Comprehensive Guide to ESRS Mandatory Disclosure Requirements (MDR)
Introduction
The European Sustainability Reporting Standards (ESRS) establish mandatory disclosure requirements for organizations to manage and communicate their sustainability efforts effectively. These requirements are critical for enhancing transparency and accountability in corporate sustainability practices. This blog post delves into the key components of ESRS Mandatory Disclosure Requirements (MDR), explaining their importance and implications for businesses.
Key ESRS Mandatory Disclosure Requirements (MDR)
1. Description of Key Contents of Policy
Requirement: Policies adopted to manage material sustainability matters (MDR-P)
Paragraph: 65. The undertaking shall disclose information about policies adopted to manage material sustainability matters. The disclosure shall include the following information: (a) a description of the key contents of the policy, including its general objectives and which material impacts, risks or opportunities the policy relates to and the process for monitoring.
Explanation: Organizations must describe the main points of their sustainability policies, such as their goals, the issues they address, and how they will track progress.
2. Description of Scope of Policy or of Its Exclusions
Requirement: Policies adopted to manage material sustainability matters (MDR-P)
Paragraph: 1. The undertaking shall disclose information about policies adopted to manage material sustainability matters. The disclosure shall include the following information: (b) a description of the scope of the policy, or of its exclusions, in terms of activities, upstream and/or downstream value chain, geographies and if relevant, affected stakeholder groups.
Explanation: Organizations should outline what areas their policy covers or does not cover, including specific activities, parts of the value chain, locations, and stakeholder groups affected.
3. Description of Most Senior Level in Organization That Is Accountable for Implementation of Policy
Requirement: Policies adopted to manage material sustainability matters (MDR-P)
Paragraph: 1. The undertaking shall disclose information about policies adopted to manage material sustainability matters. The disclosure shall include the following information: (c) the most senior level in the undertaking’s organization that is accountable for the implementation of the policy.
Explanation: Identify the highest-ranking person or group responsible for ensuring the policy is carried out.
4. Disclosure of Third-Party Standards or Initiatives That Are Respected Through Implementation of Policy
Requirement: Policies adopted to manage material sustainability matters (MDR-P)
Paragraph: 1. The undertaking shall disclose information about policies adopted to manage material sustainability matters. The disclosure shall include the following information: (d) a reference, if relevant, to the third-party standards or initiatives the undertaking commits to respect through the implementation of the policy.
Explanation: Mention any external standards or initiatives that the organization follows as part of its policy implementation.
5. Description of Consideration Given to Interests of Key Stakeholders in Setting Policy
Requirement: Policies adopted to manage material sustainability matters (MDR-P)
Paragraph: 1. The undertaking shall disclose information about policies adopted to manage material sustainability matters. The disclosure shall include the following information: (e) if relevant, a description of the consideration given to the interests of key stakeholders in setting the policy.
Explanation: Explain how the interests of important stakeholders were considered when developing the policy.
6. Explanation of How Policy Is Made Available to Potentially Affected Stakeholders and Stakeholders Who Need to Help Implement It
Requirement: Policies adopted to manage material sustainability matters (MDR-P)
Paragraph: 1. The undertaking shall disclose information about policies adopted to manage material sustainability matters. The disclosure shall include the following information: (f) if relevant, whether and how the undertaking makes the policy available to potentially affected stakeholders and stakeholders who need to help implement it.
Explanation: Describe how the policy is shared with those affected by it and those who need to help put it into action.
7. Disclosure of Key Action
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: 1. Where the implementation of a policy requires actions, or a comprehensive action plan, to achieve its objectives, as well as when actions are implemented without a specific policy, the undertaking shall disclose the following information: (a) the list of key actions taken in the reporting year and planned for the future, their expected outcomes and, where relevant, how their implementation contributes to the achievement of policy objectives and targets.
Explanation: List the main actions taken during the year and planned for the future, along with their expected results and how they support the policy’s goals.
8. Description of Scope of Key Action
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: 1. Where the implementation of a policy requires actions, or a comprehensive action plan, to achieve its objectives, as well as when actions are implemented without a specific policy, the undertaking shall disclose the following information: (b) the scope of the key actions (i.e., coverage in terms of activities, upstream and/or downstream value chain, geographies and, where applicable, affected stakeholder groups).
Explanation: Define the extent of the main actions, including what activities they cover, which parts of the value chain, locations, and affected stakeholders.
9. Time Horizon Under Which Key Action Is to Be Completed
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: 1. Where the implementation of a policy requires actions, or a comprehensive action plan, to achieve its objectives, as well as when actions are implemented without a specific policy, the undertaking shall disclose the following information: (c) the time horizons under which the undertaking intends to complete each key action.
Explanation: Provide the timeline for completing each key action.
10. Year When Key Action Is to Be Completed
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: 1. Where the implementation of a policy requires actions, or a comprehensive action plan, to achieve its objectives, as well as when actions are implemented without a specific policy, the undertaking shall disclose the following information: (c) the time horizons under which the undertaking intends to complete each key action.
Explanation: Specify the year by which each key action is expected to be finished.
11. Description of Key Action Taken, and Its Results, to Provide for and Cooperate in or Support Provision of Remedy for Those Harmed by Actual Material Impacts
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: 1. Where the implementation of a policy requires actions, or a comprehensive action plan, to achieve its objectives, as well as when actions are implemented without a specific policy, the undertaking shall disclose the following information: (d) if applicable, key actions taken (along with results) to provide for and cooperate in or support the provision of remedy for those harmed by actual material impacts.
Explanation: Describe any key actions taken to provide remedies for those harmed by significant negative impacts, along with the results of those actions.
12. Disclosure of Quantitative and Qualitative Information Regarding Progress of Actions or Action Plans Disclosed in Prior Periods
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: 1. Where the implementation of a policy requires actions, or a comprehensive action plan, to achieve its objectives, as well as when actions are implemented without a specific policy, the undertaking shall disclose the following information: (e) if applicable, quantitative and qualitative information regarding the progress of actions or action plans disclosed in prior periods.
Explanation: Provide detailed updates, both numerical and descriptive, on the progress of previously disclosed actions or plans.
13. Disclosure of the Type of Current and Future Financial and Other Resources Allocated to the Action Plan
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: Where the implementation of an action plan requires significant operational expenditures (Opex) and/or capital expenditures (Capex), the undertaking shall describe the type of current and future financial and other resources allocated to the action plan, including, if applicable, the relevant terms of sustainable finance instruments, such as green bonds, social bonds and green loans, the environmental or social objectives, and whether the ability to implement the actions or action plan depends on specific preconditions, e.g., granting of financial support or public policy and market developments.
Explanation: Detail the current and planned financial resources allocated to the action plan, including any relevant financial instruments and conditions for implementation.
14. Current Financial Resources Allocated to Action Plan (Capex)
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: Where the implementation of an action plan requires significant operational expenditures (Opex) and/or capital expenditures (Capex), the undertaking shall provide the amount of current financial resources and explain how they relate to the most relevant amounts presented in the financial statements.
Explanation: Provide the current financial resources allocated to the action plan, particularly capital expenditures (Capex), and explain how these relate to the financial statements.
15. Current Financial Resources Allocated to Action Plan (Opex)
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Explanation: Provide the current financial resources allocated to the action plan, particularly operational expenditures (Opex).
16. Future Financial Resources Allocated to Action Plan (Capex)
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Paragraph: Where the implementation of an action plan requires significant operational expenditures (Opex) and/or capital expenditures (Capex), the undertaking shall provide the amount of future financial resources.
Explanation: Provide the future financial resources allocated to the action plan, particularly capital expenditures (Capex).
17. Future Financial Resources Allocated to Action Plan (Opex)
Requirement: Actions and resources in relation to material sustainability matters (MDR-A)
Explanation: Provide the future financial resources allocated to the action plan, particularly operational expenditures (Opex).
18. Description of Metric Used to Evaluate Performance and Effectiveness, in Relation to Material Impact, Risk or Opportunity
Requirement: Metrics in relation to material sustainability matters (MDR-M)
Paragraph: The undertaking shall disclose any metrics that it uses to evaluate performance and effectiveness, in relation to a material impact, risk or opportunity.
Explanation: List the metrics used to measure performance and effectiveness regarding significant impacts, risks, or opportunities.
19. Disclosure of Methodologies and Significant Assumptions Behind Metric
Requirement: Metrics in relation to material sustainability matters (MDR-M)
Paragraph: For each metric, the undertaking shall disclose the methodologies and significant assumptions behind the metric, including the limitations of the methodologies used.
Explanation: Explain the methods and assumptions used for each metric, including any limitations.
20. Type of External Body Other Than Assurance Provider That Provides Validation
Requirement: Metrics in relation to material sustainability matters (MDR-M)
Paragraph: For each metric, the undertaking shall disclose whether the measurement of the metric is validated by an external body other than the assurance provider and, if so, which body.
Explanation: Indicate if an external body, other than the assurance provider, validates the metric and identify the body if applicable.
21. Relationship with Policy Objectives
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes a description of the relationship of the target to the policy objectives.
Explanation: Describe how each target relates to the objectives of the policy.
22. Measurable Target
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the defined target level to be achieved, including, where applicable, whether the target is absolute or relative and in which unit it is measured.
Explanation: Provide specific, measurable targets, stating if they are absolute or relative and the units of measurement.
23. Nature of Target
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the defined target level to be achieved, including, where applicable, whether the target is absolute or relative and in which unit it is measured.
Explanation: Explain whether each target is absolute or relative and specify the units of measurement.
24. Description of Scope of Target
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the scope of the target, including the undertaking’s activities and/or its upstream and/or downstream value chain where applicable and geographical boundaries.
Explanation: Outline the scope of each target, covering the organization’s activities, value chain segments, and geographical boundaries.
25. Baseline Value
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the baseline value and base year from which progress is measured.
Explanation: Provide the baseline value and the base year used to measure progress for each target.
26. Baseline Year
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the baseline value and base year from which progress is measured.
Explanation: Specify the base year from which progress towards each target is measured.
27. Period to Which Target Applies
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the period to which the target applies and if applicable, any milestones or interim targets.
Explanation: Indicate the time period for each target and any interim milestones.
28. Indication of Milestones or Interim Targets
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Explanation: Provide details of any interim milestones or targets set as part of achieving the overall target.
29. Description of Methodologies and Significant Assumptions Used to Define Target
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the methodologies and significant assumptions used to define targets, including where applicable, the selected scenario, data sources, alignment with national, EU or international policy goals and how the targets consider the wider context of sustainable development and/or local situation in which impacts take place.
Explanation: Explain the methods and assumptions used to define each target, including any scenarios, data sources, and alignment with broader policy goals.
30. Target Related to Environmental Matters Is Based on Conclusive Scientific Evidence
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes whether the undertaking’s targets related to environmental matters are based on conclusive scientific evidence.
Explanation: State whether the targets for environmental matters are based on solid scientific evidence.
31. Disclosure of How Stakeholders Have Been Involved in Target Setting
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes whether and how stakeholders have been involved in target setting for each material sustainability matter.
Explanation: Explain whether and how stakeholders were involved in setting the targets.
32. Description of Any Changes in Target and Corresponding Metrics or Underlying Measurement Methodologies, Significant Assumptions, Limitations, Sources and Adopted Processes to Collect Data
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes any changes in targets and corresponding metrics or underlying measurement methodologies, significant assumptions, limitations, sources and processes to collect data adopted within the defined time horizon. This includes an explanation of the rationale for those changes and their effect on comparability (see Disclosure Requirement BP-2 Disclosures in relation to specific circumstances of this Standard).
Explanation: Provide details of any changes to the targets, metrics, or methods used, along with reasons and their impact on comparability.
33. Description of Performance Against Disclosed Target
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the performance against its disclosed targets, including information on how the target is monitored and reviewed and the metrics used, whether the progress is in line with what had been initially planned, and an analysis of trends or significant changes in the performance of the undertaking towards achieving the target.
Explanation: Describe the organization’s performance against each target, how the target is monitored, and whether progress is on track, along with any trends or changes.
34. Disclosure of Timeframe for Setting of Measurable Outcome-Oriented Targets
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: If the undertaking has not set any measurable outcome-oriented targets, it may disclose whether such targets will be set and the timeframe for setting them, or the reasons why the undertaking does not plan to set such targets.
Explanation: If no targets have been set, explain whether and when targets will be set or why there are no plans to set them.
35. Description of Reasons Why There Are No Plans to Set Measurable Outcome-Oriented Targets
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: If the undertaking has not set any measurable outcome-oriented targets, it shall disclose why it does not plan to set such targets.
Explanation: If no targets are planned, provide the reasons for this decision.
36. Effectiveness of Policies and Actions Is Tracked in Relation to Material Sustainability-Related Impact, Risk and Opportunity
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: If the undertaking has not set any measurable outcome-oriented targets, it shall disclose whether it nevertheless tracks the effectiveness of its policies and actions in relation to the material sustainability-related impact, risk and opportunity.
Explanation: Explain if and how the effectiveness of policies and actions is tracked, even if no specific targets are set.
37. Description of Processes Through Which Effectiveness of Policies and Actions Is Tracked in Relation to Material Sustainability-Related Impact, Risk and Opportunity
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: If the undertaking has not set any measurable outcome-oriented targets, it shall disclose whether it nevertheless tracks the effectiveness of its policies and actions in relation to the material sustainability-related impact, risk and opportunity and if so if any processes through which it does so.
Explanation: Describe the processes used to track the effectiveness of policies and actions, even if no specific targets are set.
38. Description of Defined Level of Ambition to Be Achieved and of Any Qualitative or Quantitative Indicators Used to Evaluate Progress
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: If the undertaking has not set any measurable outcome-oriented targets, it shall disclose whether it nevertheless tracks the effectiveness of its policies and actions in relation to the material sustainability-related impact, risk and opportunity and also if the defined level of ambition to be achieved and any qualitative or quantitative indicators it uses to evaluate progress, including the base period from which progress is measured.
Explanation: If no targets are set, explain the level of ambition and the indicators used to evaluate progress.
39. Base Year From Which Progress Is Measured
Requirement: Tracking effectiveness of policies and actions through targets (MDR-T)
Paragraph: 1. If the undertaking has not set any measurable outcome-oriented targets, it shall disclose whether it nevertheless tracks the effectiveness of its policies and actions in relation to the material sustainability-related impact, risk and opportunity and also if the defined level of ambition to be achieved and any qualitative or quantitative indicators it uses to evaluate progress, including the base period from which progress is measured. 2. The undertaking shall disclose the measurable, outcome-oriented and time-bound targets on material sustainability matters it has set to assess progress. For each target, the disclosure includes the defined target level to be achieved, including, where applicable, whether the target is absolute or relative and in which unit it is measured.
Explanation: Provide the base year from which progress is measured for each target.
Conclusion
Mastering the ESRS Mandatory Disclosure Requirements (MDR) is essential for organizations committed to sustainable practices and transparency. By comprehensively addressing these requirements, companies can not only enhance their sustainability reporting but also build trust with stakeholders and align with international standards. Implementing these disclosures ensures that sustainability efforts are measurable, monitored, and continuously improved. Embrace these guidelines to demonstrate your commitment to sustainability and drive positive environmental, social, and governance outcomes.