ESRS E2: Impact, Risk, and Opportunity Management
ESRS E2: Pollution impact, risk, and opportunity management
1. Introduction
While governance and strategy are not part of ESRS E2, Impact Risk, and Opportunity management is. Companies are now required to be more transparent about how they identify and manage pollution-related impacts, risks, and opportunities. This means they need to share detailed information about their processes, policies, actions, and resource allocations related to pollution. In this article, we'll break down these requirements and explain what companies need to disclose. How companies can effectively disclose this information will be covered in another article.
2. Impact, Risk, and Opportunity Management
Impact, Risk, and Opportunity (IRO) are important elements in the ESRS:
Impact: This refers to the effects that a company's actions have on the environment, society, and the economy. Impacts can be positive (beneficial) or negative (harmful).
Risk: Risks are potential events or conditions that could cause harm or loss to a company. These can stem from various sources, including financial, operational, environmental, or social factors.
Opportunity: Opportunities are potential favorable circumstances or conditions that a company can exploit to its advantage. They can lead to growth, innovation, and a competitive edge.
Identifying and Assessing Pollution-Related Impacts, Risks, and Opportunities
To comply with ESRS E2, companies need to have a clear process for identifying significant pollution-related impacts, risks, and opportunities. This involves:
Screening site locations and business activities: Companies must examine their operations and supply chains to identify actual and potential pollution impacts. This includes using specific methodologies and tools to conduct the screening.
Consultations with affected communities: Engaging with communities affected by the company’s operations is essential to understand and address their concerns about pollution.
Policies Related to Pollution
Companies must have comprehensive policies to manage pollution-related impacts, risks, and opportunities. These policies should cover:
Prevention and control: Measures to reduce pollution of air, water, and soil.
Substitution and minimization: Efforts to replace harmful substances with safer alternatives and phase out highly concerning substances, particularly in consumer products.
Incident management: Strategies to prevent pollution incidents and mitigate their effects on people and the environment if they occur.
Actions and Resources for Pollution Policies
Companies must also disclose the specific actions they are taking and the resources they have allocated to manage pollution. This includes:
Action plans: Detailed descriptions of initiatives aimed at achieving pollution-related policy goals.
Resource allocation: Information on the financial and human resources dedicated to these actions.
Companies must identify and assess pollution-related impacts, risks, and opportunities by screening their operations and consulting affected communities. They should establish policies for pollution prevention, control, and incident management, and allocate resources to implement these policies effectively.
3. Conclusion
ESRS E2 requires companies to be transparent about their processes for managing pollution-related impacts, risks, and opportunities. By screening their operations, consulting affected communities, establishing robust policies, and committing resources to pollution management, companies can demonstrate their commitment to sustainability. This not only helps protect the environment but also builds trust with stakeholders.
In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.
Relevant Standards
ESRS E2
Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material pollution-related impacts, risks and opportunities
11. The undertaking shall describe the process to identify material impacts, risks and opportunities and shall provide information on:
(a) whether the undertaking has screened its site locations and business activities in order to identify its actual and potential pollution-related impacts, risks and opportunities in its own operations and upstream and downstream value chain, and if so, the methodologies, assumptions and tools used in the screening;
(b) whether and how the undertaking has conducted consultations, in particular with affected communities.
Disclosure Requirement E2-1 – Policies related to pollution
12. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to pollution prevention and control.
13. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of material pollution-related impacts, risks and opportunities.
14. The disclosure required by paragraph 12 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to pollution in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.
15. The undertaking shall indicate, with regard to its own operations and its upstream and donwstream value chain, whether and how its policies address the following areas where material:
(a) mitigating negative impacts related to pollution of air, water and soil including prevention and control;
(b) substituting and minimising the use of substances of concern, and phasing out substances ofvery high concern, in particular for non-essential societal use and in consumer products; and
(c) avoiding incidents and emergency situations, and if and when they occur, controlling and limiting their impact on people and the environment.
Disclosure Requirement E2-2 – Actions and resources related to pollution
16. The undertaking shall disclose its pollution-related actions and the resources allocated to their implementation.
17. The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the pollution-related policy objectives and targets.
18. The description of the pollution-related action plans and resources shall contain the information prescribed in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.
19. In addition to ESRS 2 MDR-A, the undertaking may specify to which layer in the following mitigation hierarchy an action and resources can be allocated: (a) avoid pollution including any phase out of materials or compounds that have a negative impact (prevention of pollution at source); (b) reduce pollution, including: any phase-out of materials or compounds; meeting enforcement requirements such as Best Available Techniques (BAT) requirements; or meeting the Do No Significant Harm criteria for pollution prevention and control according to the EU Taxonomy Regulation and its Delegated Acts (minimisation of pollution); and (c) restore, regenerate and transform ecosystems where pollution has occurred(control of the impacts both from regular activities and incidents).
ESRS 2
Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identifyand assess material impacts, risks and opportunities
6. When describing the process to identify material impacts, risks and opportunities in relation to business conduct matters, the undertaking shall disclose all relevant criteria used in the process, including location,activity, sector and the structure of the transaction.