EUU, Alm.del - 2022-23 (2. samling) - Bilag 311: Notat og høringssvar vedr. Kommissionens høring af Medlemsstatsekspertgruppen om bæredygtig finansiering (MSEG) og Regnskabskontroludvalget (ARC)

Europaudvalget 2022-23 (2. samling)
EUU Alm.del Bilag 311
Offentligt

07 March 2023

2022 - 4706

otfruh

Annex to the Danish Government response to the consulta-

tion of MSEG and ARC regarding the draf European Sus-

tainability Reporting Standards

Cross cutting standards .............................................................................. 2

ESRS 1 - General requirements ................................................................. 2

Materiality assessment ............................................................................... 2

Value Chain Reporting .............................................................................. 3

Due diligence ............................................................................................. 5

Incorporation by reference ......................................................................... 5

Format ........................................................................................................ 6

ESRS 2- General disclosures ..................................................................... 8

Appendix B

–

Application Requirements .................................................. 8

Environmental standards ............................................................................ 8

E1- Climate change .................................................................................... 9

Appendix B

–

Application Requirements ................................................ 10

E2- Pollution ............................................................................................ 11

Appendix A

–

Defined terms ................................................................... 12

Appendix B

–

Application Requirements ................................................ 13

E3- Water and marine resources .............................................................. 14

Appendix A

–

Defined terms ................................................................... 14

Appendix B

–

Application Requirements ................................................ 15

E4- Biodiversity and ecosystems ............................................................. 15

Appendix A

–

Defined terms ................................................................... 17

ESRS E5- Resource use and circular economy ....................................... 18

Appendix A

–

Defined terms ................................................................... 18

Appendix B

–

Application Requirements ................................................ 19

Social standards ....................................................................................... 19

General remarks ....................................................................................... 19

ESRS S1- Own workforce ....................................................................... 20

ESRS S2- Workers in the value chain ..................................................... 21

Closing remarks ....................................................................................... 22

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Cross cutting standards

ESRS 1 - General requirements

There is a typo in the ESRS 1 paragraph 120, where “121” is listed twice

in a row and in paragraph 121 (a), where “120” is listed twice in a row.

Materiality assessment

In the ESRS, there is a general need to clarify the definition of materiality.

It is encouraged that already known concepts from international standards

are used and that materiality assessments are clarified so that they do not

go beyond the framework of the CSRD. Additionally, the application re-

quirements (ARs) of the ESRS 1 should explain the steps of the materiality

process.

The ESRS 1, Chapter 2 establishes an overarching requirement for under-

takings to apply the qualitative characteristics of information set out in the

ESRS 1, Appendix C when preparing their sustainability statements. There

is a need to clarify that the disclosures pursuant to Article 8 of the Taxon-

omy Regulation are not intended to be subject to the qualitative character-

istics of information. If the qualitative characteristics are applied to the dis-

closures under Article 8 of the Taxonomy Regulation, this would imply the

application of the materiality test to these disclosures. However, Article 8

statements has no materiality tests. This could lead to a scenario in which

the Article 8 disclosures would have to be left out of the sustainability state-

ments if they were to not meet the materiality threshold. This approach

would not be in line with the delegated act under Article 8.

In relation to financial materiality, the

“usefulness”, as mentioned in the

ESRS 1, paragraph 51, is not a precise criterion. It should therefore be de-

leted, and the draft amended to retain only the second criterion to build

interoperability with international standards.

The ESRS 1, paragraphs 108-110, allow undertakings to omit information

on intellectual property, know-how or the results of innovation correspond-

ing to ‘trade secrets’. There is a possible interaction between these draft

provisions and Article 19a (3), fourth paragraph of the Accounting Di-

rective, which permits Member States to allow for the omission in excep-

tional circumstances of commercially sensitive information, on impending

developments and matters under negotiation, under specific conditions. It

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is unclear whether, in some cases, the trade secrets addressed in paragraphs

108-110

of the ESRS 1 could also constitute “impending developments or

matters under negotiation” under Article 19a (3), fourth paragraph of the

Accounting Directive. The Commission should assess whether this provi-

sion in ESRS 1 needs to be reformulated so that it is consistent with the

specific DRs of Article 19a (3) of the CRSD.

Finally, we recommend a clearer marking in the topical standards of the

mandatory metrics and other disclosures in the ESRS 2, Appendix E.

Value Chain Reporting

Both the CSRD and the associated ESRS standards extend undertakings'

reporting to include the entire value chain. This means that the new stand-

ards will not only affect undertakings that are directly covered by the

CSRD, but also a broad number of undertakings in the value chains. It will

therefore have a significant impact on the scope and quantity of the sus-

tainability-related information that undertakings must collect and disclo-

sure.

