Preparing for ESRS reporting improves not only the value of the company, but also collaboration across it

As the implementation of ESRS is not a well-established mechanism, the analysis does not show indicators of mature practices, but provides a valuable overview of those that are emerging. With this information, it is therefore already possible to define the more difficult challenges that companies have to deal with.    

The information in the study is based on interviews with representatives of 28 EU-based firms from eight sectors, including both financial and non-financial companies. Emerging practices were analysed in four areas that are considered particularly relevant for ESRS implementation:

• Materiality assessment
• Value chain
• Data point gap analysis
• Organisational approach to reporting

Double materiality assessment

EFRAG experts found that most firms recognise the value of a thorough, objective and evidence-based double materiality assessment.  A few companies even see it as a kind of preparation for compliance. This shift has resulted in a much more thorough analysis of ESG topics. They can then use this to make decisions in their own business. An objective, evidence-based approach is used by 70% of businesses. They rely mainly on internal and third-party data. These are often supplemented by the opinion of internal experts.

The study shows that companies involve internal experts and stakeholders during the different stages of the process (topic selection, topic assessment, review of the assessment) to support those responsible for producing the report in obtaining a comprehensive view of the relevant topics.

Companies achieve the involvement of experts and affected stakeholders through a number of formats. Over 65% use two or more channels to reach out and gather information, and 70% conduct interviews to seek in-depth views. They mainly use seminars or surveys to do this, 70% do them in combination with workshops.

Different companies take different approaches to assessing double materiality, ranging from a data-driven approach to a judgement-based approach. 85% of them even plan to use the data they collect to develop business strategy and decision-making. 70% have already started to take an objective, evidence-based approach to double materiality assessment and use a combination of data sources. 

Differences in data

However, according to the study, many companies have not yet incorporated the results of the double materiality assessment into their gap analysis. This may also have led them to include more data than necessary in their analysis.

This increased the risk that they diverted attention from relevant information to irrelevant information. However, 80% of businesses perceived the data search as complex. Three quarters of firms use the phased-in option, while 40% currently use information relevance at the data point level. 80% use a variety of available approaches to obtain and process data. Three quarters have chosen to phase-in data points so that they can focus on their short-term reporting priorities.

Value chain

While it was confirmed that value chain reporting is a challenging and not entirely straightforward area for companies, the study suggests that the transitional provisions will allow them to gradually improve the quality of data collection and reporting.  Double materiality assessment and reporting is not limited to one level, as they can also use the materiality of impacts to set their priorities.

90% of companies are still working on improving their value chain mapping and finding the right balance. 45% have already adopted a more detailed mapping of their value chain (i.e. going beyond just the high level of upstream, downstream and own activities).

Organisational approaches to reporting

At the same time, it is clear to many companies that they will need to make management changes in terms of reporting. Almost a third of them even think they will do so soon, i.e. in the short term. Businesses are even putting in place their own controls to ensure that ESG data is as it should be. 90% have already adopted or are adopting internal control techniques, and 85% foresee the need to change their IT sector setup. 

However, businesses agree that sustainability reporting not only improves the environment and the value of the company, but also improves collaboration between departments.  Typically, five or more departments are regularly involved in the implementation process. In addition to the sustainability and finance departments, these are most often the risk management, human resources and audit or internal control departments.  Procurement, communication or strategy departments are no exception. This just goes to show the interdisciplinary nature of effective reporting.