We worked intensively on the standard for the Oil & Gas industry in the winter of 2022 and 2023, and in March 2023 it was almost adopted. However, it was then that the European Commission asked EFRAG to change its priorities and focus on preparing implementation guidance. The result is three Implementation Guidance documents, which I wrote about last week. In the meantime, the Commission issued a delegated regulation with the first set of standards, which changed the rules on materiality testing to some extent. From September 2024, we were able to work on sectoral standards again.
I encourage everyone to study draft standard for the Oil & Gas industry, because it helps us understand what the standards for other sectors will look like. It is worth remembering that the Oil & Gas industry is one of the most complex and has a significant impact on almost all aspects of sustainable development, both in environmental and social areas. Therefore, the fact that this standard is over 60 pages long does not automatically mean that all other sectors will receive equally extensive disclosure requirements.
The draft standard for the Oil & Gas sector has a different structure compared to the draft that was worked on over a year ago. The disclosure requirements are divided into five sections: general disclosures from ESRS 2 (as is the case in each of the common thematic standards), issues that go beyond one of the main topics, and three sections on environmental, social, and governance issues. Issues beyond one of the main topics include, for example. Closure of assets – Decommissioning assets, e.g., those used for extraction, ultimately has an impact on environmental issues (e.g., the need to remove pollution and remediate the site) and social issues (the impact on people who lose their jobs), so it was not possible to place them exclusively in the E or S areas.
The individual disclosure requirements in the standard fall into one of two categories. Some are „additions” to the disclosure requirements contained in general standards and indicate the need to disclose additional data points. Others are requirements specific to this sector. These are marked with the symbols OG 1, OG 2, OG 3, etc. – in other sectoral standards, we will have disclosures with symbols based on the abbreviations of the names of these sectors.
In addition to the section on disclosure requirements, we also have guidelines on their application (Application Requirements) and definitions. The appendices to the standard contain very important guidance on which issues are relevant in which subsectors. Oil & Gas is divided into four subsectors (upstream, midstream, downstream, and services). In other standards, we will also often deal with the division of a given sector into a number of subsectors.
It is worth reading all sections of the sectoral standard that deal with materiality, but it should also be remembered that this particular issue may still change significantly. During public consultations, the question will be asked whether some of the disclosure requirements in the sectoral standard should be mandatory for all companies in a given industry. If such a decision is made, the relevant sections of the standard will be adapted accordingly. This solution would be very beneficial for companies, as it would drastically reduce the effort and costs associated with performing materiality testing. I will write more about this in a future newsletter.
During the day-long deliberations, we introduced a number of changes to the draft standard that are not yet visible in the file linked above. The document is also undergoing linguistic and terminological consistency review. However, everyone can already form a preliminary opinion on what the ESRS sectoral standards will look like in principle. I invite you to read it 😊
P.S. At the end of last week, oikos Warsaw, a student organization focused on sustainable development, published Polish i English version of your ESG Guide. I had the pleasure of giving an interview that was included in this publication. I encourage you to read the whole thing—see how simple and clear the language can be when writing about ESRSs 😊
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