A transition plan relates to the undertaking’s efforts in climate change mitigation . When disclosing its transition plan, the undertaking is expected to provide a high-level explanation of how it will adjust its strategy and business model to ensure compatibility with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement (or an updated inter national agreement on climate change) and the objective of achieving climate neutrality by 2050 with no or limited overshoot as established in Regulation (EU) 2021/1119 (European Climate Law), and where applicable, how it will adjust its exposure to coal, and oil and gas-related activities.

Sectoral pathways have not yet been defined by the public policies for all sectors. Hence, the disclosure under paragraph 16 (a) on the compatibility of the transition plan with the objective of limiting global warming to 1.5°C should be understood as the disclosure of the undertaking’s GHG emissions reduction target . The disclosure under paragraph 16 (a) shall be benchmarked in relation to a pathway to 1.5°C. This benchmark should be based on either a sectoral decarbonisation pathway if available for the undertaking’s sector or an economy-wide scenario bearing in mind its limitations (i.e., it is a simple translation of emission reduction objectives from the state to undertaking level). This AR should be read also in conjunction with AR 26 and AR 27 and the sectoral decarbonisation pathways they refer to.

When disclosing the information required under paragraph 16(d) the undertaking may consider:

1. the cumulative locked-in GHG emissions associated with key assets from the reporting year until 2030 and 2050 in tCO2eq. This will be assessed as the sum of the estimated Scopes 1 and 2 GHG emissions over the operating lifetime of the active and firmly planned key assets. Key assets are those owned or controlled by the undertaking, and they consist of existing or planned assets (such as stationary or mobile installations, facilities, and equipment) that are sources of either significant direct or energy-indirect GHG emissions. Firmly planned key assets are those that the undertaking will most likely deploy within the next 5 years.
2. the cumulative locked-in GHG emissions associated with the direct use-phase GHG emissions of sold products in tCO2eq, assessed as the sales volume of products in the reporting year multiplied by the sum of estimated direct use-phase GHG emissions over their expected lifetime. This requirement only applies if the undertaking has identified the Scope 3 category “use of sold products” as significant under Disclosure Requirement E1-6 paragraph 51; and 
3. an explanation of the plans to manage, i.e., to transform, decommission or phase out its GHG-intensive and energy-intensive assets and products.

When disclosing the information required under paragraph 16 (e), the undertaking shall explain how the alignment of its economic activities with the provisions of Commission Delegated Regulation (EU) 2021/2139 is expected to evolve over time to support its transition to a sustainable economy. In doing so, the undertaking shall take account of the key performance indicators required to be disclosed under Article 8 of Regulation (EU) 2020/852 (in particular taxonomy-aligned revenue and CapEx and, if applicable, CapEx plans).

When disclosing the information required under paragraph 16 (g), the undertaking shall state whether or not it is excluded from the EU Paris-aligned Benchmarks in accordance with the exclusion criteria stated in Articles 12(1), points (d) to (g)^[46] and Article 12(2) of Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Standards Regulation)

When disclosing the information on the scope of the resilience analysis as required under paragraph 19 (a), the undertaking shall explain which part of its own operations and upstream and downstream value chain as well as which material physical risks and transition risks may have been excluded from the analysis.

When disclosing the information on how the resilience analysis has been conducted as required under paragraph 19 (b), the undertaking shall explain:

1. the critical assumptions about how the transition to a lower-carbon and resilient economy will affect its surrounding macroeconomic trends, energy consumption and mix, and technology deployment assumptions; 
2. the time horizons applied and their alignment with the climate and business scenarios considered for determining material physical and transition risks (paragraphs AR 11to AR 12) and setting GHG emissions reduction targets (reported under Disclosure Requirement E1-4); and 
3. how the estimated anticipated financial effects from material physical and transition risks (as required by Disclosure Requirement E1-9) as well as the mitigation actions and resources (disclosed under Disclosure Requirement E1-3) were considered.

When disclosing the information on the results of the resilience analysis as required under paragraph 19 (c), the undertaking shall explain: 

1. the areas of uncertainties of the resilience analysis and to what extent the assets and business activities at risk are considered within the definition of the undertaking’s strategy, investment decisions, and current and planned mitigation actions ; 
2. the ability of the undertaking to adjust or adapt its strategy and business model to climate change over the short-, medium- and long-term, including securing ongoing access to finance at an affordable cost of capital, the ability to redeploy, upgrade or decommission existing assets, shifting its products and services portfolio, or reskilling its workforce.

When disclosing the information on the processes to identify and assess climate impacts as required under paragraph 20 (a), the undertaking shall explain how it has:

1. screened its activities and plans in order to identify actual and potential future GHG emission sources and, if applicable, drivers for other climate-related impacts (e.g., emissions of black carbon or tropospheric ozone or land-use change ) in own operations and along the value chain; and 
2. assessed its actual and potential impacts on climate change (i.e., its total GHG emissions).

The undertaking may link the information disclosed under paragraphs 20 (a) and AR 9 to the information disclosed under the following Disclosure Requirements: Disclosure Requirement E1-1, paragraph 16 (d) on locked-in GHG emissions; Disclosure Requirement E1-4 and Disclosure Requirement E1-6.

When disclosing the information on the processes to identify and assess physical risks as required under paragraph 20 (b), the undertaking shall explain whether and how:

1. it has identified climate-related hazards (see table below) over the short-, medium- and long-term and screened whether its assets and business activities may be exposed to these hazards;
2. it has defined short-, medium- and long-term time horizons and how these definitions are linked to the expected lifetime of its assets, strategic planning horizons and capital allocation plans;
3. it has assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified climate-related hazards, taking into consideration the likelihood, magnitude and duration of the hazards as well as the geospatial coordinates (such as Nomenclature of Territorial Units of Statistics- NUTS for the EU territory) specific to the undertaking’s locations and supply chains; and
4. the identification of climate-related hazards and the assessment of exposure and sensitivity are informed by high emissions climate scenarios, which may, for example, be based on IPCC SSP5-8.5, relevant regional climate projections based on these emission scenarios, or NGFS (Network for Greening the Financial System) climate scenarios with high physical risk such as “Hot house world” or “Too little, too late”. For general requirements regarding climate-related scenario analysis see paragraphs 18, 19, AR 13 to AR 15.

Classification of climate-related hazards (Source: Commission delegated regulation (EU) 2021/2139)
	Temperature-related	Wind-related	Water-related	Solid mass-related
Chronic	Changing temperature (air, freshwater, marine water)	Changing wind patterns	Changing precipitation patterns and types (rain, hail, snow/ice)	Coastal erosion
	Heat stress		Precipitation or hydrological variability	Soil degradation
	Temperature variability		Ocean acidification	Soil erosion
	Permafrost thawing		Saline intrusion	Solifluction
			Sea level rise
			Water stress
Acute	Heat wave	Cyclones, hurricanes, typhoons	Drought	Avalanche
	Cold wave/frost	Storms (including blizzards, dust,  and sandstorms)	Heavy precipitation (rain, hail, snow/ice)	Landslide
	Wildfire	Tornado	Flood (coastal, fluvial, pluvial, ground water)	Subsidence
			Glacial lake outburst

When disclosing the information on the processes to identify transition risks and opportunities as required under paragraph 20 (c), the undertaking shall explain whether and how it has:

1. identified transition events (see the table with examples below) over the short-, medium- and long-term and screened whether its assets and business activities may be exposed to these events. In case of transition risks and opportunities, what is considered long-term may cover more than 10 years and may be aligned with climate-related public policy goals;
2. assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified transition events, taking into consideration the likelihood, magnitude and duration of the transition events;
3. informed the identification of transition events and the assessment of exposure by climate-related scenario analysis, considering at least a scenario consistent with the Paris Agreement and limiting climate change to 1.5°C, for example, based on scenarios of the International Energy Agency (Net zero Emissions by 2050, Sustainable Development Scenario, etc), or NGFS (Network for Greening the Financial System) climate scenarios. For the general requirements related to climate-related scenario analysis see paragraphs 18, 19, AR 13 to AR 15; and
4. identified assets and business activities that are incompatible with or need significant efforts to be compatible with a transition to a climate-neutral economy (for example, due to significant locked-in GHG emissions or incompatibility with the requirements for Taxonomy-alignment under Commission Delegated Regulation (EU) 2021/2139).

Examples of climate-related transition events (examples based on TCFD classification)
Policy and legal	Technology	Market	Reputation
Increased pricing of GHG emissions	Substitution of existing products and services with lower emissions options	Changing customer behaviour	Shifts in consumer preferences
Enhanced emissions-reporting obligations	Unsuccessful investment in new technologies	Uncertainty in market signals	Stigmatization of sector
Mandates on and regulation of existing products and services	Costs of transition to lower emissions technology	Increased cost of raw materials	Increased stakeholder concern
Mandates on and regulation of existing production processes			Negative stakeholder feedback
Exposure to litigation

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When disclosing the information required under paragraphs 19, 20, 21, AR 10 and AR 11, the undertaking shall explain how it has used climate-related scenario analysis that is commensurate to its circumstances to inform the identification and assessment of physical and transition risks and opportunities over the short-, medium- and long-term, including: 

1. which scenarios were used, their sources and alignment with state-of-the-art science; 
2. narratives, time horizons, and endpoints used with a discussion of why it believes the range of scenarios used covers its plausible risks and uncertainties; 
3. the key forces and drivers taken into consideration in each scenario and why these are relevant to the undertaking, for example, policy assumptions, macroeconomic trends, energy usage and mix, and technology assumptions; and 
4. key inputs and constraints of the scenarios, including their level of detail (e.g., whether the analysis of physical climate-related risks is based on geospatial coordinates specific to the undertaking’s locations or national- or regional-level broad data).

When conducting scenario analysis , the undertaking may consider the following guidance: TCFD Technical Supplement on “The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities” (2017); TCFD “Guidance on Scenario Analysis for Non-Financial Companies” (2020); ISO 14091:2021 “Adaptation to climate change — Guidelines on vulnerability, impacts and risk assessment”; any other recognised industry standards such as NGFS (Network for Greening the Financial System); and EU, national, regional and local regulations.

The undertaking shall briefly explain how the climate scenarios used are compatible with the critical climate-related assumptions made in the financial statements.

Policies related to either climate change mitigation or climate adaptation may be disclosed separately as their objectives, people involved, actions and resources needed to implement them are different.

Policies related to climate change mitigation address the management of the undertaking’s GHG emissions , GHG removals and transition risks over different time horizons, in its own operations and/or in the upstream and downstream value chain . The requirement under paragraph 22 may relate to stand-alone climate change mitigation policies as well as relevant policies on other matters that indirectly support climate change mitigation including training policies, procurement or supply chain policies, investment policies, or product development policies.This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

Policies related to climate change adaptation address the management of the undertaking’s physical climate risks and of its transition risks related to climate change adaptation. The requirement under paragraphs 22 and 25 may relate to stand-alone climate change adaptation policies as well as relevant policies on other matters that indirectly support climate change adaptation including training policies, and emergency or health and safety policies.

When disclosing the information on actions as required under paragraphs 29 (a) and 29 (b), the undertaking may:

1. disclose its key actions taken and/or plans to implement climate change mitigation and adaptation policies in its single or separate actions;
2. aggregate types of mitigation actions (decarbonisation levers) such as energy efficiency, electrification, fuel switching, use of renewable energy , products change, and supply-chain decarbonisation that fit the undertakings’ specific actions;
3. disclose the list of key mitigation actions alongside the measurable targets (as required by Disclosure Requirement E1-4) with disaggregation by decarbonisation levers; and
4. disclose the climate change adaptation actions by type of adaptation solution such as nature-based adaptation, engineering, or technological solutions.

When disclosing the information on resources as required under paragraph 29 (c), the undertaking shall only disclose the significant OpEx and CapEx amounts required for the implementation of the actions as the purpose of this information is to demonstrate the credibility of its actions rather than to reconcile the disclosed amounts to the financial statements. The disclosed CapEx and OpEx amounts shall be the additions made to both tangible and intangible assets during the current financial year as well as the planned additions for future periods of implementing the actions. The disclosed amounts shall only be the incremental financial investments directly contributing to the achievement of the undertaking’s targets.

In line with the requirements of ESRS 2 MDR-A, the undertaking shall explain if and to what extent its ability to implement the actions depends on the availability and allocation of resources. Ongoing access to finance at an affordable cost of capital can be critical for the implementation of the undertaking’s actions, which include its adjustments to supply/demand changes or its related acquisitions and significant research and development (R&D) investments.

The amounts of OpEx and CapEx required for the implementation of the actions disclosed under paragraph 29 (c) shall be consistent with the key performance indicators (CapEx and OpEx key performance indicators) and, if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178. The undertaking shall explain any potential differences between the significant OpEx and CapEx amounts disclosed under this Standard and the key performance indicators disclosed under Commission Delegated Regulation (EU) 2021/2178 due to, for instance, the disclosure of non-eligible economic activities as defined in that delegated regulation. The undertaking may structure its actions by economic activity to compare its OpEx and CapEx, and if applicable its OpEx and/or CapEx plans to its Taxonomy-aligned key performance indicators.

Under paragraph 34 (a), the undertaking may disclose GHG emission reduction targets in intensity value. Intensity targets are formulated as ratios of GHG emissions relative to a unit of physical activity or economic output. Relevant units of activity or output are referred to in ESRS sector-specific standards. In cases where the undertaking has only set a GHG intensity reduction target, it shall nevertheless disclose the associated absolute values for the target year and interim target year(s). This may result in a situation where an undertaking is required to disclose an increase of absolute GHG emissions for the target year and interim target year(s), for example because it anticipates organic growth of its business.

When disclosing the information required under paragraph 34 (b), the undertaking shall specify the share of the target related to each respective GHG emission Scope (1, 2 or 3) . The undertaking shall state the method used to calculate Scope 2 GHG emissions included in the target (i.e., either the location-based or market-based method). If the boundary of the GHG emission reduction target diverges from that of the GHG emissions reported under Disclosure Requirement E1-6, the undertaking shall disclose which gases are covered, the respective percentage of Scope 1, 2, 3 and total GHG emissions covered by the target. For the GHG emission reduction targets of its subsidiaries, the undertaking shall analogously apply these requirements at the level of the subsidiary.

When disclosing the information required under paragraph 34(c) on base year and baseline value: 

1. the undertaking shall briefly explain how it has ensured that the baseline value against which the progress towards the target is measured is representative in terms of the activities covered and the influences from external factors (e.g., temperature anomalies in a certain year influencing the amount of energy consumption and related GHG emissions). This can be done by the normalisation of the baseline value, or, by using a baseline value that is derived from a 3-year average if this increases the representativeness and allows a more faithful representation; 
2. the baseline value and base year shall not be changed unless significant changes in either the target or reporting boundary occur. In such a case, the undertaking shall explain how the new baseline value affects the new target, its achievement and presentation of progress over time. To foster comparability, when setting new targets , the undertaking shall select a recent base year that does not precede the first reporting year of the new target period by longer than 3 years. For example, for 2030 as the target year and a target period between 2025 and 2030, the base year shall be selected from the period between 2022 and 2025; 
3. the undertaking shall update its base year from 2030 and after every 5-year period thereafter. This means that before 2030, the base years chosen by undertakings’ may be either the currently applied base year for existing targets or the first year of application of the sustainability reporting requirements as set out in Article 5(2) of Directive (EU) 2022/2464 (2024, 2025 or 2026) and, after 2030, every 5 years (2030, 2035, etc); and
4. when presenting climate-related targets, the undertaking may disclose the progress in meeting these targets made before its current base year. In doing so, the undertaking shall, to the greatest extent possible, ensure that the information on past progress is consistent with the requirements of this Standard. In the case of methodological differences, for example, regarding target boundaries, the undertaking shall provide a brief explanation for these differences.

When disclosing the information required under paragraphs 34 (d) and 34 (e), the undertaking shall present the information over the target period with reference to a sector- specific, if available, or a cross-sector emission pathway compatible with limiting global warming to 1.5°C. For this purpose, the undertaking shall calculate a 1.5°C aligned reference target value for Scope 1 and 2 (and, if applicable, a separate one for Scope 3) against which its own GHG emission reduction targets or interim targets in the respective Scopes can be compared.

The reference target value may be calculated by multiplying the GHG emissions in the base year with either a sector-specific (sectoral decarbonisation methodology) or cross-sector (contraction methodology) emission reduction factor. These emission reduction factors can be derived from different sources. The undertaking should ensure that the source used is based on an emission reduction pathway compatible with limiting global warming to 1.5°C.

The emission reduction factors are subject to further development. Consequently, undertakings are encouraged to only use updated publicly available information.

	2030	2050
Cross-sector (ACA) reductions pathway based on the year 2020 as the reference year	– 42 %	– 90 %

 

Source: based on Pathways to Net-zero –SBTi Technical Summary (Version 1.0, October 2021)

The reference target value is dependent on the base year and baseline emissions of the undertaking’s GHG emission reduction target. As a result, the reference target value for undertakings with a recent base year or from higher baseline emissions may be less challenging to achieve than it will be for undertakings that have already taken ambitious past actions to reduce GHG emissions. Therefore, undertakings that have in the past achieved GHG emissions reductions compatible with either a 1.5°C-aligned cross-sector or sector-specific pathway, may adjust their baseline emissions accordingly to determine the reference target value. Accordingly, if the undertaking is adjusting the baseline emissions to determine the reference target value, it shall not consider GHG emission reductions that precede the year 2020 and it shall provide appropriate evidence of its past achieved GHG emission reduction.

When disclosing the information required under paragraph 34 (f), the undertaking shall explain:

1. by reference to its climate change mitigation actions , the decarbonisation levers and their estimated quantitative contributions to the achievement of its GHG emission reduction targets broken down by each Scope (1, 2 and 3);
2. whether it plans to adopt new technologies and the role of these to achieve its GHG emission reduction targets; and
3. whether and how it has considered a diverse range of climate scenarios , at least including a climate scenario compatible with limiting global warming to 1.5°C, to detect relevant environmental-, societal-, technology-, market- and policy -related developments and determine its decarbonisation levers.

The undertaking may present its GHG emission reduction targets together with its climate change mitigation actions (see paragraph AR 19) as a table or graphical pathway showing developments over time. The following figure and table provide examples combining targets and decarbonisation levers:

[]

	Base year (e.g., 2025)	2030 target	2035 target	…	2050 target
GHG emissions (ktCO2eq)	100	60	40
Energy efficiency and consumption reduction	–	-10	-4
Material efficiency and consumption reduction	–	-5	–
Fuel switching	–	-2	–
Electrification	–	–	-10
Use of renewable energy	–	-10	-3
Phase out, substitution or modification of product	–	-8	–
Phase out, substitution or modification of process	–	-5	-3
Other	–	–

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When preparing the information on energy consumption required under paragraph 35, the undertaking shall: 

1. only report energy consumed from processes owned or controlled by the undertaking applying the same perimeter applied for reporting GHG Scopes 1 and 2 emissions; 
2. exclude feedstocks and fuels that are not combusted for energy purposes. The undertaking that consumes fuel as feedstocks can disclose information on this consumption separately from the required disclosures;
3. ensure all quantitative energy-related information is reported in either Mega-Watt- hours (MWh) in Lower Heating Value or net calorific value. If raw data of energy- related information is only available in energy units other than MWh (such as Giga-Joules (GJ) or British Thermal Units (Btu)), in volume units (such as cubic feet or gallons) or in mass units (such as kilograms or pounds), they shall be converted to MWh using suitable conversion factors (see for example Annex II of the Fifth Assessment IPCC report). Conversion factors for fuels shall be made transparent and applied in a consistent manner; 
4. ensure all quantitative energy-related information is reported as final energy consumption, referring to the amount of energy the undertaking actually consumes using for example the table in Annex IV of Directive 2012/27 of the European Parliament and of the Council ^[48] on energy efficiency;
5. avoid double counting fuel consumption when disclosing self-generated energy consumption. If the undertaking generates electricity from either a non-renewable or renewable fuel source and then consumes the generated electricity, the energy consumption shall be counted only once under fuel consumption; 
6. not offset energy consumption even if on site generated energy is sold to and used by a third party; 
7. not count energy that is sourced from within the organisational boundary under “purchased or acquired” energy; 
8. account for steam, heat or cooling received as “waste energy” from a third party’s industrial processes under “purchased or acquired” energy;
9. account for renewable hydrogen ^[49] as a renewable fuel. Hydrogen that is not completely derived from renewable sources shall be included under “fuel consumption from other non-renewable sources”; and
10. adopt a conservative approach when splitting the electricity, steam, heat or cooling between renewable and non-renewable sources based on the approach applied to calculate market-based Scope 2 GHG emissions. The undertaking shall only consider these energy consumptions as deriving from renewable sources if the origin of the purchased energy is clearly defined in the contractual arrangements with its suppliers (renewable power purchasing agreement, standardised green electricity tariff, market instruments like Guarantee of Origin from renewable sources in Europe ^[50] or similar instruments like Renewable Energy Certificates in the US and Canada, etc.).

The information required under paragraph 38 is applicable if the undertaking is operating in at least one high climate impact sector. The information required under paragraph 38 (a) to (e). shall also include energy from fossil sources consumed in operations that are not in high climate impact sectors.

The information on Energy consumption and mix may be presented using the following tabular format for high climate impact sectors and for all other sector by omitting rows (1) to (5).

Energy consumption and mix	Comparative	Year N
(1) Fuel consumption from coal and coal products (MWh)
(2) Fuel consumption from crude oil and petroleum products (MWh)
(3) Fuel consumption from natural gas (MWh)
(4) Fuel consumption from other fossil sources (MWh)
(5) Consumption of purchased or acquired electricity, heat, steam, and cooling from fossil sources (MWh)
(6) Total fossil energy consumption (MWh) (calculated as the sum of lines 1 to 5)
Share of fossil sources in total energy consumption (%)
(7) Consumption from nuclear sources (MWh)
Share of consumption from nuclear sources in total energy consumption (%)
(8) Fuel consumption for renewable sources, including biomass (also comprising industrial and municipal waste of biologic origin, biogas, renewable hydrogen, etc.) (MWh)
(9) Consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources (MWh)
(10) The consumption of self-generated non-fuel renewable energy (MWh)
(11) Total renewable energy consumption (MWh) (calculated as the sum of lines 8 to 10)
Share of renewable sources in total energy consumption (%)
Total energy consumption (MWh) (calculated as the sum of lines 6, and 11)

The total energy consumption with a distinction between fossil, nuclear and renewable energy consumption may be presented graphically in the sustainability statement showing developments over time (e.g., through a pie or bar chart).

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When preparing the information on energy intensity required under paragraph 40, the undertaking shall:

1. calculate the energy intensity ratio using the following formula:
   Total energy consumption from acitivities in high climate impact sectors (MWh)
   _______________________________________________________________;
   Net revenue from acitivities in high climate impact sectors (Monetary Unit)
    
2. express the total energy consumption in MWh and the net revenue in monetary units (e.g., Euros);
3. the numerator and denominator shall only consist of the proportion of the total final energy consumption (in the numerator) and net revenue (in the denominator) that are attributable to activities in high climate impact sectors. In effect, there should be consistency in the scope of both the numerator and denominator;
4. calculate the total energy consumption in line with the requirement in paragraph 37;
5. calculate the net revenue in line with the accounting standards requirements applicable for the financial statements, i.e., IFRS 15 Revenue from Contracts with Customers or local GAAP requirements.

The quantitative information may be presented in the following table.

Energy intensity per net revenue	Comparative	N	% N / N-1
Total energy consumption from activities in high climate impact sectors per net revenue from activities in high climate impact sectors (MWh/Monetary unit)

Connectivity of energy intensity based on net revenue with financial reporting information

The reconciliation of net revenue from activities in high climate impact sectors to the relevant financial statements line item or disclosure (as required by paragraph 43) may be presented either:

1. by a cross-reference to the related line item or disclosure in the financial statements; or
2. If the net revenue cannot be directly cross-referenced to a line item or disclosure in the financial statements, by a quantitative reconciliation using the below tabular format.

 

Net revenue from activities in high climate impact sectors used to calculate energy intensity
Net revenue (other)
Total net revenue (Financial statements)

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When preparing the information for reporting GHG emissions as required by paragraph 44, the undertaking shall:

1. consider the principles, requirements and guidance provided by the GHG Protocol Corporate Standard (version 2004). The undertaking may consider Commission Recommendation (EU) 2021/2279 ^[51] or the requirements stipulated by EN ISO 14064-1:2018. If the undertaking already applies the GHG accounting methodology of ISO 14064- 1: 2018, it shall nevertheless comply with the requirements of this standard (e.g., regarding reporting boundaries and the disclosure of market-based Scope 2 GHG emissions); 
2. disclose the methodologies, significant assumptions and emissions factors used to calculate or measure GHG emissions accompanied by the reasons why they were chosen, and provide a reference or link to any calculation tools used; 
3. include emissions of CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3. Additional GHG may be considered when significant; and 
4. use the most recent Global Warming Potential (GWP) values published by the IPCC based on a 100-year time horizon to calculate CO2eq emissions of non-CO2 gases.

When preparing the information for reporting GHG emissions from its associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements as required by paragraph 50, the undertaking shall consolidate 100% of the GHG emissions of the entities it operationally controls. In practice, this happens when the undertakings holds the license – or permit – to operate the assets from these associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements. When the undertaking has a contractually defined part-time operational control, it shall consolidate 100% the GHG emitted during the time of its operational control.

In line with ESRS 1 chapter 3.7, the undertaking shall disaggregate information on its GHG emissions as appropriate. For example, the undertaking may disaggregate its Scope 1, 2, 3, or total GHG emissions by country, operating segments, economic activity, subsidiary, GHG category (CO2, CH4, N2O, HFCs, PFCs, SF6, NF3, and other GHG considered by the undertaking) or source type (stationary combustion, mobile combustion, process emissions and fugitive emissions).

An undertaking might have a different reporting period from some or all of the entities in its value chain. In such circumstances, the undertaking is permitted to measure its GHG emissions in accordance with paragraph 44 using information for reporting periods that are different from its own reporting period if that information is obtained from entities in its value chain with reporting periods that are different from the undertaking’s reporting period, on the condition that: 

1. the undertaking uses the most recent data available from those entities in its value chain to measure and disclose its greenhouse gas emissions;
2. the length of the reporting periods is the same; and 
3. the undertaking discloses the effects of significant events and changes in circumstances (relevant to its GHG emissions) that occur between the reporting dates of the entities in its value chain and the date of the undertaking’s general purpose financial statements.

When preparing the information on gross Scope 1 GHG emissions required under paragraph 48 (a), the undertaking shall:

1. calculate or measure GHG emissions from stationary combustion, mobile combustion, process emissions and fugitive emissions; and use suitable activity data that include the non-renewable fuel consumption;
2. use suitable and consistent emission factors; 
3. disclose biogenic emissions of CO2 from the combustion or bio-degradation of biomass separately from the Scope 1 GHG emissions, but include emissions of other types of GHG (in particular CH4 and N2O);
4. not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 1 GHG emissions; and
5. for activities reporting under the EU ETS, report on Scope 1 emissions following the EU ETS methodology. The EU ETS methodology may also be applied to activities in geographies and sectors that are not covered by the EU ETS.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When preparing the information on gross Scope 2 GHG emissions required under paragraph 49, the undertaking shall: 

1. consider the principles and requirements of the GHG Protocol Scope 2 Guidance (version 2015, in particular the Scope 2 quality criteria in chapter 7.1 relating to contractual instruments); it may also consider Commission Recommendation (EU) 2021/2279 or the relevant requirements for the quantification of indirect GHG emissions from imported energy in EN ISO 14064-1:2018; 
2. include purchased or acquired electricity, steam, heat, and cooling consumed by the undertaking; 
3. avoid double counting of GHG emissions reported under Scope 1 or 3;
4. apply the location-based and market-based methods to calculate Scope 2 GHG emissions and provide information on the share and types of contractual instruments. Location-based method quantifies Scope 2 GHG emissions based on average energy generation emission factors for defined locations, including local, subnational, or national boundaries (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015). Market-based method quantifies Scope 2 GHG emissions based on GHG emissions emitted by the generators from which the reporting entity contractually purchases electricity bundled with instruments, or unbundled instruments on their own (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015); in this case, the undertaking may disclose the share of market-based scope 2 GHG emissions linked to purchased electricity bundled with instruments such as Guarantee of Origins or Renewable Energy Certificates. The undertaking shall provide information about the share and types of contractual instruments used for the sale and purchase of energy bundled with attributes about the energy generation or for unbundled energy attribute claims. 
5. disclose biogenic emissions of CO2 carbon from the combustion or biodegradation of biomass separately from the Scope 2 GHG emissions but include emissions of other types of GHG (in particular CH4 and N2O). In case the emission factors applied do not separate the percentage of biomass or biogenic CO2, the undertaking shall disclose this. In case GHG emissions other than CO2 (particularly CH4 and N2O) are not available for, or excluded from, location-based grid average emissions factors or with the market-based method information, the undertaking shall disclose this.
6. not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 2 GHG emissions.

When preparing the information on gross Scope 3 GHG emissions required under paragraph 51, the undertaking shall:

1. consider the principles and provisions of the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011); and it may consider Commission Recommendation (EU) 2021/2279 or the relevant requirements for the quantification of indirect GHG emissions from EN ISO 14064-1:2018; 
2. if it is a financial institution, consider the GHG Accounting and Reporting Standard for the Financial Industry from the Partnership for Carbon Accounting Financial (PCAF), specifically part A “Financed Emissions” (version December 2022);
3. screen its total Scope 3 GHG emissions based on the 15 Scope 3 categories identified by the GHG Protocol Corporate Standard and GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011) using appropriate estimates. Alternatively, it may screen its indirect GHG emissions based on the categories provided by EN ISO 14064-1:2018 clause 5.2.4 (excluding indirect GHG emissions from imported energy);
4. identify and disclose its significant Scope 3 categories based on the magnitude of their estimated GHG emissions and other criteria provided by GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011, p. 61 and 65-68) or EN ISO 14064-1:2018 Annex H.3.2, such as financial spend, influence, related transition risks and opportunities or stakeholder views;
5. calculate or estimate GHG emissions in significant Scope 3 categories using suitable emissions factors;
6. update Scope 3 GHG emissions in each significant category every year on the basis of current activity data; update the full Scope 3 GHG inventory at least every 3 years or on the occurrence of a significant event or a significant change in circumstances (a significant event or significant change in circumstances can, for example, relate to changes in the undertaking’s activities or structure, changes in the activities or structure of its upstream and downstream value chain(s), a change in calculation methodology or in the discovery of errors);”);
7. disclose the extent to which the undertaking’s Scope 3 GHG emissions are measured using inputs from specific activities within the entity’s upstream and downstream value chain, and disclose the percentage of emissions calculated using primary data obtained from suppliers or other value chain partners.
8. for each significant Scope 3 GHG category, disclose the reporting boundaries considered, the calculation methods for estimating the GHG emissions as well as if and which calculation tools were applied. The Scope 3 categories should be consistent with the GHGP and include: 
   1. indirect Scope 3 GHG emissions from the consolidated accounting group (the parent and its subsidiaries),
   2. indirect Scope 3 GHG emissions from associates, joint ventures, and unconsolidated subsidiaries for which the undertaking has the ability to control the operational activities and relationships (i.e., operational control),
   3. Scope 1, 2 and 3 GHG emissions from associates, joint ventures, unconsolidated subsidiaries (investment entities) and joint arrangements for which the undertaking does not have operational control and when these entities are part of the undertaking’s upstream and dopwnstream value chain.
9. disclose a list of Scope 3 GHG emissions categories included in and excluded from the inventory with a justification for excluded Scope 3 categories;
10. disclose biogenic emissions of CO2 from the combustion or biodegradation of biomass that occur in its upstream and downstream value chain separately from the gross Scope 3 GHG emissions, and include emissions of other types of GHG (such as CH4 and N2O), and emissions of CO2 that occur in the life cycle of biomass other than from combustion or biodegradation (such as GHG emissions from processing or transporting biomass) in the calculation of Scope 3 GHG emissions;
11. not include any removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of Scope 3 GHG emissions;

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

The undertaking shall disclose its total GHG emissions disaggregated by Scopes 1 and 2 and significant Scope 3 in accordance with the table below.

	Retrospective				Milestones and target years
	Base Year	Comparative	N	% N / N-1	2025	2030	(2050)	Annual % target / Base year
Scope 1 GHG emissions
Gross Scope 1 GHG emissions (tCO2eq)
Percentage of Scope 1 GHG emissions from regulated emission trading schemes (%)
Scope 2 GHG emissions
Gross location-based Scope 2 GHG emissions (tCO2eq)
Gross market-based Scope 2 GHG emissions (tCO2eq)
Significant scope 3 GHG emissions
Total Gross indirect (Scope 3) GHG emissions (tCO2eq)
1 Purchased goods and services
[Optional sub-category: Cloud computing and data centre services
2 Capital goods
3 Fuel and energy-related Activities (not included in Scope1 or Scope 2)
4 Upstream transportation and distribution
5 Waste generated in operations
6 Business traveling
7 Employee commuting
8 Upstream leased assets
9 Downstream transportation
10 Processing of sold products
11 Use of sold products
12 End-of-life treatment of sold products
13 Downstream leased assets
14 Franchises
15 Investments
Total GHG emissions
Total GHG emissions (location-based) (tCO2eq)
Total GHG emissions (market-based) (tCO2eq)

To highlight potential transition risks , the undertaking may disclose its total GHG emissions disaggregated by major countries and, if applicable, by operating segments (applying the same segments for the financial statements as required by the accounting standards, i.e., IFRS 8 Operating Segments or local GAAP). Scope 3 GHG emissions may be excluded from these breakdowns by country if the related data is not readily available.

The Scope 3 GHG emissions may also be presented by according to the indirect emission categories defined in EN ISO 14064-1:2018.

If it is material for the undertaking’s Scope 3 emissions, it shall disclose the GHG emissions from purchased cloud computing and data centre services as a subset of the overarching Scope 3 category “upstream purchased goods and services”.

The total GHG emissions disaggregated by Scope 1, 2 and 3 GHG emissions may be graphically presented in the sustainability statement (e.g., as a bar or pie chart) showing the split of GHG emissions across the value chain (Upstream, Own operations, Transport, Downstream).

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When disclosing the information on GHG intensity based on net revenue required under paragraph 53, the
undertaking shall:

1. calculate the GHG intensity ratio by the following formula:
   Total GHG emissions (𝑡 𝐶𝑂2𝑒),
   Net revenue (Monetary unit)
2. express the total GHG emissions in metric tonnes of CO2eq and the net revenue in monetary units (e.g., Euros)and present the results for the market-based and location-based method;
3. include the total GHG emissions in the numerator and overall net revenue in the denominator;
4. calculate the total GHG emissions as required by paragraphs 44 (d) and 52; and
5. calculate the net revenue in line with the requirements in accounting standards applied for financialstatements, i.e., IFRS 15 or local GAAP.

The quantitative information may be presented in the following tabular format.

GHG intensity per net revenue	Comparative	N	% N / N-1
Total GHG emissions (location-based) per net revenue (tCO2eq/Monetary unit)
Total GHG emissions (market-based) per net revenue (tCO2eq/Monetary unit)

Connectivity of GHG intensity based on revenue with financial reporting information

The reconciliation of the net revenue used to calculate GHG intensity to the relevant line item or notes in the financial statements (as required by paragraph 55) may be done by either:

1. a cross-reference to the related line item or disclosure in the financial statements; or
2. if the net revenue cannot be directly cross-referenced to a line item or disclosure in the financial statements, bya quantitative reconciliation using the below tabular format.

 

Net revenue used to calculate GHG intensity
Net revenue (other)
Total net revenue (in financial statements)

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

In addition to their GHG emission inventories, undertakings shall provide transparency on how and to what extent they either enhance natural sinks or apply technical solutions to remove GHGs from the atmosphere in their own operations and upstream and downstream value chain. While there are no generally accepted concepts and methodologies for accounting for GHG removals, this Standard aims to increase transparency on the undertaking’s efforts to remove GHGs from the atmosphere (paragraphs 56 (a) and 58). The GHG removals outside the value chain that the undertaking supports through the purchase of carbon credits are to be disclosed separately as required by paragraphs 56 (b) and 59.

When disclosing the information on GHG removals and storage from the undertaking’s own operations and its upstream and donwstream value chain required under paragraphs 56 (a) and 58, for each removal and storage activity, the undertaking shall describe: 

1. the GHGs concerned;
2. whether removal and storage are biogenic or from land-use change (e.g., afforestation, reforestation, forest restoration, urban tree planting, agroforestry, building soil carbon, etc.), technological (e.g., direct air capture), or hybrid (e.g., bioenergy with CO2 capture and storage), and technological details about the removal, the type of storage and, if applicable, the transport of removed GHGs; 
3. if applicable, a brief explanation of whether the activity qualifies as a nature-based solution; and
4. how the risk of non-permanence is managed, including determining and monitoring leakage and reversal events, as appropriate.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When preparing the information on GHG removals and storage from the undertaking’s own operations and its upstream and donwstream value chain required under paragraphs 56 (a) and 58, the undertaking shall:

1. consider, as far as applicable, the GHG Protocol Corporate Standard (version 2004), Product Standard (version 2011), Agriculture Guidance (version 2014), Land use, land-use change , and forestry Guidance for GHG project accounting (version 2006); 
2. apply consensus methods on accounting for GHG removals as soon as they are available, notably the EU regulatory framework for the certification of CO2 removals; 
3. if applicable, explain the role of removals for its climate change mitigation policy ; 
4. include removals from operations that it owns, controls, or contributes to and that have not been sold to another party through carbon credits; 
5. if applicable, mark those GHG removal activities in own operations or the value chain that have been converted into carbon credits and sold on to other parties on the voluntary market;
6. account for the GHG emissions associated with a removal activity, including transport and storage, under Disclosure Requirement E1-6 (Scopes 1, 2 or 3). To increase transparency on the efficiency of a removal activity, including transport and storage, the undertaking may disclose the GHG emissions associated with this activity (e.g., GHG emissions from electricity consumption of direct air capture technologies) alongside, but separately from, the amount of removed GHG emissions;
7. in case of a reversal, account for the respective GHG emissions as an offset for the removals in the reporting period;
8. use the most recent GWP values published by the IPCC based on a 100-year time horizon to calculate CO2eq emissions of non-CO2 gases and describe the assumptions made, methodologies and frameworks applied for calculation of the amount of GHG removals; and 
9. consider nature-based solutions.

The undertaking shall disaggregate and separately disclose the GHG removals that occur in its own operations and those that occur in its upstream and downstream value chain. GHG removal activities in the upstream and downstream value chain shall include those that the undertaking is actively supporting, for example, through a cooperation project with a supplier . The undertaking is not expected to include any GHG removals that may occur in its upstream and downstream value chain that it is not aware of.

The quantitative information on GHG removals may be presented by using the following tabular format.

Removals	Comparative	N	% N / N-1
GHG removal activity 1 (e.g.., forest restoration)	–
GHG removal activity 2 (e.g.., direct air capture)	–
…	–
Total GHG removals from own operations (tCO2eq)
GHG removal activity 1 (e.g.., forest restoration)	–
GHG removal activity 2 (e.g.., direct air capture)	–
…	–
Total GHG removals in the upstream and downstream value chain (tCO2eq)
Reversals (tCO2eq)

GHG mitigation projects financed through carbon credits

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

Financing GHG emission reduction projects outside the undertaking’s value chain through purchasing carbon credits that fulfil high-quality standards can be a useful contribution towards mitigating climate change. This Standard requires the undertaking to disclose whether it uses carbon credits separately from the GHG emissions (paragraphs 56 (b) and 59) and GHG emission reduction targets (Disclosure Requirement E1-4). It also requires the undertaking to show the extent of use and which quality criteria it uses for those carbon credits.

When disclosing the information on carbon credits required under paragraphs 56 (b) and 59, the undertaking shall disclose the following disaggregation as applicable: 

1. the share (percentage of volume) of reduction projects and removal projects;
2. for carbon credits from removal projects, an explanation whether they are from biogenic or technological sinks;
3. the share (percentage of volume) for each recognised quality standard;
4. the share (percentage of volume) issued from projects in the EU; and
5. the share (percentage of volume) that qualifies as a corresponding adjustment under Article. 6 of the Paris Agreement.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When preparing the information on carbon credits required under paragraphs 56 (b) and 59, the undertaking shall: 

1. Consider recognised quality standards; .
2. if applicable, explain the role of carbon credits in its climate change mitigation policy ;
3. not include carbon credits issued from GHG emission reduction projects within its value chain as the respective GHG emission reductions shall already be disclosed under Disclosure Requirement E1-6 (Scope 2 or Scope 3) at the time they occur (i.e., double counting is avoided);
4. not include carbon credits from GHG removal projects within its value chain as the respective GHG removals may already be accounted for under Disclosure Requirement E1-7 at the time they occur (i.e., double counting is avoided);
5. not disclose carbon credits as an offset for its GHG emissions under Disclosure Requirement E1-6 on GHG emissions;
6. not disclose carbon credits as a means to reach the GHG emission reduction targets disclosed under Disclosure Requirement E1-4; and
7. calculate the amount of carbon credits to be cancelled in the future, as the sum of carbon credits in metric tonnes of CO2eq over the duration of existing contractual agreements.

When disclosing the information required under paragraphs 62 and 63, if applicable, the undertaking shall briefly explain whether and how the carbon prices used in internal carbon pricing schemes are consistent with those used in financial statements. This shall be done in respect of the internal carbon prices used for:

1. the assessment of the useful life and residual value of its assets (intangibles, property, plant and equipment);
2. the impairment of assets; and
3. the fair value measurement of assets acquired through business acquisitions.

The information may be presented by using the following table:

 

Types of internal carbon prices	Volume at stake (tCO2eq)	Prices applied (€/tCO2eq)	Perimeter description
CapEx shadow price
Research and Development (R&D) investment shadow price
Internal carbon fee or fund
Carbon prices for impairment testing
Etc.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

Material climate-related physical risks and transition risks may affect the undertaking’s financial position (e.g., owned assets, financially-controlled leased assets, and liabilities), performance (e.g., potential future increase/decrease in net revenue and costs due to business interruptions, increased supply prices resulting in potential margin erosions), and cash flows. The low probability, high severity and long-term time horizons of some climate- related physical risk exposures and the uncertainty arising from the transition to a sustainable economy mean that there will be associated material anticipated financial effects that are outside the scope of the requirements of applicable accounting standards.

Currently, there is no commonly accepted methodology to assess or measure how material physical risks and transition risks may affect the undertaking’s future financial position, financial, performance and cash flows. Therefore, the disclosure of the financial effects (as required by paragraphs 64, 66 and 67) will depend on the undertaking’s internal methodology and the exercise of significant judgement in determining the inputs, and assumptions needed to quantify their anticipated financial effects.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When disclosing the information required under paragraphs 64 (a) and 66, the undertaking shall explain whether and how:

1. it assessed the anticipated financial effects for assets and business activities at material physical risk, including the scope of application, time horizons, calculation methodology, critical assumptions and parameters and limitations of the assessment; and
2. the assessment of assets and business activities considered to be at material physical risk relies on or is part of the process to determine material physical risk as required under paragraphs 20 (b) and AR 11 and to determine climate scenarios as required under paragraphs 19 and AR 13 to AR 14. In particular, it shall explain how it has defined medium- and long-term time horizons and how these definitions are linked to the expected lifetime of the undertaking’s assets, strategic planning horizons and capital allocation plans.

When preparing the information on assets at material physical risk that is required to be disclosed under paragraph 66 (a), the undertaking shall:

1. Calculate the assets at material physical risk in terms of monetary amount and as a proportion (percentage) of total assets at the reporting date (i.e., the proportion is an estimate of the carrying value of assets at material physical risk divided by total carrying value as stated in the statement of financial position or balance sheet). The estimate of assets at material physical risk shall be derived starting from the assets recognised in the financial statements. The estimate of monetary amounts and proportion of assets at physical risk may be presented as either a single amount or range.
2. All types of assets including finance-lease / right-of-use assets shall be considered when determining the assets at material physical risk. 
3. To contextualise this information, the undertaking shall:
   1. disclose the location of its significant assets at material physical risk. Significant assets located ^[52] in the EU territory shall be aggregated by NUTS codes 3 level digits (Nomenclature of Territorial Units for Statistics). For significant assets located outside EU territory, the breakdown by NUTS code will only be provided where applicable. 
   2. disaggregate the monetary amounts of assets at risk by acute and chronic physical risk ^[53]. 
4. calculate the share of assets at material physical risk resulting from paragraph 66 (a) that is addressed by the climate change adaptation actions based on the information disclosed under Disclosure Requirement E1-3. This aims at approximating net risks.

When preparing the information required under paragraph 64 (a) and 66 (d), the undertaking may assess and disclose the share of net revenue from business activities at physical risk. This disclosure 

1. shall be based on the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP. 
2. may include a breakdown of the undertaking’s business activities with the corresponding details of the associated percentage of total net revenue, the risk factors (hazards, exposure and sensitivity) and, if possible, the magnitude of the anticipated financial effects in terms of margin erosion over the short-, medium- and long-term time horizons. The nature of business activities may also be disaggregated by operating segments if the undertaking has disclosed the contribution of margins by operational segments in its segment reporting in the financial statements.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When disclosing the information required under paragraphs 64 (b) and 67 (a), the undertaking shall explain whether and how: 

1. it has assessed the potential effects on future financial performance and position for assets and business activities at material transition risk, including the scope of application, calculation methodology, critical assumptions and parameters, and limitations of the assessment; and
2. the assessment of assets and business activities considered to be at material transition risk relies on or is part of the process to determine material transition risks as described under paragraphs 20 (c) and AR 11 and to determine scenarios as required under paragraphs AR 12 to AR 13. In particular, it shall explain how it has defined medium- and long-term time horizons and how these definitions are linked to the expected lifetime of the undertaking’s assets, strategic planning horizons and capital allocation plans.

When disclosing the information on assets at material transition risk as required under paragraphs 67 (a) and (b): 

1. the undertaking shall at the very least include an estimate of the amount of potentially stranded assets (in monetary amounts and as a proportion/percentage) from the reporting year until 2030 and from 2030 to 2050. Stranded assets are understood as the active or firmly planned key assets of the undertaking with significant locked-in GHG emissions over their operating lifetime. Firmly planned key assets are those that the undertaking will most likely deploy within the next 5 years. The amount may be expressed as a range of asset values based on different climate and policy scenarios, including a scenario aligned with limiting climate change to 1.5°C.
2. the undertaking shall disclose a breakdown of the carrying value of its real estate assets, including rights-of-use assets, by energy efficiency classes. The energy efficiency shall be represented in terms of either the ranges of energy consumption in kWh/m2 or the EPC ^[54] (Energy Performance Certificate) ^[55] label class. If the undertaking cannot obtain this information on a best-effort basis, it shall disclose the total carrying amount of the real estate assets for which the energy consumption is based on internal estimates.
3. the undertaking shall calculate the proportion (percentage) of total assets (including finance lease/right-of-use assets) at material transition risk addressed by the climate change mitigation actions based on the information disclosed under Disclosure Requirement E1-3. The total assets amount is the carrying amount on the balance sheet at the reporting date.

When disclosing the information on potential liabilities from material transition risks required under paragraph 67(d):

1. undertakings that operate installations regulated under an emission trading scheme may include a range of potential future liabilities originating from these schemes;
2. undertakings subject to the EU ETS, may disclose the potential future liabilities that relate to their allocation plans for the period before and until 2030. The potential liability may be estimated on the basis of:
   1. the number of allowances held by the undertaking at the beginning of the reporting period;
   2. the number of allowances to be purchased in the market yearly, i.e., before and until 2030;
   3. the gap between estimated future emissions under various transition scenarios and free allocations of allowances that are known for the period until 2030, and
   4. the estimated yearly cost per tonne of CO2 for which an allowance needs to be purchased;
3. In assessing its potential future liabilities, the undertaking may consider and disclose the number of Scope 1 GHG emission allowances within regulated emission trading schemes and the cumulative number of emission allowances stored (from previous allowances) at the beginning of the reporting period;
4. undertakings disclosing volumes of carbon credits planned to be cancelled in the near future (Disclosure Requirement E1-7) may disclose the potential future liabilities associated with those based on existing contractual agreements;
5. the undertaking may also include its monetised gross Scope 1, 2 and total GHG emissions (in monetary units) calculated as follows:
   1. monetised Scope 1 and 2 GHG emissions in the reporting year by the following formula:
      1. (gross Scope 1 GHG emissions (t CO2eq) + gross Scope 2 GHG emisssion (t CO2eq)) x GHG emission cost rate (€ / t CO2eq)
   2. monetised total GHG emissions in the reporting year by the following formula:
      1. Total GHG emissions (t CO2eq) x GHG emission cost rate ( € / t CO2eq)
   3. by use of a lower, middle and upper cost rate ^[56] for GHG emissions (e.g., market carbon price and different estimates for the societal costs of carbon) and reasons for selecting them.

Other approaches and methodologies may be applied to assess how transition risks may affect the future financial position of the undertaking. In any case, the disclosure of anticipated financial effects shall include a description of the methodologies and definitions used by the undertaking.

When preparing the information required under paragraph 67 (e), the undertaking may assess and disclose the share of net revenue from business activities at transition risks . This disclosure:

1. shall be based on the net revenue in line with the requirements in accounting standards applied for financial statements, i.e., IFRS 15 or local GAAP.
2. may include a breakdown of the undertaking’s business activities with the corresponding details of the associated percentage of current net revenue, risk factors (events and exposure), and when possible, the anticipated financial effects related to margin erosion over the short-, medium- and long-term. The nature of business activities may also be disaggregated by operating segments if the undertaking has disclosed the contribution of margins by operational segments in its segment reporting in the financial statements.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

The reconciliation of the significant amount of assets, liabilities, and net revenue (vulnerable to either material physical risks or transition risks) to the relevant line item or disclosure (e.g., in segment reporting) in the financial statements (as required by paragraph 68) may be presented by the undertaking as follows:

1. as a cross-reference to the related line item or disclosure in the financial statements if these amounts are identifiable in the financial statements; or
2. If these cannot be directly cross-referenced, as a quantitative reconciliation of each to the relevant line item or disclosure in the financial statement using the below tabular format:
    

Carrying amount of assets or liabilities or net revenue vulnerable to either material physical or transition risks
Adjusting items
Assets or liabilities or net revenue in the financial statements

The undertaking shall ensure the consistency of data and assumptions to assess and report the anticipated financial effects from material physical risks and transition risks in the sustainability statement with the corresponding data and assumptions used for the financial statements (e.g., carbon prices used for assessing impairment of assets, the useful life of assets, estimates and provisions). The undertaking shall explain the reasons for any inconsistencies (e.g., if the full financial implications of climate-related risks are still under assessment or are not deemed material in the financial statements).

For potential future effects on liabilities (as required by paragraph 67 (d)), if applicable, the undertaking shall cross-reference the description of the emission trading schemes in the financial statements.

This Appendix is an integral part of the ESRS E1. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When disclosing the information under paragraph 69 (a), the undertaking shall explain the nature of the cost savings (e.g., from reduced energy consumption), the time horizons and the methodology used, including the scope of the assessment, critical assumptions, and limitations, and whether and how scenario analysis was applied.

When disclosing the information required under paragraph 69 (b), the undertaking shall explain how it has assessed the market size or any expected changes to net revenue from low-carbon products and services or adaptation solutions including the scope of the assessment, the time horizon, critical assumptions, and limitations and to what extent this market is accessible to the undertaking. The information on the market size may be put in perspective to the current taxonomy-aligned revenue disclosed under the provisions of Regulation (EU) 2020/852. The entity may also explain how it will pursue its climate-related opportunities and, where possible, this should be linked to the disclosures on policies, targets and actions under Disclosure Requirements E1-2, E1-3 and E1-4.

When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of pollution in its own operations and its upstream and downstream value chain , and may consider the four phases below, also known as the LEAP approach: 

1. Phase 1: locate where in its own operations and its upstream and downstream value chain the interface with nature takes place;
2. Phase 2: evaluate the pollution -related dependencies and impacts; 
3. Phase 3: assess the material risks and opportunities ; and
4. Phase 4: prepare and report the results of the materiality assessment.

The materiality assessment for ESRS E2 corresponds to the first three phases of this LEAP approach. The fourth phase addresses the outcome of the process.

The process to assess the materiality of impacts , dependencies , risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities, and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

The sub-topics covered by the materiality assessment under ESRS E2 include:

1. pollution of air, water and soil (excluding GHG emissions and waste ), microplastics, and substances of concern ;
2. dependencies on ecosystem services that help to mitigate pollution-related impacts.

In Phase 1, to locate where in its own operations and its upstream and downstream value chain the interface with nature takes place, the undertaking may consider: 

1. the site locations of direct assets and operations and related upstream and downstream activities across the value chain; 
2. the site locations where emissions of water, soil and air pollutants occur; and
3. the sectors or business units related to those emissions or to the production, use, distribution, commercialisation and import/export of microplastics, substances of concern , and substances of very high concern , on their own, in mixtures or in articles.

Phase 2 relates to the evaluation of the undertaking’s impacts and dependencies for each material site or sector/business unit including by assessing the severity and likelihood of impacts on the environment and human health.

 

In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may : 

1. identify transition risks and opportunities in its own operations and its upstream and downstream value chain by the categories of:
   1. policy and legal: e.g., introduction of regulation, exposure to sanctions and litigation (e.g., negligence towards ecosystems ), enhanced reporting obligations; 
   2. technology: e.g., substitution of products or services by products or services with a lower impact, transition away from substances of concern; 
   3. market: e.g., shifting supply, demand and financing, volatility or increased costs of some substances; and
   4. reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s role in pollution prevention and control;
2. identify physical risks, e.g., sudden interruption of access to clean water, acid rain, or other pollution incidents that are likely to lead to or that have led to pollution with subsequent effects on the environment and society;
3. identify opportunities related to pollution prevention and control categorised by:
   1. resource efficiency: decrease quantities of substances used or improve efficiency of production process to minimise impacts;
   2. markets: e.g., diversification of business activities;
   3. financing: e.g., access to green funds, bonds or loans; 
   4. resilience: e.g., diversification of substances used and control of emissions through innovation or technology; and
   5. reputation: positive stakeholder relations as a result of a proactive stance on managing risks.

In order to assess materiality , the undertaking may consider Commission Recommendation (EU) 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organisations.

When providing information on the outcome of its materiality assessment, the undertaking shall consider: 

1. a list of site locations where pollution is a material issue for the undertaking’s own operations and its upstream and downstream value chain; and
2. a list of business activities associated with pollution material impacts, risks and opportunities.

The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

The description of the policies shall include information on the pollutant(s) or substance(s) covered.

When disclosing information under paragraph 11, the undertaking may include contextual information on the relations between its policies implemented and how they may contribute to the EU Action Plan “Towards a Zero Pollution for Air, Water and Soil” with for instance elements on:

1. how it is or may be affected by the targets and measures of the EU Action Plan and the revision of existing directives (e.g., the Industrial Emissions Directive); 
2. how it intends to reduce its pollution footprint to contribute to these targets.

Where actions extend to upstream or downstream value chain engagements, the undertaking shall provide information on the types of actions reflecting these engagements.

When considering resources, examples of operational expenditures could be investments in research and development to innovate and develop safe and sustainable alternatives to the use of substances of concern or to decrease emissions in a production process.

Where relevant to achieve its pollution -related policy objectives and targets , the undertaking may provide information on site -level action plans.

If the undertaking refers to ecological thresholds when setting targets , it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020), or any other guidance with a scientifically acknowledged methodology that allows setting of science-based targets by identifying ecological thresholds and, if applicable, entity-specific allocations. Ecological thresholds can be local, national and/or global.

The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Pollution Prevention and Control as defined in delegated acts adopted pursuant to Article 14(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Pollution Prevention and Control as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 13(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH critera.

Where relevant to support the policies it has adopted, the undertaking may provide information on the targets set at site level.

 

The targets may cover the undertaking’s own operations and/or the value chain.

The information to be provided on microplastics under paragraph 28(b) shall include microplastics that have been generated or used during production processes or that are procured, and that leave the undertaking’s facilities as emissions, as products, or as part of products or services. Microplastics may be unintentionally produced when larger pieces of plastics like car tires or synthetic textiles wear and tear or may be deliberately manufactured and added to products for specific purposes (e.g., exfoliating beads in facial or body scrubs).

The volume of pollutants shall be presented in appropriate mass units, for example tonnes or kilogrammes.

The information required under this Disclosure Requirement shall be provided at the level of the reporting undertaking. However, the undertaking may disclose additional breakdown including information at site level or a breakdown of its emissions by type of source, by sector or by geographical area.

When providing contextual information on the emissions, the undertaking may consider:

1. the local air quality indices (AQI) for the area where the undertaking’s air pollution occurs;
2. the degree of urbanisation (DEGURBA) ^[59] for the area where air pollution occurs; and
3. the undertaking’s percentage of the total emissions of pollutants to water and soil occurring in areas at water risk, including areas of high-water stress.

The information provided under this Disclosure Requirement may refer to information the undertaking is already required to report under other existing legislation (i.e., IED, E- PRTR, etc.).

Where the undertaking’s activities are subject to Directive 2010/75/EU of the European Parliament and of the Council on industrial emissions (IED) ^[60] and relevant Best Available Techniques Reference Documents ( BREFs), irrespective of whether the activity takes place within the European Union or not, the undertaking may disclose the following additional information: 

1. a list of installations operated by the undertaking that fall under the IED and EU- BAT Conclusions ; 
2. a list of any non-compliance incidents or enforcement actions necessary to ensure compliance in case of breaches of permit conditions;
3. the actual performance, as specified in the EU- BAT conclusions for industrial installations, and comparison of the undertaking’s environmental performance against “emission levels associated with the best available techniques” the (BAT-AEL) as described in EU-BAT conclusions; 
4. the actual performance of the undertaking against “environmental performance levels associated with the best available techniques ” (BAT-AEPLs) provided that they are applicable to the sector and installation ; and 
5. a list of any compliance schedules or derogations granted by competent authorities according to Art. 15(4) Directive 2010/75/EU that are associated with the implementation of BAT-AELs .

This Appendix is an integral part of ESRS E2. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

When providing information on pollutants , the undertaking shall consider approaches for quantification in the following order of priority:

1. direct measurement of emissions, effluents or other pollution through the use of recognised continuous monitoring systems (e.g., AMS Automated Measuring Systems);
2. periodic measurements;
3. calculation based on site -specific data; 
4. calculation based on published pollution factors; and
5. estimation.

Regarding the disclosure of methodologies required by paragraph 30, the undertaking shall consider:

1. whether its monitoring is carried out in accordance with EU BREF Standards or another relevant reference benchmark; and
2. whether and how the calibration tests of the AMS were undertaken and the verification of periodic measurement by independent labs were ensured.

This Appendix is an integral part of ESRS E2. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

This Appendix is an integral part of ESRS E2. It supports the application of the disclosure requirements set out in this standard and has the same authority as the other parts of the Standard.

The operating and capital expenditures related to incidents and deposits may include for instance: 

1. cost for eliminating and remediating the respective pollution of air, water and soil including environmental protection;
2. damage compensation costs including payment of fines and penalties imposed by regulators or government authorities.

Incidents may include for instance interruptions of production, whether arising from the supply chain and/or from own operations, which resulted in pollution .

The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

The quantification of the anticipated financial effects in monetary terms under paragraph 38(a) may be a single amount or a range.

When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of water and marine resources in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

1. Phase 1: locate where in its own operations and along the value chain the interface with nature takes place;
2. Phase 2: evaluate the dependencies and impacts ; 
3. Phase 3: assess the material risks and opportunities ; and 
4. Phase 4: prepare and report the results of the materiality assessment.

The materiality assessment for ESRS E3 corresponds to the first three phases of this LEAP approach, the fourth phase addresses the outcome of the process.

The processes to assess the materiality of impacts, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities, and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

The sub-topics related to water and marine resources covered by the materiality assessment include: 

1. water, which encompasses the consumption of surface water , groundwater , as well as withdrawals and discharges of water; and
2. marine resources , which encompasses the extraction and use of such resources and associated economic activities.

In phase 1, to locate where there are areas at water risk, and areas where there is an interface with marine resources that could lead to material impacts and dependencies in its own operations and along its upstream and downstream value chain, the undertaking may consider: 

1. the locations of direct assets and operations and related upstream and downstream activities across the value chain ;
2. the sites located in areas at water risk , including areas of high-water stress; and 
3. the sectors or business units that are interfacing with water or marine resources in these priority locations.

The undertaking shall consider river basins as the relevant level for assessment of locations and combine that approach with an operational risk assessment of its facilities and the facilities of suppliers with material impacts and risks.

The undertaking shall consider the criteria for defining the status of water bodies according to the relevant Annexes of Directive 2000/60/EC (Water Framework Directive) as well as the guidance documents provided for implementation of the Water Framework Directive. The list of guidance documents can be accessed under the European Commission’s Environment home page.

In phase 2, to evaluate its impacts and dependencies for each priority location identified under AR 5, the undertaking may:

1. identify business processes and activities that lead to impacts and dependencies on environmental assets and ecosystem services ;
2. identify water and marine resources -related impacts and dependencies across the undertaking’s value chain; and 
3. assess the severity and likelihood of the positive and negative impacts on water and marine resources.

For the identification of water and marine resources -related dependencies , the undertaking may rely on international classifications such as the Common International Classification of Ecosystem Services (CICES).

When identifying its marine resources -related dependencies , the undertaking shall consider if it depends upon key marine resources-related commodities, including but not limited to gravels and seafood products.

Marine resources are defined according to their use by human societies and must be considered in relation to the pressure they are subject to. Some of the pressure indicators are presented in other ESRS, namely microplastics and emissions to water in ESRS E2 and plastic waste in ESRS E5.

Examples of marine resources dependencies which may be considered by the undertaking are:

1. dependencies on commercially exploited fish and shellfish in its own operations and its upstream and downstream value chain; and
2. fishing activity that involves mobile bottom trawling, which can also have negative impacts on the seabed.

In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may :

1. identify transition risks and opportunities in its own operations and its value chain by the categories of: 
   1. policy and legal: e.g., introduction of regulation or policy (e.g., changes such as increased water protection, increased quality of water regulations, regulation of flows of water supply), ineffective governance of water bodies or marine resources , in particular across boundaries (e.g., transboundary governance and cooperation) resulting in water or oceans degradation , exposure to sanctions and litigation (e.g., non-respect of permits or allocations; negligence towards or killing of threatened marine species), enhanced reporting obligations on marine ecosystems and related services; 
   2. technology: e.g., substitution of products or services by products or services with a lower impact on water and marine resources, transition to more efficient and cleaner technologies (i.e., with lower impacts on oceans and water), new monitoring technologies (e.g., satellite), water purification, flood protection; 
   3. market: e.g., shifting supply, demand and financing, volatility or increased costs of water or marine resources; 
   4. reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s impact on water and marine resources; and 
   5. contribution to systemic risks via its own operations and its upstream and downstream value chain, including the risks that a marine ecosystem collapses or the risks that a critical natural system no longer functions (e.g., tipping points are reached, summing physical risks); 
2. identify physical risk including water quantity ( water scarcity , water stress), water quality, infrastructure decay or unavailability of some marine resources-related commodities (e.g. the rarefaction of some species of fish or other underwater marine living organisms sold as products by the undertaking) leading for instance to the impossibility of running operations in certain geographical areas; 
3. identify opportunities categorised by:
   1. resource efficiency: e.g., transition to more efficient services and processes requiring less water and marine resources;
   2. markets: e.g., development of less resource-intense products and services, diversification of business activities;
   3. financing: e.g., access to green funds, bonds or loans;
   4. resilience: e.g., diversification of marine or water resources and business activities (e.g., starting a new business unit on ecosystem restoration ), investing in green infrastructures, nature-based solutions , adopting recycling and circularity mechanisms that reduce the dependencies on water or marine resources; and 
   5. reputation: positive stakeholder engagement as a result of a proactive stance on managing nature-related risks (e.g., leading to preferred partner status).

The undertaking may rely on primary, secondary or modelled data collection or other relevant approaches to assess material impacts, dependencies , risks and opportunities, including Commission Recommendation 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organisations (Annex I – Product Environmental Footprint; Annex III – Organisation Environmental Footprint).

When providing information on the outcome of the materiality assessment, the undertaking shall consider: 

1. a list of geographical areas where water is a material issue for the undertaking’s own operations and its upstream and downstream value chain;
2. a list of marine resources -related commodities used by the undertaking which are material to the good environmental status of marine waters as well as for the protection of marine resources; and
3. a list of sectors or segments associated with water and marine resources material impacts, risks and opportunities.

When disclosing information required under paragraph 15, the undertaking shall consider the actions , or action plans, contributing to address the material impacts, risks and opportunities identified. Useful guidance is provided by the Alliance for Water Stewardship (AWS).

Considering that water and marine resources are shared resources which may require collective actions , or action plans, involving other stakeholders , the undertaking may provide information on those specific collective actions, including information on other parties (competitors, suppliers , retailers, customers, other business partners, local communities and authorities, government agencies…) and specific information on the project, its specific contribution, its sponsors and other participants.

When providing information on capital expenditures, the undertaking may consider expenditures related, for example, to stormwater drain rehabilitation, pipelines, or machinery used to manufacture new low water-use products.

The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

When disclosing information under paragraph 9, the undertaking may disclose whether its policies :

1. prevent further deterioration and protect and enhance the status of water bodies and aquatic ecosystems ;
2. promote sustainable water use based on a long-term protection of available water resources; 
3. aim at enhanced protection and improvement of the aquatic environment; 
4. promote a good environmental status of marine water; and
5. promote reduction of water withdrawals and water discharges.

The undertaking may also disclose information about policies which: 

1. contribute to good ecological and chemical quality of surface water bodies and good chemical quality and quantity of groundwater bodies, in order to protect human health, water supply, natural ecosystems and biodiversity, the good environmental status of marine waters and the protection of the resource base upon which marine related activities depend; 
2. minimise material impacts and risks and implement mitigation measures that aim to maintain the value and functionality of priority services and to increase resource efficiency on own operations; and 
3. avoid impacts on affected communities .

If the undertaking refers to ecological thresholds when setting targets , it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020). It may also refer to any other guidance with a scientifically acknowledged methodology that enables the setting of science-based targets by identifying ecological thresholds and, if applicable, organisation-specific allocations. Ecological thresholds can be local, national and/or global.

The undertaking may provide targets relating to:

1. the reduction of water withdrawals ; and
2. the reduction of water discharges.

If the undertaking provides targets on withdrawals, it may include water withdrawal from polluted soils and aquifers, and water withdrawn and treated for remediation purposes.

If the undertaking provides targets on discharges , it may include water discharges to groundwater such as reinjection to aquifers, or water returning to a groundwater source via a soakaway or a swale.

The targets may cover its own operations and/or its upstream and downstream value chain.

The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Water and Marine Resources as defined in the Commission delegated acts adopted pursuant to Article 12(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Water and Marine Resources as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 13(2), Article 14(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

The undertaking may operate in various areas at water risk . When disclosing information under paragraph 28 (b), the undertaking shall include such information only for those areas that have been identified as material in accordance with ESRS2 IRO-1 and ESRS2 SBM-3.

When disclosing contextual information on water consumption performance required by paragraph 26, the undertaking shall explain the calculation methodologies and more specifically the share of the measure obtained from direct measurement, from sampling and extrapolation, or from best estimates.

The undertaking may provide information on other breakdowns (i.e., per sector or segments).

When disclosing information required by paragraph 29 the undertaking may provide additional intensity ratios based on other denominators.

The undertaking may also provide information on its water withdrawals and water discharges.

The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

The quantification of the anticipated financial effects in monetary terms under paragraph 39(a) may be a single amount or a range.

If disclosing a transition plan, the undertaking may:

1. explain how it will adjust its strategy and business model to improve and, ultimately, achieve alignment with relevant local, national and global public policy goals and targets related to biodiversity and ecosystems including the vision of the Kunming-Montreal Global Biodiversity Framework and its relevant goals and targets, the EU Biodiversity Strategy for 2030, and Directive 2009/147/EC Council Directive 92/43/EEC (the EU Birds and Habitats Directives) and, as appropriate, planetary boundaries related to biosphere integrity and land-system change ;
2. include information about its own operations and also explain how it is responding to material impacts in its upstream and downstream value chain identified in its materiality assessment in accordance with ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities;
3. explain how its strategy interacts with its transition plan;
4. explain how it contributes to addressing biodiversity and ecosystem impact drivers and its possible mitigation actions following the mitigation hierarchy and the main path-dependencies and locked-in assets and resources (e.g., plants, raw materials) that are associated with biodiversity and ecosystems change; 
5. explain and quantify its investments and funding supporting the implementation of its transition plan, with a reference to the key performance indicators of taxonomy-aligned CapEx, and where relevant the CapEx plans, that the undertaking discloses in accordance with Commission Delegated Regulation (EU) 2021/2178;
6. if it has economic activities that are covered by delegated regulations on biodiversity under the Taxonomy Regulation, explain any objective or plans (CapEX, CapEx plans) that it has for aligning its economic activities (revenues, CapEx) with the criteria established in those delegated regulations; 
7. explain how biodiversity offsets are used as part of the transition plan, and if so, where the offsets are planned to be used, the extent of use in relation to the overall transition plan, and whether the mitigation hierarchy was considered; 
8. explain how the process of implementing and updating the transition plan is managed;
9. explain how it measures progress, namely indicate the metrics and methodologies it uses for that purpose;
10. indicate whether the administrative, management and supervisory bodies have approved the transition plan; and 
11. indicate current challenges and limitations to draft a plan in relation to areas of significant impact and how the company is addressing those challenges.

If disclosing a transition plan, the undertaking may, for example, refer to the following targets from the EU Biodiversity Strategy for 2030:

1. The decline of pollinators is reversed.
2. The risk and use of chemical pesticides is reduced by 50%, and the use of more hazardous pesticides is reduced by 50%. 
3. At least 25% of agricultural land is under organic farming management, and the uptake of agro-ecological practices is significantly increased.
4. Three billion additional trees are planted in the EU, in full respect of ecological principles. 
5. Significant progress in the remediation of contaminated soil sites .
6. At least 25 000 km of free-flowing rivers are restored.
7. The losses of nutrients from fertilisers are reduced by 50%, resulting in the reduction of the use of fertilisers by at least 20%.
8. The negative impacts on sensitive species and habitats, including on the seabed through fishing and extraction activities, are substantially reduced to achieve good environmental status.

If disclosing a transition plan, the undertaking may also refer to the Sustainable Development Goals, in particular: 

1. SDG 2 – End hunger, achieve food security and improved nutrition and promote sustainable agriculture;
2. SDG 6 – Ensure availability and sustainable management of water and sanitation for all;
3. SDG 14 – Conserve and sustainably use the oceans, seas and marine resources for sustainable development; and 
4. SDG 15 – Protect, restore and promote sustainable use of terrestrial ecosystems , sustainably manage forests, combat desertification , and halt and reverse land degradation and halt biodiversity loss.

The materiality assessment under ESRS E4 includes the undertaking’s:

1. contribution to direct impact drivers on biodiversity loss  ^[81]: 
   1. climate change;
   2. land-use change (e.g., land artificialisation), freshwater -use change and sea-use change; 
   3. direct exploitation; 
   4. invasive alien species ;
   5. pollution; and
   6. others.
2. impacts on the state of species (i.e., species population size, species global extinction risk);
3. impacts on the extent and condition of ecosystems including through land degradation , desertification and soil sealing ); and
4. impacts and dependencies on ecosystem services.

When assessing the materiality of impacts , dependencies , risks and opportunities the undertaking shall consider the provisions in ESRS 2 IRO-1 and ESRS 1 Chapter 3 Double materiality as the basis for sustainability disclosures and describe its considerations.

The undertaking shall assess the materiality of biodiversity and ecosystems in its own operations and its upstream and downstream value chain , and may conduct its materiality assessment in line with the first three phases of the LEAP approach: Locate (paragraph AR 7), Evaluate (paragraph AR 8) and Assess (paragraph AR 9).

Phase 1 relates to the localisation of relevant sites regarding its interface with biodiversity and ecosystems . To identify these relevant sites the undertaking may: 

1. develop a list of locations of direct assets and operations and related upstream and downstream value chain that are relevant to the undertakings business activities. Furthermore, the undertaking may provide information about sites for which future operations have been formally announced;
2. list the biomes and ecosystems it is interfacing with based on the list of locations identified under paragraph AR 7(a); 
3. identify the current integrity and importance of biodiversity and ecosystem at each location taking into consideration the information provided in paragraphs 16 and 17;
4. develop a list of locations where the undertaking is interfacing with locations in or near biodiversity-sensitive areas taking into consideration the information provided in paragraphs 16 and 17; and 
5. identify which sectors, business units, value chains or asset classes are interfacing with biodiversity and ecosystems in these material sites. Instead of identifying these interfaces per site, the undertaking may choose to identify them per raw material procured or sold by weight in tons, if such practice offers greater transparency.

In Phase 2, to evaluate its actual or potential impacts and dependencies on biodiversity and ecosystems for relevant sites , the undertaking may:

1. identify business processes and activities that interface with biodiversity and ecosystems; 
2. identify actual and potential impacts and dependencies;
3. ndicate the size, scale, frequency of occurrence and timeframe of the impacts on biodiversity and ecosystems taking into consideration the disclosures under paragraphs 16 and 17. Furthermore, the undertaking may disclose: 
   1. the percentage of its suppliers ’ facilities which are located in risk prone areas (with threatened species on the IUCN Red List of Species, the Birds and Habitats Directive or nationally list of threatened species, or in officially recognised Protected Areas, the Natura 2000 network of protected areas and Key Biodiversity Areas);
   2. the percentage of its procurement spend from suppliers with facilities which are located in risk prone areas (with threatened species on the IUCN Red List of Species, the Birds and Habitats Directive or nationally list of threatened species, or in officially recognised Protected Areas, the Natura 2000 network of protected areas and Key Biodiversity Areas); and
4. indicate the size and scale of the dependencies on biodiversity and ecosystems, including on raw materials, natural resources and ecosystem services . The undertaking may rely on the international classifications such as the Common International Classification of Ecosystem Services (CICES).

In Phase 3, to assesses its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may consider the following categories: 

1. physical risks : 
   1. acute risks (e.g., natural disasters exacerbated by loss of coastal protection from ecosystems , leading to costs of storm damage to coastal infrastructure, disease or pests affecting the species or variety of crop the undertaking relies on, especially in the case of no or low genetic diversity, species loss and ecosystem degradation ); and
   2. chronic risks (e.g., loss of crop yield due to decline in pollination services, increasing scarcity or variable production of key natural inputs, ecosystem degradation due to operations leading to, for example, coastal erosion and forest fragmentation, ocean acidification, land loss to desertification and soil degradation and consequent loss of soil fertility, species loss). 
2. transition risks , including:
   1. policy and legal: e.g. introduction of regulation or policy (e.g. changes such as increased land protection); exposure to sanctions and litigation (e.g. spills of polluting effluents that damage human and ecosystem health; or violation of biodiversity-related rights, permits or allocations; or negligence towards or killing of threatened species ); enhanced reporting obligations on biodiversity, ecosystems and related services;
   2. technology: e.g. substitution of products or services by products or services with a lower impact on biodiversity or dependence on ecosystem services , lack of access to data or access to poor quality data that hamper biodiversity-related assessments, transition to more efficient and cleaner technologies (i.e. with lower impacts on biodiversity), new monitoring technologies (e.g. satellite), requirements to use certain technologies (e.g. climate resistant crops, mechanical pollinators, water purification, flood protection); 
   3. market: e.g., shifting supply, demand and financing, volatility or increased costs of raw materials (e.g., biodiversity-intense inputs for which price has risen due to ecosystem degradation ); 
   4. reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s role in loss of biodiversity, violation of nature-related rights through operations, negative media coverage due to impacts on critical species and/or ecosystems, biodiversity-related social conflicts over endangered species, protected areas, resources or pollution . 
3. systemic risks , including: 
   1. ecosystem collapse risks that a critical natural system no longer functions, e.g., tipping points are reached and the collapse of ecosystems resulting in wholesale geographic or sector losses (summing physical risks);
   2. aggregated risk linked to fundamental impacts of biodiversity loss to levels of transition and physical risk across one or more sectors in a portfolio (corporate or financial); and 
   3. contagion risks that financial difficulties of certain corporations or financial institutions linked to failure to account for exposure to biodiversity-related risks spill over to the economic system as a whole.
4. opportunities, including for example:
   1. business performance categories: resource efficiency; products and services; markets; capital flow and financing; reputational capital; and
   2. sustainability performance categories: ecosystem protection, restoration and regeneration ; sustainability use of natural resources.

Presentation of information:

The undertaking may consider the tables below to facilitate its materiality assessment of material sites identified
under paragraph AR 7:

 

Ecosystem service…	Actual or potential dependencies
…	Change of functionality	Financial loss
…	Limited, moderate or significant	Limited, moderate or significant
…	…	…

 

Site location	Threatened species, protected areas, key biodiversity areas	Actual or potential impacts
…	…	Frequency of occurrence	Speed of impact	Severity of impact	Potential for mitigation
…	…	High, medium or low	<1 year or 1-3 years or >3 years	High, medium or low	High, medium or low
…	…	…	…	…	…

With regard to AR 7(e), the undertaking may consider using the table below:

Where are the raw materials produced or sourced from?	Absolute weight of raw materials (and percentage of the raw material weight)
In areas with species listed on the IUCN Red List of Threatened Species, the Birds and Habitats Directive or on national lists of threated species	…
In officially recognised protected Areas	…
In other Key Biodiversity Areas	…

The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

The undertaking may also provide information on how the policy refers to the production, sourcing or consumption of raw materials, and in particular how it: 

1. limits procurement from suppliers that cannot demonstrate that they are not contributing to significant damage to protected areas or key biodiversity areas (e.g., through certification);
2. refers to recognised standards or third-party certifications overseen by regulators; and
3. addresses raw materials originating from ecosystems that have been managed to maintain or enhance conditions for biodiversity, as demonstrated by regular monitoring and reporting of biodiversity status and gains or losses.

The undertaking may disclose connections and alignment with other global goals and agreements such as the SDGs 2, 6, 14 and 15 or any other well established global convention related to biodiversity and ecosystems.

When disclosing policies related to social consequences of biodiversity and ecosystems related dependencies and impacts under 23 (f), the undertaking may notably refer to the Nagoya Protocol and the Convention for Biological Diversity (CBD).

When disclosing information about whether and how its policies address the social consequences of biodiversity and ecosystems-related impacts under paragraph 23(f), the undertaking may provide information in relation to:

1. the fair and equitable sharing of the benefits arising from the utilisation of genetic resources; and 
2. the free, prior and informed consent for access to genetic resources.

The undertaking may also explain how its policy enables it to: 

1. avoid negative impacts on biodiversity and ecosystems in its own operations and related upstream and downstream value chain ; 
2. reduce and minimise its negative impacts on biodiversity and ecosystems in its operations and throughout the upstream and downstream value chain that cannot be avoided; 
3. restore and rehabilitate degraded ecosystems or restore cleared ecosystems following exposure to impacts that cannot be completely avoided and/or minimised; and
4. mitigate its contribution to material biodiversity loss drivers.

When disclosing its policies , if referring to third-party standards of conduct, the undertaking may disclose whether the standard used:

1. is objective and achievable based on a scientific approach to identifying issues, and realistic in assessing how these issues can be addressed on the ground under a variety of practical circumstances; 
2. is developed or maintained through a process of ongoing consultation with stakeholders with balanced input from all relevant stakeholder groups, including producers, traders, processors, financiers, local people and communities, indigenous peoples, and civil society organisations representing consumer , environmental and social interests, with no group holding undue authority or veto power over the content; 
3. encourages a step-wise approach and continuous improvement, both in the standard and its application of better management practices, and requires the establishment of meaningful targets and specific milestones to indicate progress against principles and criteria over time;
4. is verifiable through independent certifying or verifying bodies, which have defined and rigorous assessment procedures that avoid conflicts of interest, and are compliant with ISO guidance on accreditation and verification procedures or Article 5(2) of Regulation (EC) No 765/2008; and 
5. conforms to the ISEAL Code of Good Practice.

The undertaking may relate significant monetary amounts of CapEx and OpEx required to implement the actions taken or planned to:

1. the relevant line items or notes in the financial statements;
2. the key performance indicators required under article 8 of Regulation (EU) 2020/852 and under Commission Delegated Regulation (EU) 2021/2178; and
3. if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178.

The undertaking may disclose whether it considers an “avoidance” action plan, which prevents damaging actions before they take place. Avoidance often involves a decision to deviate from the business-as-usual project development path. An example of avoidance is altering the biodiversity and ecosystem footprint of a project to avoid destruction of natural habitat on the site and/or establishing set-asides where priority biodiversity values are present and will be conserved. At a minimum, avoidance should be considered where there are biodiversity and ecosystem-related values that are in one of the following categories: particularly vulnerable and irreplaceable, of particular concern to stakeholders , or where a cautious approach is warranted due to uncertainty about impact assessment or about the efficacy of management measures. The three main types of avoidance are defined below:

1. avoidance through site selection (Locate the entire project away from areas recognised for important biodiversity values);
2. avoidance through project design (Configure infrastructure to preserve areas at the project site with important biodiversity values); and 
3. avoidance through scheduling (Time project activities to account for patterns of species behaviour (e.g., breeding, migration) or ecosystem functions (e.g., river dynamics).

With regard to key actions , the undertaking may disclose:

1. a list of key stakeholders involved (e.g., competitors, suppliers, retailers, other business partners, affected communities and authorities, government agencies) and how they are involved, mentioning key stakeholders negatively or positively impacted by actions and how they are impacted, including impacts or benefits created for affected communities, smallholders, indigenous peoples or other persons in vulnerable situations;
2. where applicable, an explanation of the need for appropriate consultations and the need to respect the decisions of affected communities;
3. a brief assessment of whether the key actions may induce significant negative sustainability impacts ; 
4. an explanation of whether the key action is intended to be a one-time initiative or systematic practice; 
5. an explanation of whether the key action plan is carried out only by the undertaking, using the undertaking’s resources, or whether it is part of a wider initiative to which the undertaking significantly contributes. If the key action plan is part of a wider initiative, the undertaking may provide more information on the project, its sponsors and other participants;
6. a description of how it contributes to systemwide change, notably to alter the drivers of biodiversity and ecosystem change, e.g., through technological, economic, institutional, and social factors and changes in underlying values and behaviours;

In the context of this Disclosure Requirement, “local and indigenous knowledge” refer to the understandings, skills and philosophies developed by societies with long histories of interaction with their natural surroundings. For rural and indigenous peoples , local knowledge informs decision-making about fundamental aspects of day-to-day life.

The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Biodiversity as defined in the delegated acts adopted pursuant to Article 15(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Biodiversity as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 13(2), and Article 14(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH critera.

When disclosing information required under paragraph 29 for the purpose of setting targets the undertaking shall consider the need for an informed and willing consent of local and indigenous peoples , the need for appropriate consultations and the need to respect the decisions of these communities.

The targets related to material impacts may be presented in a table as illustrated below:

Type of target according to mitigation hierarchy	Baseline value and base year	Target value and geographical scope			Connected policy or legislation if relevant
		2025	2030	2050
Avoidance
Minimisation
Rehabilitation and restoration
Compensation or offsets

The targets related to the potentially material sustainability matters listed in paragraph AR 4 of this Standard, may be presented in a table as illustrated below:

Type of target according to sustainability matter	Baseline value and base year	Target value and geographical scope			Connected policy or legislation if relevant
		2025	2030	Up to 2050

Measurable targets related to biodiversity and ecosystems may be expressed as:

1. size and location of all habitat areas protected or restored, whether directly or indirectly controlled by the undertaking, and whether the success of the restoration measure was or is approved by independent external professionals;
2. recreated surfaces (environments in which management initiatives are implemented so as to create a habitat on a site where it did not exist initially); or 
3. number or percentage of projects / sites whose ecological integrity was improved (e.g., installation of fish passes, wildlife corridors).

When preparing the information required under this Disclosure Requirement, the undertaking shall consider and may describe:

1. the methodologies and metrics used and an explanation for why these methodologies and metrics are selected, as well as their assumptions, limitations and uncertainties, and any changes in methodologies made over time and why they occurred;
2. the scope of the metrics and methodologies, for example:
   1. undertaking, site , brand, commodity, corporate business unit, activity; 
   2. aspects (as set out in paragraph AR 4) covered. 
3. the biodiversity components of the metrics: species specific, ecosystem specific;
4. the geographies covered by the methodology and an explanation of why any relevant geographies were omitted;
5. how the metrics integrate ecological thresholds (e.g., the biosphere integrity and land-system change, planetary boundaries ) and allocations; 
6. the frequency of monitoring, key metrics being monitored, and the baseline condition/value and baseline year/period, as well as the reference period;
7. whether these metrics rely on primary data, secondary data, modelled data or on expert judgement, or a mixture of these;
8. an indication of which action is measured and monitored via the metrics and how they relate to the achievement of targets ;
9. whether metrics are mandatory (required by legislation) or voluntary. If they are mandatory, the undertaking may indicate the relevant legislation; if voluntary, the undertaking may refer to any voluntary standard or procedure used; and 
10. whether the metrics are informed by or correspond to expectations or recommendations of relevant and authoritative national, EU-level or intergovernmental guidelines, policies , legislation or agreements, such as the Convention for Biological Diversity (CBD) or IPBES.

The undertaking shall disclose metrics that are verifiable and that are technically and scientifically robust considering the appropriate time scales geographies, and may disclose how its selected metrics correspond to those criteria. To ensure that the metric is relevant there should be a clear relationship between the indicator and the purpose of the measurement. Uncertainties should be reduced as far as possible. Data or mechanisms used should be supported by well-established organisations and updated over time. Robust modelled data and expert judgment can be used where data gaps exist. The methodology shall be sufficiently detailed to allow for meaningful comparison of impacts and mitigation activities over time. Information gathering processes and definitions must be systematically applied. This enables a meaningful review of the undertaking’s performance over time and helps internal and peer comparison.

If a metric corresponds to a target, the baseline for both shall be aligned. The biodiversity baseline is an essential component of the larger biodiversity and ecosystems management process. The baseline is necessary to inform impact assessment and management planning, as well as monitoring and adaptive management.

Methodologies available to collect data and measure the undertakings’ impacts on biodiversity and ecosystems may be separated into three categories as follows:

1. primary data: collected in-situ using on the ground surveys;
2. secondary data: including geospatial data layers that are overlaid with geographic location data of business activities.
   1. At the species level, data layers on the ranges of different species can be used to predict the species that may be present at different locations. This includes operation sites and sourcing locations. Different range layers will have different levels of accuracy depending on certain factors (e.g., whether species ranges have been refined based on availability of habitat ). Information on the threat status of the species, and the activities that threaten them, can provide an indication of the likely contribution that business activities may be having on driving population trends and threat status.
   2. At the ecosystem level, data layers reflecting change in the extent and condition of ecosystems can be applied, including levels of habitat fragmentation and connectivity.
3. modelled biodiversity state data: Model-based approaches are commonly used for measuring ecosystem level indicators (e.g., extent, condition, or function). Models quantify how the magnitude of different pressures affects the state of biodiversity. These are referred to as pressure-state relationships and are based on globally collected data. Modelling results are applied locally to estimate how undertaking-level pressures will cause changes in ecosystem condition.An impact driver generally has three main characteristics: magnitude (e.g., amount of contaminant, noise intensity), spatial extent (e.g., area of land contaminated) and temporal extent (duration of persistence of contaminant).

With regard to life cycle assessment for land-use, the undertaking may refer to the “Land-use related environmental indicators for Life Cycle Assessment” by the Joint Research Center.

With regard to the introduction of invasive alien species, the undertaking may disclose the pathways and number of invasive alien species and the extent of surface covered by invasive alien species.

With regard to metrics on the extent and condition of ecosystems , useful guidance can be found in the work of the United Nations System of Environmental Economic Accounting Ecosystem Accounting (UN SEEA EA).

The undertaking may disclose in units of area (e.g., m2 or ha) on land-use using guidance provided by the Eco-Management and Audit Scheme (EMAS) ^[82]:

1. total use of land; 
2. total sealed area; 
3. total nature-oriented area on site ; and
4. total nature-oriented area off site.

The undertaking may disclose, for example, land cover change, which is the physical representation of the drivers “habitat modification” and “industrial and domestic activities”, i.e., the man-made or natural change of the physical properties of the earth’s surface at a specific location.

Land cover is a typical variable that can be assessed with earth observation data.

When reporting on material impacts related to the ecosystems , the undertaking may, in addition to the extent and condition of ecosystems, also consider the functioning of ecosystems by using:

1. a metric that measures a process or function that the ecosystem completes, or that reflects the ability of the ecosystem to undertake that specific process or function: e.g. net primary productivity, which is a measure of plant productivity based on the rate at which energy is stored by plants and made available to other species in the ecosystem. It is a core process that occurs for ecosystems to function. It is related to many factors, such as species diversity, but does not measure these factors directly; or
2. A metric that measures changes to the population of scientifically identified species under threat.

At the ecosystem level, data layers reflecting change in the extent and condition of ecosystems may be applied, including levels of habitat fragmentation and connectivity.

The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

The quantification of the anticipated financial effects in monetary terms under paragraph 45(a) may be a single amount or a range.

When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of resource use and circular economy in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach: 

1. Phase 1: locate where in the undertaking’s own operations and along its upstream and downstream value chain the interface with nature takes place;
2. Phase 2: evaluate the dependencies and impacts; 
3. Phase 3: assess the material risks and opportunities; 
4. Phase 4: prepare and report the results of the materiality assessment.

With regard to ESRS E5, phases 1 and 2 rely mainly on the materiality assessments conducted under ESRS E1 (including energy consumption), ESRS E2 (pollution), ESRS E3 (marine resources, water consumption) and ESRS E4 (biodiversity, ecosystems, raw materials). Indeed, circular economy eventually aims at reducing the environmental impact of the use of products, materials and other resources, minimizing waste and the release of hazardous substances and hence at reducing impacts on nature. This application requirement focuses mainly on the third phase of this LEAP approach, while the fourth phase addresses the outcome of the process.

The process to assess the materiality of impacts , dependencies , risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

The sub-topics related to resource use and circular economy covered by the materiality assessment include: 

1. resource inflows including the circularity of material resource inflows, considering resource use optimisation, intensity of materials and products and renewable and non-renewable resources;
2. resource outflows related to products and services; and
3. waste , including hazardous waste and non-hazardous waste management.

In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may: 

1. identify transition risks and opportunities in its own operations and its upstream and downstream value chain , including the risk of staying in a business-as-usual scenario : 
   1. policy and legal, e.g., bans on the extraction and use of non-renewable resources, regulations on waste treatment;
   2. technology, e.g., introduction on the market of new technologies to replace existing use of products and materials;
   3. market, e.g., shifting supply, demand and financing;
   4. reputation, e.g. changing societal, customer or community perceptions.
2. identify physical risks including depletion of stock and use of virgin and non-virgin renewable resources, and of non-renewable resources;
3. identify opportunities categorised by: 
   1. resource efficiency: e.g., transition to more efficient services and processes requiring less resources, eco-design for longevity , repair, reuse, recycle, by- products, take-back systems, decoupling activity from extraction of materials, intensifying circular material use, creation of a system that allows for dematerialization (e.g., digitisation, improving utilisation rates, weight reduction); practices to ensure products and materials are collected, sorted, and reused, repaired, refurbished, remanufactured; 
   2. markets: e.g., demand for less resource-intense products and services, and new consumption models such as product-as- a-service, pay-per-use, sharing, leasing; 
   3. financing: e.g., access to green funds, bonds or loans;
   4. resilience: e.g., diversification of resources and business activities (e.g., start a new business unit to recycle new materials), investing in green infrastructures, adopting recycling and circularity mechanisms that reduce the dependencies , capability of the undertaking to safeguard future stocks and flows of resources; and 
   5. reputation.

The undertaking may consider the following methodologies to assess its impacts, risks and opportunities in its own operations and along its upstream and downstream value chain : 

1. Commission Recommendation 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organizations (Annex I – Product Environmental Footprint; Annex III – Organisation Environmental Footprint); and
2. Material Flow Analysis (MFA) from the European Environment Agency.

When providing information on the outcome of the materiality assessment, the undertaking shall consider: 

1. a list of business units associated to resource use and circular economy material impacts, risks and opportunities in the context of the products and services of the undertaking and the waste it generates; 
2. a list and prioritisation of the material resources used by the undertaking;
3. the material impacts and risks of staying in business as usual; 
4. the material opportunities related to a circular economy; 
5. the material impacts and risks of a transition to a circular economy; and
6. the stages of the value chain where resource use, risks and negative impacts are concentrated.

The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

When providing information on its policies, the undertaking shall consider whether and how its policies address: 

1. the waste hierarchy : (a) prevention; (b) preparing for re-use; (c) recycling ; (d) other recovery , e.g., energy recovery; and (e) disposal. In this context, the waste treatment cannot be considered as a recovery; 
2. the prioritisation of the avoidance or minimisation waste (Re-use, Repair, Refurbish, Remanufacture and Repurpose) over waste treatment (Recycling). The concepts of eco-design ^[86], waste as a resource or post- consumer waste (at the end of a consumer -product lifecycle), should also be taken into consideration.

When defining its policies, the undertaking may consider the Paper on “Categorisation system for the circular economy”, which describes circular design and production models, circular use models, circular value recovery models and circular support along the principles of the nine circular economy “R” strategies or principles: refuse, rethink, reduce, re-use, repair, refurbish, remanufacture, repurpose and recycle.

The actions may cover the undertaking’s own operations and/or its upstream and downstream value chain.

When providing information under paragraph 17 and considering that resources are shared and that circular economy strategies may require collective actions, the undertaking may specify the actions taken to engage with its upstream and downstream value chain and/or its local network on the development of collaborations or initiatives increasing the circularity of products and materials.

In particular, the undertaking may specify the following:

1. how it contributes to circular economy, including for instance smart waste collection systems; 
2. the other stakeholders involved in the collective actions : competitors, suppliers , retailers, customers, other business partners, local communities and authorities, government agencies; 
3. a description of the organisation of the collaboration or initiative, including the specific contribution of the undertaking and the roles of the different stakeholders in the project.

If the undertaking refers to ecological thresholds to set targets , it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020) or any other guidance with a scientifically acknowledged methodology that allows to set science-based targets by identifying ecological thresholds and, if applicable, organisation-specific allocations. Ecological thresholds can be local, national and/or global.

When providing information on targets , the undertaking shall prioritise targets in absolute value.

When providing information targets according to paragraph 24, the undertaking shall consider the production phase, the use phase, and the end of functional life of products and materials.

When providing information on targets related to virgin renewable raw material under paragraph 24(c), the undertaking shall consider how those targets may impact biodiversity loss , also in light of ESRS E4.

The undertaking may disclose other targets under paragraph 24(f) including in relation to sustainable sourcing. If so, the undertaking shall explain the definition of sustainable sourcing it has adopted and how it relates to the objective set out in paragraph 22.

The targets may cover the undertaking’s own operations and/or its upstream and downstream value chain.

The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Circular Economy as defined in the delegated acts adopted pursuant to Article 13(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Circular Economy as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 14(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

Resource inflows may cover the following categories: IT equipment, textiles, furniture, buildings, heavy machinery, mid-weight machinery, light machinery, heavy transport, mid-weight transport, light transport and warehousing equipment. With regard to materials, resource inflow indicators include raw materials, associated process materials , and semi-manufactured goods or parts.

When the undertaking is subject to paragraph 31, it may also provide transparency on the materials that are sourced from by-products / waste stream (e.g., offcuts of a material that has not previously been in a product).

The denominator of the percentage indicator required under paragraphs 31(b) and 31(c) is the overall total weight of materials used during the reporting period.

The reported usage data are to reflect the material in its original state, and not to be presented with further data manipulation, such as reporting it as “dry weight”.

In cases where there is an overlap between categories of reused, recycled, the undertaking shall specify how double counting was avoided and the choices that were made.

Products and materials information to be provided under paragraph 35 refers to all materials and products that come out of the undertaking’s production process and that a company puts on the market (including packaging ).

When compiling the rate, the undertaking shall use as denominator the overall total weight of materials used during the reporting period.

The undertaking may disclose its engagement in product end-of-life waste management , for example through extended producer responsibility schemes or take-back schemes.

Type of waste is to be understood as hazardous waste or non-hazardous waste. Some specific waste, such as radioactive waste, may also be presented as a separate type.

When considering the waste streams relevant to its sectors or activities, the undertaking may consider the list of waste descriptions from the European Waste Catalogue.

Examples of other types of recovery operations under paragraph 37(b)iii may be found in Annex II of Directive 2008/98/EC (Waste Framework Directive).

Examples of other types of disposal operations under paragraph 37(c)iii may be found in Annex I of Directive 2008/98/EC (Waste Framework Directive).

When providing contextual information under paragraph 40 the undertaking may: 

1. explain the reasons for high weights of waste directed to disposal (e.g., local regulations that prohibit landfill of specific types of waste);
2. describe sector practices, sector standards, or external regulations that mandate a specific disposal operation; and 
3. specify whether the data has been modelled or sourced from direct measurements, such as waste transfer notes from contracted waste collectors.

When providing information under paragraph 42(b), the undertaking may illustrate and describe how it intends to strengthen value retention.

The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

The quantification of the anticipated financial effects in monetary terms under paragraph 43(a) may be a range.