ESRS E3: Anticipated Financial Effects
ESRS E3: Anticipated Financial Effects from Material Water and Marine Resources-Related Risks and Opportunities
1. Introduction
In today's business environment, companies must not only focus on their current financial health but also anticipate how environmental factors like water and marine resource risks might impact their future financial performance. Companies need to disclose the anticipated financial effects of these environmental risks and opportunities. This article will simplify these complex requirements, helping you understand what companies need to report.
How companies can effectively disclose this information will be covered in another article.
2. Anticipated Financial Effects from Material Water and Marine Resources-Related Risks and Opportunities
Companies are required to disclose how risks and opportunities related to water and marine resources might impact their finances in the future. This includes:
Quantifying financial effects: Companies should estimate the potential financial impacts of water and marine resource-related risks and opportunities. Financial impacts include the financial position, financial performance and cash flows, over the short-, medium- and long-term. If it's too difficult or costly to provide exact figures, they can offer qualitative information instead.
Describing the impacts: They need to describe the specific risks and opportunities, such as how their operations depend on water availability or are affected by marine resource depletion. This description should also include when these impacts are expected to occur, whether in the short, medium, or long term.
Critical assumptions and uncertainties: Companies must outline the key assumptions they used to make these financial projections and discuss the uncertainties involved. This helps provide a clearer picture of the reliability of their estimates.
This disclosure goes beyond just reporting current financial data, offering insights into how future water and marine resource challenges could influence a company’s financial stability.
Companies must estimate and disclose how risks and opportunities related to water and marine resources could impact their future financial performance. This includes providing financial projections, describing potential impacts, and outlining the assumptions and uncertainties involved.
3. Conclusion
By disclosing the anticipated financial effects of water and marine resource-related risks and opportunities, companies can better prepare for the future and offer transparency to stakeholders. This proactive approach helps businesses understand the potential financial impacts of environmental factors and allows them to make informed decisions that align with long-term sustainability goals.
In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.
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Relevant Standards
ESRS E3
Disclosure Requirement E3-5 – Anticipated financial effects from material water and marine resources-related risks and opportunities
30. The undertaking shall disclose the anticipated financial effects of material water and marine resources-related risks and opportunities.
31. The information required by paragraph 30 is in addition to the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d).
32. The objective of this Disclosure Requirement is to provide an understanding of:
(a) anticipated financial effects due to material risks arising from water and marine resources-related impacts and dependencies and how these risks have (or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance and cash flows, over the short-, medium- and long-term; and
(b) anticipated financial effects due to material opportunities related to water and marine resources.
33. The disclosure shall include:
(a) a quantification of the anticipated financial effects in monetary terms before considering water and marine resources-related actions or where not possible without undue cost or effort, qualitative information. For financial effects arising from opportunities, a quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);
(b) a description of the effects considered, the impacts and dependencies to which they relate, and the time horizons in which they are likely to materialise; and
(c) the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions.