To main content

Feedback to the European Financial Reporting Advisory Group on the draft ESRS Implementation Guidance documents

Letter to the European Financial Reporting Advisory Group, 2 February 2024.

We welcome the European Financial Reporting Advisory Group’s (EFRAG) work on providing implementation guidance on the key topics of the materiality assessment and value chain, aimed at supporting preparers in their implementation of the EU Corporate Sustainability Reporting Directive (CSRD) as well as users of sustainability disclosures. We are pleased to be able to provide some feedback on both documents, and hope that our investor perspective can be helpful to support EFRAG’s finalisation of the guidance.

Norges Bank Investment Management is the investment management division of the Norwegian Central Bank (Norges Bank) and is responsible for investing the Norwegian Government Pension Fund Global. NBIM is a globally diversified investment manager with 1,375 billion EUR at year end 2023. Of this total, ca 266 billion EUR was invested in the shares of 1,067 companies in 22 EU countries. We are a long-term investor, working to safeguard and build financial wealth for future generations.

We support the important work of the European Commission and EFRAG in promoting better and more harmonised sustainability reporting, as highlighted in previous consultation responses. As a long-term, global investor, we consider our returns over time to be dependent on sustainable development in economic, environmental and social terms. We need consistent, comparable and reliable information from companies on social or environmental issues which are financially material to their business. We rely on information related to the current performance of a company, as well as information on drivers of value that might be predictive of its long-term performance. This information helps inform our investment decisions, our risk management processes and our stewardship activities. We also believe that companies should aim to report on their impact on the environment and society, as outcomes can become financially material over time for long-term and diversified investors like NBIM. Therefore, we see the relevance of the double materiality approach of the European Sustainability Reporting Standards.

We believe that there is some room for improvement in the readability and user-friendliness of the documents. While we understand that EFRAG has been under considerable time pressure to develop this guidance in light of the application of the CSRD for the first batch of reporting entities in FY2024, we would encourage a further simplification of the documents. This is especially important as both guidance documents are going to be most useful for entities who were previously not mandated to produce sustainability reports, and might have not previously conducted a materiality assessment.

Feedback on the Materiality Assessment Implementation Guidance

Regarding the materiality assessment implementation guidance (MAIG), we encourage EFRAG to further reinforce the non-prescriptive nature of the materiality assessment (MA) process. While the document states that the materiality assessment process should be determined by each reporting entity according to its characteristics, business strategy and context (i.e. there is no single solution), the relatively detailed nature of the guidance could create expectations for all undertakings to follow the example provided. We would also suggest the inclusion of additional examples.

Interoperability of sustainability reporting frameworks and standards is essential for global investors like NBIM who have holdings across multiple jurisdictions, with portfolio companies subject to different regulatory requirements. We therefore welcome the reference to the International Sustainability Standards Board and the Global Reporting Initiative standards, which can prove helpful to entities in identifying material sustainability matters, as well as material sustainability information to report on. We believe it would be helpful the use of the SASB standards could be encouraged even further, particularly until the sector-specific European Sustainability Reporting Standards are developed.

We further welcome the reference to the importance of the due diligence process, and would suggest the insertion of a specific reference to risk-based prioritisation as the key underlying concept and driver of materiality assessment in the value chain. This would further align the EFRAG guidance with international due diligence instruments such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. Similarly, we welcome the reference to severity and likelihood of impacts, in line with these standards.

Finally, it would be helpful to add a statement to clarify that disclosure of non-material information by reporting entities can hinder transparency and accountability, recognising the fact that it is unlikely that the over 800 data points included in the European Sustainability Reporting Standards will all be material and decision-useful across all preparers.

Feedback on the Value Chain Implementation Guidance

We welcome the value chain implementation guidance, as we recognise that the relevance of the value chain is one of the key features of sustainability reporting vis-à-vis financial reporting. The expansion of the scope of information beyond preparers’ traditional reporting boundaries is one of the main challenges of the CSRD implementation, and we therefore welcome EFRAG’s guidance on this specific topic. Many entities who are subject to the CSRD were not previously in scope of the Non-Financial Reporting Directive, and therefore might not be familiar with the process of assessing value-chain sustainability matters.

We welcome the clarification in paragraph 28 that preparers do not need to disclose information regarding every actor in their value chain, as this would be overly burdensome and extremely challenging. Instead, the focus should rightly be on information relevant to reporting users in understanding the material impacts, risks and opportunities stemming from the value chain. We would suggest that this is highlighted upfront in the document, i.e. in the summary.

The guidance rightly acknowledges that reporting entities might not always have available all the necessary information, and that identification and assessment of impacts can be challenging, especially for those parts of the value chain where the undertaking is unable to trace products and materials (paragraphs 58 and 88). Although the guidance on the steps that entities can take while the transitional requirements are applicable is helpful, we would suggest EFRAG also provides guidance on the role that industry initiatives and similar data-sharing collaboration projects can play. These can support preparers in overcoming some of the challenges linked to data availability in the value chain.

We appreciate your willingness to consider our perspective, and we remain at your disposal should you wish to discuss these matters further.

Yours sincerely

Carine Smith Ihenacho
Chief Governance and Compliance Officer

Elisa Cencig,
Senior ESG Policy Adviser

Download the letter (pdf)