, from the top of the organisation
and across all its functions, the mindsets, behaviours and practices necessary to minimize
impacts on human rights and the environment. Senior management and the board havean important role in reviewing both whether the business model and strategy play a role

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in creating or exacerbating impacts, and how effectively impacts are being addressed. It
is expected that they ensure that performance incentives, procurement practices andlobbying activities reflect the objectives of preventing and mitigating adverse impacts onhuman rights and the environment.
7.

Responsibility for addressing impacts should be assigned to the appropriate level andfunction within the undertaking and internal decision-making, budget allocations andoversight processes should enable effective responses to impacts.

8.

A due diligence system should - to be effective – make sure that the administrative,
management and supervisory bodies are kept informed of severe actual or potential
impacts and that those with daily responsibility for addressing environmental and humanrights issues have adequate access to senior decision-making levels and appropriate
means to escalate issues where necessary.

Engaging with stakeholders
9.

Engagement with affected stakeholders is central in all steps of the due diligence process.
Actual and potential impacts often cannot be adequately identified, understood, addressed
and remedied without involving those most directly affected. Providing information to
stakeholders and engagement with them is an important way to listen to their views andexperiences so that their insights can inform the undertaking’s decisions and actions.

10.

Where there are legitimate representatives for groups of affected stakeholders, such as
trade unions, they can provide an efficient and effective means of understanding
stakeholders’ perspectives. If impacts are widespread or collective (e.g. in the case ofcorruption or GHG emissions) or where those affected might be placed at risk byengagement with the undertaking (e.g. if they are subject to surveillance by theirgovernment), then it may be necessary to consult proxy organisations with direct
knowledge of affected stakeholders’ experiences and interests (e.g. local nongovernmental organisations). In situations where such engagement is also not possible,
undertakings can consult credible independent experts, including human rights defenders
and others from civil society.

Identifying and assessing adverse impacts
11.

It is expected that as part of due diligence, an undertaking identifies all instances where
the undertaking is, or is at risk of being, involved with negative impacts on the environment
or people, and assesses the nature of those actual or potential impacts (their context,
causes, severity etc). Actual impacts are those that have already occurred. Potential
impacts are those that could occur, but have not yet done so. The impacts may be shortterm or long-term, intended or unintended, reversible or irreversible.

12.

To identify situations where negative impacts are likely to arise, it is expected that anundertaking, as part of its due diligence, considers the nature of its own activities, products
and services; the types, nature and location of business relationships across its operationsand value chain; and the locations where it operates, sources, sells or is otherwise active.
Undertakings are expected to prioritise situations where stakeholders may be particularly
vulnerable to impacts.

13.

Sources of information for identifying impacts include those stakeholders who are or may
be affected as well as the undertaking’s own workforce, legal reviews, financial audits,
shareholder filings, health and safety inspections, impact assessments and[Draft] ESRS 1 General principles
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grievance/complaints mechanisms. Additional external sources could include civil society,academic and media reports, the experience of industry peers, third-party social audits offacilities and independent experts.
14.

To assess adverse impacts, the undertaking should assess how (i) it is involved with theimpact and (ii) how severe the impact is or would be.

15.

The undertaking can be involved with an impact by (i) causing it, (ii) contributing to it, or(iii) by being linked to it. Causing means that its actions (or omissions) on their own resultin the impact. Contributing means that the undertaking facilitates or incentivizes a third
party to cause an impact, or that its actions (or omissions), combined with those of others,
result in the impact. Direct linkage means that, while the undertaking does not cause orcontribute to it, an impact is nevertheless directly linked to its operations, products orservices through a business relationship (which may be a direct or remote relationship in
the value chain). In situations that appear to be limited to direct linkage, undertakings needto consider whether the undertaking’s own business model, decisions or practices may
play a role, even if the impact appears to be caused by a third party.

16.

The severity of an impact is informed by (i) how grave the harm is or would be, (ii) how
widespread the harm is or would be, and (iii) how hard it is or would be to put the harmright. Any one of these factors may be sufficient to judge the impact to be severe. For
potential impacts, an assessment of their likelihood is also important. However, for humanrights impacts, the severity of the impact takes precedence over its likelihood.