As it can be challenging for undertakings to obtain information from the

entire value chain, it is important to improve the way in which the standards

explain how the information requirements must be applied. In this regard,

it would be advantageous to add further guidance and explanations supple-

menting disclosure requirements (DRs) on value chain reporting elaborat-

ing on the practical use of different types of estimates.

Furthermore, we have noted discrepancies between the ESRS 1 and the

CRSD in relation to providing information regarding the value chain.

Following the CSRD, for the first three years after the application of the

CSRD, and if not all the necessary information regarding the value chain is

available, the undertaking shall explain the efforts made to obtain the nec-

essary information about its value chain, the reasons why not all the neces-

sary information could be obtained, and its plans to obtain the necessary

information in the future. This means that the CSRD, in relation to value

chain reporting, provides a transitional measure entailing flexibility in the

first three years of the CSRD, where undertakings are allowed to leave out

information on their value chain if not all the required information is avail-

able. The ESRS 1, on the contrary, do not include this flexibility in the

respective DRs.

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The ESRS 1 paragraph 133, repeats the transitional provision set out in the

CSRD while adding that even though the undertakings cannot obtain the

necessary information on their value chain, the undertakings are expected

to use available in-house information on their value chain, to meet the DRs

in this regard in ESRS 1. This leads to mandatory reporting on some value

chain information, despite not all necessary information can be obtained by

the undertaking. The second section in ESRS 1 paragraph 133, must be

removed if compliance with the CSRD is to be ensured.

Further, Article 19a, paragraph 2, litra a, (ii) in the CSRD requires a brief

description of the undertaking’s business model and strategy, including the

opportunities for the undertaking related to sustainability matters. This is

the only provision in the CSRD requiring reporting on opportunities or pos-

itive impacts of the undertaking’s activities.

The ESRS 1 paragraph 67, in its current wording, extends the scope of in-

formation to be reported to also include information on opportunities con-

nected to the undertaking through its direct and indirect business relation-

ships in the upstream and/or downstream value chain.

We therefore propose specifying the ESRS 1 paragraph 67, with an elabo-

rative explanation underlining that information on opportunities connected

to business relationships in the value chain shall be limited to disclosures

on opportunities made use of in the undertakings business model and strat-

egy.

In case the undertaking provides information about opportunities through

its business relationships in the value chain, which the undertaking does

not pursue in its business model and strategy, either because it has chosen

not to, or resources or funding is insufficient, such information should be

provided separately.

Regarding data on Scope 3 reporting (not just on CO

-emissions, but on all

areas) some elaboration and guidance on the extend of the value chain in

this regard must be provided. We agree on the need to look beyond just the

reporting undertakings, but in areas such as biodiversity and pollution there

are practical challenges on how the undertakings should account for Scope

3 and where the correlating value chains start. For instance, when reporting

on farming, the question arises of whether the starting point of the value

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chain is the field or where the seed was produced etc. This ambiguity causes

the risk of a circular result regarding the undertakings value chains. There-

fore, some limitation or definition is needed to ensure that the value chains

does not end up circular but solely are related to matters which the under-

takings can directly (or indirectly) impact, ensuring operational and com-

parable reporting.

Finally, we emphasize the need for a clarification regarding the scope of

the value-chain for undertakings in the financial sector.

Due diligence

The requirement to provide a statement on due diligence is very useful to

provide users of financial statements and supervisory authorities with an

overview of the undertaking’s activities related to sustainability due dili-

gence. This is key to enforcement of the proposed

Corporate Sustainability

Due Diligence Directive (

CSDDD) because the due diligence activities are

scattered across different topical DRs. However, the statement is based on

5 “core elements” of due diligence, which are not aligned

with the conduct

requirements outlined in the CSDDD proposal, nor with the UNGPs or

OECD Guidelines.

We therefore suggest adding the following underlined text to the core ele-

ments a), b) and d):

a) embedding due diligence in governance, policies, strategy and

business model (in relation to this, the overview in ESRS 1 para-

graph 65 (a) should also reference the ESRS 2 DC-P regarding pol-

icies)

b) engaging with affected key stakeholders in all key steps of due

diligence, including through channels to raise concerns

d) Taking actions to address those adverse impacts, including

providing or contributing to remedy where relevant

Incorporation by reference

The ESRS 1, paragraph 120 suggests that disclosures according to the

ESRS’s may be incorporated

by reference giving the conditions in para-

graph 121 are met. Some of the suggested reports to refer to are usually

located outside the annual report e.g., the remuneration report (litra d).

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The condition in the ESRS 1, paragraph 121 d) requires, that the disclosures

incorporated by reference “are available with the same technical digitalisa-

tion requirements as the sustainability statements.”

It must be ensured that the possibility to incorporate by reference is in ac-

cordance with the CSRD article 1, nr. 9 regarding the single electronic re-

porting format (new article 29 d in the Accounting Directive). In accord-

ance with that it is not clear how it relates to article 1, nr. 4 (1) (amendment

to article 19 a In the Accounting Directive) requiring that the information

shall be clearly identifiable within the management report and marked up

in XHTML format, through a dedicated section of the management report.

Format

There are many cross-references between the standards, which makes the

standards difficult to read and interpret. Additionally, the quality and inter-

pretation value of the ARs varies significantly between topics and between

DRs. It can be difficult to navigate, not only between the standards but also

at the level of the DRs. We suggest developing a separate navigation guide

on the Commission’s website, as a road map to initiate the reading and ap-

plication of the standards.

The DRs and the ARs should be located next to each other or in one text to

minimize the risk of misinterpretation. With the Application Guidance be-

ing amended to ARs, we also suggest giving the ARs the same status as the

DRs and put them in the same place as the DRs.

The headline of each DR (in bold) in some cases seems to be only an overall

description of the requirement as the headline paragraph is covered by sev-

eral datapoints in the paragraphs below the headline paragraph (e.g., the

ESRS E1, paragraph 28, and the ESRS 2, paragraph 6). It is unclear if any

additional and independent information should be disclosed for the head-

line paragraph in bold. In other cases, the headline paragraph is a distinct

datapoint in itself which is not covered by the following datapoints within

the DR (e.g., the ESRS E1, paragraph 53). An illustrative example of how

this is a challenge to interpret is the ESRS E3, paragraph 8, which is clas-

sified as mandatory according to the ESRS 2, Appendix E, even though it

seems like an overall description and covered by the following datapoint in

this DR with no clear independent disclosure content. A clarification on

how the bolded paragraphs interact with other datapoints in a DR is recom-

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mended. In the ESRS 1, paragraph 7 clarifies the

meaning of “shall dis-

close”, “shall consider”, “may disclose” and “shall consider disclosing”

across the entire ESRS set 1. We suggest that “shall consider” is not used

in relation to DRs, as it creates confusion on whether the DR is mandatory

or optional. Furthermore, the terms are giving rise to different interpreta-

tions and different practices. It will create more legal certainty to have ad-

ditional clarity about, what the requirements "shall consider disclosing" im-

poses on undertakings, or alternatively

to replace this term with “may dis-

close”.

Additionally, rather than using “topic” and “sustainability matter” inter-

changeably, we suggest using one term consistently. For example, “topic”

could be used consistently with an explanation in the ESRS 1 that

“topic”

in the standards refer to what the CSRD call “sustainability matter”. The

ESRS 2, paragraph 39(c), refers to “key suppliers”, yet this term is not de-

fined in Appendix VI, Glossary and Acronyms, nor anywhere else in the

ESRS. We suggest adding a

definition on how to define “key”, to minimize

the risk of the undertaking and its auditor having different interpretations,

and that different undertakings make inconsistent interpretations of what

constitutes a “key” supplier. The same applies to “key value chains.” The

latter is particularly difficult to interpret in large groups with many subsid-

iaries and value chains.

According to the ESRS 1, paragraph 66, the reporting undertaking for the

sustainability statements shall be the one retained for the financial state-

ments. As the “reporting undertaking” will be the one publishing the annual

report, it will obviously always be the same for both statements. Therefore,

this paragraph does not provide any instructions on how a parent shall con-

solidate sustainability

data for the group (“group” as defined in the Ac-

counting directive, Article 2(11)).

We suggest adding “meaningful” to “stakeholder engagement” in the defi-

nition of the term “stakeholder engagement” throughout the standards to

ensure alignment with

the UNGPs and OECD Guidelines’ provisions, re-

ferring to ongoing engagement with stakeholders that is two-way, con-

ducted in good faith and responsive.

Further, we suggest using the terminology “adverse impact” rather than

“negative impact” throughout the

standards. This would ensure alignment

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with the terminology used in the CSRD, UNGPs and OECD Guidelines, as

well as from the CSDDD.

ESRS 2- General disclosures

Alignment to CSRD is needed for DRs on Strategy and Business Model

(SBM) and, Impacts, Risks and Opportunities (IRO). The CSRD clearly

states that a “brief description” is expected, while the ESRS 2 requires a

much more detailed reporting. Therefore, the DRs regarding matters on

SBM and IRO are going further than the directive. Wording like “brief”

needs to be included in the DRs and it should be clearly stated that reporting

on IRO matters is to be addressed on a holistic level and not on (sub)topical

level. It must be clearly stated that the DRs on topical level in this respect

should be seen as guidance, but not a requirement to be performed on the

specific standard level.

ESRS 2 paragraph 56 should be amended from “the undertaking shall

re-

port

a brief explanation of the conclusions of its materiality assessment for

the topic.” to “the undertaking

shall

provide

a brief explanation of the con-

clusions of its materiality assessment for the topic

to the assurance pro-

vider”.

