In our continuous investigation of the European Sustainability Reporting Standards (ESRS), today, we focus on considering ESRS E2 - Pollution. I have previously examined the concepts of ESRS and CSRD, including ESRS 1 and 2, as well as ESRS E1. You can find links to the earlier articles on the ESRS and CSRD topics at the end of this present article. And now let's break down the key components of ESRS E2 and understand its significance.
ESRS E2 Pollution is a specific standard within the ESRS framework that outlines the information companies need to disclose regarding their impact on air, water, and soil pollution. The aim is to provide users of sustainability statements with a clear understanding of several key aspects (source: EFRAG):
- how the undertaking affects pollution of air, water and soil, in terms of material positive and negative actual or potential impacts;
- any actions taken, and the result of such actions, to prevent or mitigate actual or potential material negative impacts;
- the plans and capacity of the undertaking to adapt its strategy and business model(s) in line with the transition to a sustainable economy concurring with the needs for prevention, control and elimination of pollution. This is to create a toxic-free environment with zero pollution also in support of the EU Action Plan?Towards a Zero Pollution for Air, Water and Soil
- the nature, type and extent of the undertaking’s material risks and opportunities related to the undertaking’s pollution-related impacts and dependencies, as well as the prevention, control, elimination or reduction of pollution (including from regulations) and how the undertaking manages this
- the financial effects on the undertaking over the short-, medium- and long-term time horizons of material risks and opportunities arising from the undertaking’s pollution-related impacts and dependencies.
The E2 standard comprises six environmental disclosure requirements (E2-1 to E2-6) along with one requirement from ESRS 2 (ESRS 2 IRO-1). A summary of these disclosure requirements is presented in the table below:
- Disclosure Requirement ESRS 2 IRO-1 – Description of the processes to identify and assess material pollution-related impacts, risks and opportunities: IRO stands for Impact, Risk, and Opportunity management. The company is obligated to detail the procedures employed to identify and evaluate significant pollution-related impacts, risks, and opportunities. This encompasses outlining the methods and tools used to recognize both actual and potential physical pollution and transition risks during site and operational reviews. Additionally, the disclosure should encompass the linkage of risks and opportunities arising from impacts and dependencies, along with information regarding the consultation process.
- Disclosure Requirement ESRS E2-1 – Policies related to pollution: The company is required to elucidate implemented policies for managing the significant impacts, risks, and opportunities associated with pollution prevention and control. This entails specifying whether and how these policies address the mitigation of adverse effects related to air, water, and soil pollution.
- Disclosure Requirement ESRS E2-2 – Pollution actions and resources: The company must provide information on its actions related to pollution and the allocated resources for their execution. This includes describing pollution-related action plans in accordance with the principles outlined in ESRS 2 CCR-2. Furthermore, it is essential to indicate the level within the mitigation hierarchy to which a measure and resources are assigned. The mitigation hierarchy comprises pollution prevention at the source, minimization of pollution, and regeneration and transformation of ecosystems where pollution has occurred.
- Disclosure Requirement ESRS E2-3 – Targets related to pollution: The company is obliged to disclose its pollution-related targets, including information defined in ESRS 2 CCR-3. This disclosure should not only encompass the established targets but also provide information on how these targets relate to the prevention and control of air pollutants, emissions to water, and soil contamination.
- Disclosure Requirement ESRS E2-4 – Pollution of air, water and soil: The company is required to disclose details about pollutants generated, used, or procured in production processes that leave its facilities as emissions, products, or services. This includes disclosure of air pollutants, emissions to water, inorganic pollutants, emissions of ozone-depleting substances, and microplastics produced by the company. The disclosure should cover changes over time, measurement methodology, and data collection procedures.
- Disclosure Requirement ESRS E2-5 – Substances of concern and substances of very high concern: The company must disclose information regarding the production, use, distribution, commercialization, and import/export of substances of concern and substances of very high concern, whether used independently, in mixtures, or in articles. Substances of concern and substances of very high concern are defined according to the criteria outlined in the REACH Regulation.
- Disclosure Requirement ESRS E2-6 – Potential financial effects from pollution-related impacts, risks and opportunities: The company is mandated to report potential financial effects, both positive and negative, resulting from pollution-related impacts, risks, and opportunities. To the extent feasible, this includes quantifying the potential financial effects in monetary terms. Contextual disclosures are also required, encompassing a description of significant incidents where pollution has or is likely to have adverse effects on the environment or the entity’s financial position, cash flows, or financial performance over the short, medium, and long term.
Additional details can be accessed on the EFRAG website.
All previous articles on ESRS topic:
