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- Challenges in ESG Reporting: Majority of companies face hurdles in data retrieval and quality control for ESG metrics.
- Double Materiality Focus: Shift towards data-driven materiality assessments integrating internal and external insights.
- Value Chain Complexity: Companies struggle with mapping and reporting on detailed value chain components.
EFRAG released a report on the early implementation of the European Sustainability Reporting Standards (ESRS) among large EU companies. Supported by Boston Consulting Group (BCG), this study, titled ‘State of Play as of Q2 2024 | Implementation of ESRS,’ highlights preliminary practices and challenges faced by 28 large companies across various sectors.
Double Materiality Assessment
Companies are shifting from a judgment-based approach to a data-driven one, using a mix of internal and external data to assess ESG impacts. “A thorough, objective evidence-based Double Materiality Assessment is crucial for setting ESG priorities,” the report notes. About 70% of companies have started integrating data-driven approaches enhanced by stakeholder inputs.
Data Points
A significant challenge is the gap analysis for ESRS data points. Around 80% of companies report difficulties in data retrieval. Many use EFRAG’s Implementation Guidance 3 for gap analysis, with 95% leveraging it for data points assessment. However, only 40% of companies understand how to assess the materiality of individual data points effectively. “The implementation of the ESRS is nascent, and these findings should be viewed as preliminary snapshots rather than mature practices,” EFRAG states.
Value Chain
Value chain reporting remains underdeveloped, with 90% of companies still refining their value chain mapping. Companies are working to balance the level of granularity needed for effective reporting, with sector-specific guidance being a critical need. Approximately 45% of companies have adopted a more granular mapping approach, but challenges persist in going beyond Tier 1 of business relationships.
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ESG Reporting Organizational Approach
Companies are adopting various organizational models for ESG reporting. About 65% use a single-function ownership model, while 35% employ a joint leadership model. Cross-departmental collaboration is crucial, with finance, sustainability, risk management, HR, and auditing departments playing significant roles. “Enhanced cross-departmental collaboration is vital for meeting ESRS requirements,” the report highlights.
This EFRAG report provides valuable insights into the initial phase of ESRS implementation, highlighting both the progress and challenges faced by large EU companies. As companies continue to refine their approaches, ongoing support and clear guidance will be essential for achieving robust and effective sustainability reporting practices.