Some editorial changes should be performed in Appendices C and E in

ESRS 2 to ensure references to the correct paragraphs. E.g., according to

E, the datapoint in ESRS E5, paragraph 39(d) and paragraph 41, are man-

datory, but there is no paragraph 39(d) in ESRS E5 and the reference to

paragraph 41 seems to be incorrect.

Appendix C states that ESRS E5-5

“Non-recycled

waste paragraph

39 (d)”

is mandatory, though the correlating datapoint appears to be ESRS E5, par-

agraph 38(d). Further, Appendix C states that ESRS E5-5

“Hazardous

waste and radioactive waste paragraph 41” is mandatory, while the data-

point correlates with paragraph 40.

Appendix B

–

Application Requirements

In AR 1 (a),

a definition of the term “nature”

is unclear and should be in-

cluded in Appendix A.

Environmental standards

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E1- Climate change

In ESRS E1 two paragraphs are numbered 44 which has an impact on the

subsequent numbering in ESRS E1.

The Danish Government supports the designation of the GHG protocol as

the primary method for calculating climate footprints with GRI and ISO as

supplements.

Avoided emissions are exclusively mentioned in DR4 on targets related to

climate change mitigation and adaptation, paragraph 32 (b). The term is not

however clarified in Appendix A or described in any other way. Nor is it

clarified or described how companies should otherwise relate to it.

Regarding paragraph 32 (f) we suggest that “estimated” is added: “the un-

dertaking shall describe the expected decarbonisation levers and their

esti-

mated

overall quantitative…”

Regarding paragraph 33-36 we suggest that the standard only requires in-

formation on the undertaking’s energy consumption and that information

about energy mix is being taken out of paragraph 33-36. Energy mix is

already a central part of the disclosure on the undertakings Scope 2 emis-

sion, and furthermore we note that a requirement of a separate reporting on

energy mix can lead to undesired incentives for consumption of energy.

Subsidiaries can be exempted from financial consolidation in IFRS, the Ac-

counting Directive and non-EU GAAPs for various reasons. One exemp-

tion is in IFRS 10, paragraphs 27-33, where consolidation of subsidiaries

is exempted for investment entities. According to paragraph 44 (a), “un-

consolidated subsidiaries (investment entities)” shall be consolidated in full

for the sustainability statements if the reporting undertaking has operational

control. Subsidiaries can be exempted for other reasons. We find the para-

graph unclear and would like the text to clarify if the rule in paragraph 44

(a) shall be applied only to unconsolidated subsidiaries held by investment

entities in accordance with IFRS 10.

We suggest that ESRS 2 paragraph 55

“and broken down by removal ac-

tivity”

is postponed for 1-3 years. Alternatively, we suggest limiting the

disclosure requirement on removal activity to significant removal activi-

ties, for the first 1 year.

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Appendix B

–

Application Requirements

In some areas the ESRS are still very granular, requiring disaggregated in-

formation on sites, entities and countries that are considerably more de-

tailed than in the financial reporting as well as detailed information, includ-

ing considering the financial effect, on opportunities. For instance, in AR

12 information on detailed geographical location at the detail level of the

EU Nomenclature of Territorial Units of Statistics (NUTS for the EU terri-

tory) is requested. The current NUTS 2021 classification lists 1.166 regions

at NUTS 3 level. For Denmark

–

a relatively small country

–

there is alone

11 regions at NUTS3 level. We believe that this is a too detailed require-

ment and should be limited to NUTS level 1.

In AR 20 (c), “with disaggregation by decarbonization levers” must be de-

leted or postponed for 5-8 years. Alternatively, we suggest limiting the dis-

closure requirement on decarbonization levers to significant levers, for the

first 5 years.

Regarding paragraph AR 30 we note that the undertaking shall quantify

decarbonization levels in scenarios with reference to the undertakings GHG

emission targets. We would like to emphasize that this is a resource de-

manding process.

AR 27 on targets related to climate change and mitigation and adaptation

refers to two methods for setting targets:

The One earth model

Science-based target initiatives.

It is noted that SBTi typically appears on the global standard, and it should

be considered whether two methods should be mentioned.

AR39 (b) and AR39 (e) are identical and AR39 (e) should be deleted.

According to AR43 (e) the undertaking shall calculate and disclose the bi-

ogenic part of the emissions. We emphasize that

the countries’ electricity

declarations are not necessarily being calculated accordingly. Thus, AR43

(e) can lead to non-transparent overall results and weaken the possibility of

comparison. If the methods are different, it should be considered to delete

this paragraph.

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AR43 (h) stipulates that the undertaking shall disclose uptakes and emis-

sion from ILUC (indirect land use). We emphasize that this a resource de-

manding process. Furthermore, the existing data is not considered suffi-

cient for the purpose of disclosing uptakes and emissions from ILUC, and

AR43 (h) can therefore lead to incomparable reports.