Taking action:17.

Due diligence requires that action is taken to address negative impacts that have been
identified. In the case of a potential impact, the undertaking should take action to prevent
it wherever possible, or, where this is not feasible, to mitigate the risk of it occurring andthe extent of harm that could result. In the case of an actual impact, two types of action
may be needed. First, if there is a risk that the impact may continue or recur, then theundertaking is expected to take action to prevent or mitigate that risk (including by ceasing
any role it has in the impact). Second, it is expected to take an appropriate role in securing
remedy for those harmed.

18.

While undertakings should make sure to address all their adverse environmental andhuman rights impacts, it is not always possible to address them all at once. If prioritizationis needed, undertakings are expected to begin with those impacts that would be most
severe (based on the three criteria noted in paragraph 16), and with the focus on therelative severity of impacts - severity is not meant to be applied as an absolute concept.

19.

Due diligence specifies that the nature of the appropriate action to prevent and / or mitigate
an impact depends on the nature of the undertaking’s involvement with the impact:(a) if the undertaking causes or may cause the impact, it should take action to cease or
prevent the impact;(b) if the undertaking contributes, or may contribute, to the impact, it should take action tocease or prevent its contribution, and use its leverage to mitigate any remaining
impact; and(c) if there is no contribution by the undertaking, but the impact is directly linked to its
operations, products or services, the undertaking should first and foremost use its
leverage with third parties to seek to prevent or mitigate the impact.

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20.

Leverage is the ability to effect change in the practices of a third party that causes a harm.
Leverage may be traditional commercial leverage, such as through contract terms, or
through other means within the undertaking’s control such as offers of capacity-building or
particular incentives. The more complex or systemic the issue, or the more remote in anundertaking’s value chain, the more likely that exercising leverage will require some formof collaboration with others, whether industry peers or other public, private, internationalor civil society organisations. It may also require forms of collective action.

21.

Where an undertaking lacks leverage, it is expected to take steps to build it to the extent
possible. Where it cannot create or use the leverage necessary to achieve change, it
should consider ending the business relationship(s) concerned, taking into accountcredible assessments of any potential environmental and human rights impacts of doing
so. The more severe the impact, the more swiftly leverage will need to show results before
the undertaking considers ending the relationship. For as long as the undertaking remains
in the relationship, it is advised to continue and be able to demonstrate its efforts to mitigate
the impact and be prepared to accept any consequences – reputational, financial or legal– of the continuing connection.

22.

In the case of actual impacts, undertakings are expected to take appropriate action withregard to the provision of remedy for stakeholders who are harmed, with the aim of putting
them back in the position they were in before the harm, or as close to it as possible:(a) if the undertaking has caused or contributed to an adverse impact, it should provide
for, or cooperate in securing remedy for those harmed, whether by itself or incollaboration with others; and(b) if the undertaking has not contributed to an adverse impact, it may still choose tosupport the provision of remedy.

23.

Operational-level grievance mechanisms can be an important means for undertakings to
identify impacts and provide for remedy, and also serve as a feedback loop that supports
due diligence by providing insight into how effectively impacts are being addressed.

Tracking effectiveness and communicating
24.

Action to verify whether negative impacts are being addressed effectively is an integral
part of due diligence. It is expected that processes to track effectiveness are based on amix of qualitative and quantitative indicators and draw on internal as well as external
feedback, including from affected stakeholders. While it can be important to measure thequality or reach of an undertaking’s activities or the outputs they produce, the focus on
tracking effectiveness is on evaluating whether these are leading to better outcomes forstakeholders.

25.

It is expected that undertakings are prepared to communicate externally on how they
address their environmental and human rights impacts, to provide some transparency andaccountability to stakeholders – in particular affected stakeholders. Meaningful, on-goingstakeholder engagement can play a significant role in this element of due diligence. Public
reporting can also be an important means of communication. It is expected that
communication provides information that is sufficient for others to assess the adequacy of
the undertaking’s response to environmental and human rights impacts. Communication
should not pose any risks to affected stakeholders.

[Draft] ESRS 1 General principles
Exposure Draft, April 2022

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[Draft] ESRS 1 General principles

Appendix D: Classification of ESRS reporting areas and subtopics
ESRS
codification

Non-separable blocks of disclosures(paragraph AG 28)

Part of the
management report(AG 32)ESRS 1

1. General principles

1. General
information

ESRS 2

2. General,
strategy,
governancemateriality assessment

ESRS E1

3. Climate change

ESRS E2

4. Pollution

ESRS E3

5. Water and marine resources

ESRS E4

6. Biodiversity and ecosystems

ESRS E5

7. Resource use and circular economy

ESRS S1

8. Own workforce

ESRS S2

9. Workers in the value chain

ESRS S3

10. End users / consumers

ESRS S4

11. Affected communities

ESRS G1

12. Governance,
control

ESRS G2

13. Business conduct[Draft] ESRS 1 General principles
Exposure Draft, April 2022

and2. Environmental
information

3. Social informationrisk

management,internal 4. Governanceinformation

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[Draft] ESRS 1 General principles

Appendix E: Illustrative examples
This appendix complements the [draft] ESRS 1. It provides non-binding illustrations of the structure of
the sustainability statements applying the three options outlined in paragraph 148.

Single separately identifiable section of the management report (paragraph 148 (a))
Management report
Analysis of the development and performanceof the entity's business and its position

Description of the principal risks anduncertainties

The entity’s likely future developments

Corporate governance statement

Single section of the management report
1. General information

3. Social information

ESRS 2 General, strategy, Governance and Materiality
Assessment•
Specific topical DR from topical standards•
Additional DR from sector-specific standards•
Potential additional entity specific information

ESRS S1 Own workforce•
PTAPR and performance related DR from ESRS S1•
Additional DR from sector specific standards•
Potential additional entity specific information
ESRS S2 Workers in the value chain•
PTAPR and performance related DR from ESRS S2•
Additional DR from sector specific standards•
Potential additional entity specific information…
ESRS S4 Affected communities•
PTAPR and performance related DR from ESRS S4•
Additional DR from sector specific standards•
Potential additional entity specific information

2. Environmental information
ESRS E1 Climate change•
PTAPR and performance related DR from ESRS E1•
Additional DR from sector-specific standards•
Potential additional entity specific information
ESRS E2 Pollution•
PTAPR and performance related DR from ESRS E2•
Additional DR from sector-specific standards•
Potential additional entity specific information…
ESRS E5 Resource Use and Circular Economy•
PTAPR and performance related DR from ESRS E5•
Additional DR from sector-specific standards•
Potential additional entity specific information

Disclosures pursuant to Article 8 of the taxonomy
regulation[Draft] ESRS 1 General principles
Exposure Draft, April 2022

4. Governance information
ESRS G1 Governance, risk management and internal
control•
PTAPR and performance related DR from ESRS G1•
Additional DR from sector-specific standards•
Potential additional entity specific information
ESRS G2 Business conduct•
PTAPR and performance related DR from ESRS G2•
Additional DR from sector-specific standards•
Potential additional entity specific information

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[Draft] ESRS 1 General principles

Aggregating the disclosures into four separately identifiable parts of the management
report (Paragraph 148 (b))
Management report
3. Social information

Analysis of the development and performance ofthe entity's business and its position
1. General information
ESRS 2 General, strategy, Governance and Materiality
Assessment•
Specific topical DR from topical standards•
Additional DR from sector specific standards•
Potential additional entity specific information

Description of the principal risks anduncertainties

ESRS S1 Own workforce•
PTAPR and performance related DR from ESRS S1•
Additional DR from sector specific standards•
Potential additional entity specific information
ESRS S2 Workers in the value chain•
PTAPR and performance related DR from ESRS S2•
Additional DR from sector specific standards•
Potential additional entity specific information…
ESRS S4 Affected communities•
PTAPR and performance related DR from ESRS S4•
Additional DR from sector specific standards•
Potential additional entity specific information

2. Environmental information
ESRS E1 Climate change•
PTAPR and performance related DR from ESRS E1•
Additional DR from sector specific standards•
Potential additional entity specific information
ESRS E2 Pollution•
PTAPR and performance related DR from ESRS E2•
Additional DR from sector specific standards•
Potential additional entity specific information…
ESRS E5 Resource Use and Circular Economy•
PTAPR and performance related DR from ESRS E5•
Additional DR from sector specific standards•
Potential additional entity specific information

Corporate governance statement
4. Governance information
ESRS G1 Governance, risk management and internal
control•
PTAPR and performance related DR from ESRS G1•
Additional DR from sector specific standards•
Potential additional entity specific information
ESRS G2 Business conduct•
PTAPR and performance related DR from ESRS G2•
Additional DR from sector specific standards•
Potential additional entity specific information

Disclosures pursuant to article 8 of theTaxonomy regulation[Draft] ESRS 1 General principles
Exposure Draft, April 2022

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[Draft] ESRS 1 General principles

Illustrative index:

List of sustainability parts

Location in the
management report

General information - ESRS 2

p. 25-32

Environmental information - ESRS E1 – ESRS E5

p. 35-44

Disclosures pursuant to article 9 of theTaxonomy Regulation

p. 47-50

Social information - ESRS S1 – ESRS S5

p. 51-62

Governance information - ESRS G1 – ESRS G2

p. 67-75[Draft] ESRS 1 General principles
Exposure Draft, April 2022

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[Draft] ESRS 1 General principles

Aggregation of the sector-agnostic disclosures required by each ESRS as nonseparable blocks in identifiable parts of the management report (Paragraph 148 (c))

Management report
Analysis of the development and performance ofthe entity's business and its position
Business conduct
PTAPR and performance-related DR from ESRS G2
Additional DR from sector specific standards
Potential additional entity specific information
The entity likely future developments
General, strategy, Governance and Materiality
Assessment
PTAPR and performance-related DR from ESRS 2
Additional DR from sector specific standards
Potential additional entity specific information
Corporate governance statement
Governance, risk management and internal control
PTAPR and performance-related DR from ESRS G1
Additional DR from sector specific standards
Potential additional entity specific information

Disclosures pursuant to article 8 of the Taxonomy
regulation
Own workforce
PTAPR and performance-related DR from ESRS S1
Additional DR from sector specific standards
Potential additional entity specific information
Workers in the value chain
PTAPR and performance-related DR from ESRS S2
Additional DR from sector specific standards
Potential additional entity specific information
End users/ consumers
PTAPR and performance-related DR from ESRS S3
Additional DR from sector specific standards
Potential additional entity specific information
Affected communities
PTAPR and performance-related DR from ESRS S4
Additional DR from sector specific standards
Potential additional entity specific information

Description of the principal risks and uncertainties
Climate change
PTAPR and performance-related DR from ESRS E1
Additional DR from sector specific standards
Potential additional entity specific information
Pollution
PTAPR and performance-related DR from ESRS E2
Additional DR from sector specific standards
Potential additional entity specific information…
Resource Use and Circular Economy
PTAPR related DR from ESRS E5
Performance DR from ESRS E5
Additional DR from sector specific standards
Potential additional entity specific information[Draft] ESRS 1 General principles
Exposure Draft, April 2022

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[Draft] ESRS 1 General principles

Illustrative index

List of ESRS

Location in the
management report

ESRS 2 – General, strategy, governance, materiality
assessment

p. 25-28

ESRS XX - …

p. --

…

p. ---

Disclosure pursuant to article 8 of the taxonomy
regulation

p. 50-55[Draft] ESRS 1 General principles
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[Draft] ESRS 1 General principles

EFRAG is co-funded by the European
Union and EEA and EFTA countries.
The contents of the documents are
however the sole responsibility of the
EFRAG PTF- ESRS and do notnecessarily reflect those of theEuropean Union or the DirectorateGeneral for Financial Stability,
Financial Services and CapitalMarkets Union (DG FISMA). Neither
the European Union nor DG FISMA
can be held responsible for them.
[Draft] ESRS 1 General principles
Exposure Draft, April 2022

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