ESRS 1 lists three groups of standards: cross-cutting, thematic, and sectoral. The first two groups have already been issued by the European Commission in the form of a delegated regulation. The third group is still being developed and, once finalized by EFRAG, will be submitted to the EC for publication. When preparing its sustainability report, the company applies the disclosure requirements contained in the general standards (i.e., cross-cutting and thematic) and in this standard or sector-specific standards that apply to the industry in which it operates.
But that's not all. Paragraph 11 of ESRS 1 states that if an entity determines that a significant impact, risk, or opportunity is not covered by the standards (or is not covered in sufficient detail), then it must make an appropriate entity-specific disclosure to enable users of the report to understand that impact, risk, or opportunity.
This requirement arose for three reasons. First, in the early years of ESRS implementation, we do not yet have sector-specific standards. Many of the disclosure requirements that will be included in them could not be included in general standards because they only apply to some companies. This gap will be filled in the coming years by company-specific disclosures. Second, it is impossible to standardize absolutely everything. There will probably be issues involving impacts, risks, or opportunities that are relevant to only a few or a dozen companies across the European Union. It would then be difficult to create disclosure requirements that are also mandatory for other companies. Thirdly, this provision leaves room for the unique nature of individual companies, which, thanks to it, can include relevant information in a manner best suited to their specific characteristics.
The EFRAG Sustainability Reporting TEG experts have recently received information that some company advisors are increasingly informing companies that entity-specific disclosures are voluntary. This is a mistake that must be treated with caution. These advisors refer to paragraph 131 of ESRS 1. It contains a transitional provision according to which, in the first three years, a company preparing entity-specific disclosures may use previously reported indicators or indicators from other recognized reporting standards and guidelines (e.g., GRI or SASB).
However, paragraph 131 does not concern the obligation to prepare specific disclosures, but only what can be used as a basis for preparing them. The obligation to prepare such disclosures is contained in paragraph 11: the Polish version of the standards uses the word „ujawnia” (which means an absolute obligation), while the English version uses „shall provide additional entity-specific disclosures.” This obligation obviously only applies when a significant impact, risk, or opportunity is not sufficiently reflected in the disclosures contained in the applicable standards. However, this situation will be quite common until a complete set of sectoral standards is issued. So let's remember about entity-specific disclosures when preparing for reporting in accordance with ESRS. And to those who claim that they are voluntary, let's respond that they should read and understand ESRS 1 more carefully.
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