AR 70 (c),

i states that “Significant assets located in the EU territory shall

be aggregated by NUTS codes 3, level digits. For significant assets located

outside EU territory, the breakdown by NUTS code will only be provided

where applicable.” This

seems to go further than what is required in pillar

3 and should be amended accordingly to reflect the appropriate level.In re-

lation to potential financial effects from material physical and transition

risks and potential climate-related opportunities, AR 73 (e) states that com-

panies may consider to and disclose "potential future liabilities", but only

in relation to Scope 1 and 2 and the total GHG emission. Previously, the

total GHG-emissions were described as including all three scopes, which

is why it creates a false picture if Scope 3 is not included in this.

E2- Pollution

We note that the term “microplastic”

is not applied in the REACH regula-

tion in relation to the use in mixtures. We suggest the term be adjusted in

accordance with the REACH regulation.

In the objective paragraph 1 (d),

a definition is needed regarding “depend-

encies” and how this

is to be reported on.

In DR 4 paragraph 29, litra (d) and (e) should be deleted as they are a subset

of litra (a) and (b) and risk creating confusion in relation to environmental

legislation.

Emissions to air, water and soil is considered the scope of this standard.

However, the identified substances leaving the undertaking via waste and

products (both solid articles and chemical mixtures) should be reported to

get a full understanding of the mass balance.

The ESRS E2 refers to the ESRS E5 regarding pollution in/from waste but

without the necessary update of the ESRS 5 as regard chemicals of concern

and most harmful substances. Thus, the requirements in the ESRS E2

should also apply to (hazardous) waste.

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Non-financial sustainability reporting on manufacturing of chemicals

should include the PFAS that are not yet restricted. Currently, Germany,

the Netherlands, Norway, Sweden, and Denmark are preparing a proposal

for restricting PFAS under the REACH regulation. However, not all appli-

cations of PFAS will be restricted. Furthermore, despite the very problem-

atic properties of PFAS, not all PFAS have harmonized classification. As

environmental pollution with PFAS has recently shown to be widespread,

and in all media, and the sources of pollution are plentiful and within a wide

range of productions, environmental reporting on the use of this substances

can be key to the future effort of reducing the negative impact of PFAS.

Denmark does not support applying the Essential Use concept in relation

to exemption of the identified substances from non-financial sustainability

reporting. If for other reasons the Essential Use concept would be applied,

a reference should be made to a (coming) legal definition of the concept to

avoid arbitrary reference to the concept as a loophole.

There are several references, where a destination link should be introduced

for the online version. These include:

“ESRS 2 chapter 4

Impact, risk and opportunity management”

page 5

“ESRS 2 DC-P

Policies adopted to manage material sustainabil-

ity matters”

on page 5

“ESRS 2 DC-A

Actions and resources in relation to material sus-

tainability matters”

on page 6

“ESRS

2 DC-T Tracking effectiveness of policies and actions

through targets” on page 6

“ESRS 1 Appendix C Qualitative characteristics of information”

on page 8

“LEAP approach, proposed by the Taskforce on Nature-Related

Financial Disclosure” on page 13

“TNFD

Nature-Related Risk & Opportunity Management and

Disclosure Framework”

Appendix A

–

Defined terms

Definitions in relation to chemicals are missing for the following words:

“substance”, “mixture”, “article”, “material”, “product” and “micro-

plastic”. The

definitions in the REACH regulation ((EC) No 1907/2006),

should be applied as far as possible.

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The definition of the abbreviation

“BAT-AEL” and “BAT-AEPL” should

be amended in accordance with the definitions in the Industrial Emissions

Directive (IED).

In the definition of

“Substances of concern”

litra c, a clarification is needed

regarding the term “any

other substance that are set out in applicable EU

legislation”.

Appendix B

–

Application Requirements

In the ARs for E2 to E5 it is a general DR in relation to impact, risk, and

opportunity management that the undertakings when conducting a materi-

ality assessment on environmental subtopics should consider a LEAP ap-

proach.

We would suggest describing “the LEAP approach” clearer with capital

letters in AR1. In the description LOCATE, EVALUATE and ASSESS are

addressed, but not PREPARE. A short remark about PREPARE would help

the undertakings in complying with the DR.

Additionally, the following abbreviations should be explained:

IRO-1, -2

DC-A, -P, -T

In AR 9, we suggest deleting or postponing the application of (a) for 5-8

years.

In AR14, reference should be made to the Safe and Sustainable by Design

principles, as set forth in the Commission recommendation establishing a

European assessment framework

for “safe and sustainable by design”

chemicals and materials, Brussels 8.12.2022 C 2022(8854) final.

In AR 15 and AR 18,

“at the level of the site location”

must be deleted or

the application thereof postponed for 5-8 years.

In the ARs relating to DR4, reference should be made to E-PRTR Annex

II and the threshold values should be aligned accordingly.

In AR26, a lower threshold should be introduced. The same should be ap-

plied for AR35. This will allow for compliance surveillance of the regula-

tion.

In AR 31, when an inferior methodology compared to direct measurement

of emissions is chosen to quantify emissions, the reasons for choosing this

inferior methodology shall be outlined by the undertaking. If the undertak-

ing uses estimates, it shall disclose the standard, sectoral study or sources,

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which form the basis of its estimates, as well as the possible degree of un-

certainty and the range of estimates reflecting the measurement uncertainty.

If the emissions are reported under PRTR the same methodologies should

be applied.

E3- Water and marine resources

The E3 standard is quite comprehensive, and proportionality should be con-

sidered, especially as regard facilities outside water stress areas.

According to this standard, the undertakings have to consider how they im-

pact water resources with their (treated) waste-water and/or their water con-

sumption.

To make it operational, the ESRS should refer to the river basin manage-

ment plans that Member States are already required to prepare, as these

plans set ecological and chemical targets/limits for lakes, rivers, coastal ar-

eas etc. These targets are set by each Member State and should be used in

the ESRS as the reference points and borders for the reporting in this area

within the EU.

In the objective paragraph 1 (c), reference should be made to the Industrial

Emissions Directive 2010/75/EU and the Urban Waste Water Directive

91/271/EEC.

Regarding paragraph 27 (c), undertakings should only be obligated to pro-

vide contextual information publicly available

regarding the local basins’

water quality and quantity. Thus,

“how

the data have been compiled, such

as any standards, methodologies, and assumptions used, including whether

the information is calculated, estimated, modelled, or sourced from direct

measurements, and the approach taken for this, such as the use of any sec-

tor-specific factors.”

should be deleted.

In paragraph 28 (a) the definition of

“total water recycled/reused” should

be aligned with the definition in the IE directive, and or Regulation No

852/2004.

Appendix A

–

Defined terms

The

definition of the term “discharge”

should refer to the definition estab-

lished by the European Environment Agency. In this regard, we also note

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that the term “water discharge”

conflicts with the definition given for

“dis-

charge”

as discharge

is defined as discharge of waste water.

Regarding the term “recycled/reused water”,

the definition differs between

“recycled water” and “reused water”.

We note that there is no consensus

about different meaning of recycled and reused water.

The definition of the terms

“wastewater”

and

“water withdrawal”

should

align with already established definitions e.g., in the OECD Glossary of

Statistical Terms to ensure alignment.

Appendix B

–

Application Requirements

Regarding AR7, it is unclear how the undertakings can fulfil this require-

ment.

E4- Biodiversity and ecosystems

While recognizing that we are faced with a global biodiversity crisis, ad-

hering to the proposed sector-agnostic requirements for biodiversity will be

a daunting task for most undertakings. Although the ESRS have a lot of

references to TNFD, TNFD is not published yet (currently still in beta) and

consequently much less established as a de facto standard/framework used

by undertakings in general.

Additionally, the maturity of the measurement and reporting areas should

be considered. The ESRS cover areas where there currently is either a lack

of, or very immature measurement principles and methods available. This

also implies that biodiversity and ecosystems are areas with very sparse

regulation in place to guide the undertakings when evaluating whether the

reporting undertaking have a significant impact on nature and the biodiver-

sity when for instance entering supply chains of natural resources.

To guide the undertakings, we suggest that undertakings within EU could

make use of the EU NATURA2000-network to lean on and for instance

consider whether they are impacting the network of the core breeding and

resting sites for rare and threatened species and/or some of the rare natural

habitat types which are protected in their own right. Reference to this

should ensure that there is a common approach to the reporting and more

legal certainty for the reporting undertakings.

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When looking beyond the borders of the EU, the Commission could include

a reference to the recently adopted regulation on deforestation and the pre-

vious EU Timber Regulation to ensure that there is a common point of ref-

erence.

It would also be relevant to consider the connection to the proposed Nature

Restoration Law.

The effective dates for (some of) the detailed DRs should be delayed en-

suring that an appropriate methodology is developed and that the undertak-

ings covered by the ESRS have the resources and knowledge available to

provide high quality reporting. This allows priority to be given to the most

important areas and to support this by the targeted development of meas-

urement and reporting methods.

In paragraph 16 on transition plan on biodiversity and ecosystems, under-

takings are asked to explain how their transition plan will ensure compati-

bility with various targets set for and by States. This is a lot to ask from

undertakings, given that very little is in place in terms of standards or

frameworks on biodiversity metrics. Undertakings need to have these tar-

gets translated into a company-level framework, as has been the case with

SBTi on climate change.

We propose to leave paragraph 16 (a) out for the time being.

The requirements in paragraph 19 leaves it very open to undertakings to

determine what the relevant metrics are, and what the scope of the analysis

and reporting should be. Consequently, there is a clear risk, that the pre-

pared reports will be very hard to compare across undertakings. Undertak-

ings should be helped with non-binding guidance documents to help their

analysis and reporting.

In paragraph 21, the definition of the term “circularity

measures”

is unclear.

A definition should be added to Appendix A in this regard.

In paragraph 22 undertakings are asked to disclose whether they have sites

located in or near biodiversity-sensitive areas and whether activities related

to these sites negatively affect these areas. It should be clarified whether "it

has sites" refers to the undertakings’ own sites only, or also sites up-stream

in the value chain. As a side note to this, the Commission should work to

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ensure easy and free access to data on metrics, e.g., on biodiversity-sensi-

tive areas for undertakings. These are data expected to come from nature

monitoring programs, probably often public ones. The EC should work on

data accessibility also with third countries.

In paragraph 22 (d), we suggest adding the possibility of aggregating sites

with similar types of impact.

In paragraph 25 (a),

the definition of the term “circular design”

is unclear.

A definition should be added to Appendix A, suggestively with reference

to the 10 Rs of Circular Economy.

In paragraph 32 (b), the definition of the term “regenerative sources” is

unclear. A definition should be added to Appendix A, suggestively with

reference to the regulation on deforestation.

We propose to delete "/ or aligned with" in paragraph 35 (d) cf. comment

to paragraph 16.

In relation to paragraph 41-45 we consider it a good starting point to focus

the sector-agnostic disclosure on the undertakings own operations for now,

given the current lack of common methodology on performance measure-

ment (as acknowledged in paragraph 40). The scope could be widened to

up-stream operations where relevant in the planned sector standards.

Regarding paragraph 44

we would like to ask

whether undertakings are ex-

pected to set up their own private biodiversity and ecosystems monitoring

programs?

Appendix A

–

Defined terms

A definition of

“forest”

should be included in Annex A.

Furthermore, we agree that the definition of

“deforestation”

should be

aligned as much as possible with the definition in EU's new regulation on

deforestation. However, it is important to keep the broader perspective in

ESRS E4 and thus, the definition of deforestation should not only cover the

conversion of forest to agricultural use but also other human-induced con-

version.

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ESRS E5- Resource use and circular economy

In paragraph 3 the last sentence should be deleted as it is not a part of the

definition of circular economy.

In paragraph 4 E-PRTR Regulation No. 166/2006 should be added to the

list of EU legislative frameworks as the regulation is highly relevant in this

regard.

We noted a typo in paragraph 20 (b) where

an “and” should be inserted

between “Remanufacture” and “Repurpose” and the parenthesis should be

deleted.

In relation to paragraph 33 a common methodology on how undertakings

are to calculate the data on resource inflows should be provided to ensure

alignment and comparability.

Further,

“composting, or anaerobic

digestion” should be added to the re-

covery operation types the undertakings are to report on in paragraph 38

(b), ii. This would ensure that recycling of organic and biological waste is

covered, as it is also needed to define the circular material use rate.

Appendix A

–

Defined terms

It should be emphasized that

“by-product”

is a legal definition by making

a reference to Art. 5 in the Waste Framework Directive (2008/98/EC).

The first part of the definition

of “circular material use rate”

specifies cir-

cular material use. The definition should be split into two separate defini-

tions, one for “circular material use” and one for “circular

material use

rate”.

The definition of “circular material use” should be “Recirculation

of mate-

rials, components and products in practice after first use employing the fol-

lowing strategies (in order of preference):

(i)

maintenance/prolonged use;

(ii)

reuse/redistribution;

(iii) refurbishment/remanufacturing;

(iv)

recycling, composting, or anaerobic digestion.”

The definition of “circular material use rate should

solely

be “The

use rate

is defined as the ratio of circular use of materials to overall use of materi-

als.”

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The definition “Incineration with (without) energy recovery”

is unclear and

risks creating confusion. The definition should be split into separate defi-

nitions,

one for “Incineration

with

energy recovery” and one for “Incinera-

tion without energy recovery”.

In this regard, we encourage that a reference

to the Waste Framework Directive (2008/98/EC) is included.

A reference to the Waste Framework Directive (2008/98/EC) art. 3(17)

should be added to the definition of

“recycling”.

The terms

“circular economy”, “circular economy principles”, “regenera-

tion” and “regenerative

production” are no established legal definitions.

References for the basis of these definitions should be included, to ensure

that the undertakings are sufficiently informed on, what they must report

on.

The last sentence in the definition of

“reuse”

should be isolated into a sep-

arate defined term,

“preparing for reuse”.

The distinction between the two

definitions is important and would be in alignment with the Waste Frame-

work Directive (2008/98/EC) art. 3(13) and (16).

Appendix B

–

Application Requirements

In AR10 the list a-f should not be seen as an exclusive list to which "the

undertaking may refer to". This should be stated clearly.

In AR 15 (a) we suggest to also mention “collaboration on sharing of prod-

uct data” as a circular action.

The explanation of ”circular material use rate” in AR 19 is not very clear

and could be expanded to give further clarification.

Furthermore, it is not clear why smart waste collection systems is a good

example of a way to prevent waste in AR31(a).

There seems to be a typo in AR 9

–

a missing capital

P in “Product”.

Social standards

General remarks

Information concerning disabilities and ethnicity is protected by the Gen-

eral Data Protection Regulation (GDPR).

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There is a general lack in the social standards of explicit mention of the

GDPR regarding the legal restrictions on the collection of data. We stress

that while information concerning disabilities and ethnicity can be legally

retrieved with consent from the employee, the DRs the social standards

pose a concern regarding whether such consent with certainty can be con-

sidered as freely given, in accordance with art. 7 (4) of the GDPR, as the

employees may be giving consent under the influence of their employer.

In ESRS S2-3, S3-3, and S4-3 the general approach to remediation is in-

cluded in the same DR as channels to raise concerns. We suggest removing

remediation from these DRs, and instead add it to S2-4, S3-4 and S4-4,

respectively, where remediation is already mentioned (e.g., in paragraph

33(c) in ESRS S2-4).

The ESRS S2-4 paragraph 33, S3-4 paragraph 32, and S4-4 paragraph 30,

refer to the DRs in its entirety (both impacts, risks and opportunities), alt-

hough those paragraphs only concern material impacts. We therefore sug-

gest introducing those paragraphs with “In relation to material impacts, the

undertaking shall describe its approaches to:”.

ESRS S1- Own workforce

In paragraph 16 (c),

“including

their geographic location”

must be deleted

or the application thereof postponed for 5-8 years.

According to paragraph 33(c), the undertaking shall describe the processes

in place to cover the matters defined within paragraph 2 of the Objective

section by disclosing the lack of grievance/complaints handling mecha-

nisms related to employee matters. We suggest clarifying how this should

be interpreted.

According to paragraph 12(a), the DR S1-6 is mandatory for undertakings

with more than 250 employees. Thus, we suggest amending paragraph 52,

from “An undertaking

may

report” to “An undertaking

shall

report”.

We suggest adding details on the version of ILO List of Occupational Dis-

eases in the, ESRS S1, AR94, as it has been revised. The reference to par-

agraph 63 in AR96 also needs an update.

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An example of a mandatory granular DR is paragraph 51(a), which requires

undertakings to disclose the total number of employees, and breakdowns

by gender and by country for countries in which the undertaking has 50 or

more employees. Even though this DR is only mandatory for undertakings

above the specified threshold it could lead to very extensive disclosures for

undertakings with operations in many countries, risking obscuring material

information to the detriment of users.

According to the ESRS S1, Appendix A, an employee is an individual who

is in an employment relationship with the undertaking according to national

law or practice. We suggest elaborating the definition of an employee to

clarify whether it includes people having a short-term employment rela-

tionship with the undertaking, such as day labor, trainees, students, and

whether inactive employees, such as employees on sick, maternity, mili-

tary, or other leave, shall be included when not receiving any compensation

during the leave. Many undertakings have employment relationship with

employees lend to affiliated undertakings or borrow employees that are in

an employment relationship with an affiliated undertaking. We suggest

clarifying if and how such employees shall be included.

ESRS S2- Workers in the value chain

In paragraph 11 (d), “including their

geographic location” must be deleted

or the application thereof postponed for 5-8 years.

In paragraph 17 the OECD Guidelines and UN Global Compact principles

are mentioned. The UNGPs should also be mentioned in this context, as

they

–

together with the OECD Guidelines

–

constitute the internationally

recognized standards for responsible business conduct, whereas the UN

Global Compact are voluntary principles.

ESRS S3- Affected communities

In paragraph 9 (c), “including their geographic location” must be

deleted

or the application thereof postponed for 5-8 years.

ESRS S4- Consumers and end-users

In paragraph 9 (c), “including their geographic location” must be deleted

or the application thereof postponed for 5-8 years.

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Closing remarks

A formal interpretation process must be instituted, where EFRAG recog-

nized as a European center of expertise on corporate reporting (EFRAG SR

Board supported by the EFRAG SR TEG) could be the organization poten-

tially with the Commission as the body to publish the interpretations. As

the standards are going to be adopted as regulations, a formal process is

important to consider, and this process must deliver timely interpretations

as reporting entities should be able to receive answers before having to re-

port.

Further, we propose that the Commission considers ways to help compa-

nies adopt the requirements, e.g., by initiating pilots with volunteer com-

panies with the purpose of doing a full reporting exercise and subsequently

publish case studies on the pilot. This can help and inspire other reporting

undertakings in their efforts.