ESRS Entity-Specific Disclosures: When the Standards Do Not Cover a Material IRO

Prepared in British English as a practitioner Knowledge Card Package: answer, explanation, application, evidence, connections and publishing layer.

Sector-agnostic standards cannot anticipate every business model, technology, geography, product or emerging sustainability issue. A cloud provider may have material impacts from local power constraints and water use. A digital marketplace may have material consumer-safety impacts arising from third-party sellers. A bank may face material social impacts from automated credit decisions. A manufacturer may have a critical process-safety risk with sector-specific consequences not captured adequately by a broad topical disclosure.

If the materiality assessment identifies such an IRO, the absence of a perfect ESRS metric is not a reason to omit it. The revised ESRS require entity-specific disclosures when the topic is not covered, or not covered with sufficient granularity. They also make entity-specific information part of fair presentation where applying ESRS alone is insufficient for users to understand material IROs and their management.

The revised ESRS provide two related tests.

1. Coverage test: Is the topic related to the material IRO covered by an ESRS?

2. Granularity test: If covered, does the ESRS provide enough information for users to understand the specific IRO and how the undertaking manages it?

A “no” answer to either test can require entity-specific information. The test should be applied to the matter as a whole and to the information needed for the relevant reporting areas: governance, strategy, impact/risk/opportunity management, and metrics and targets.

Entity-specific does not mean entity-promotional

The term refers to information designed for the undertaking's facts. It does not authorise the organisation to select only favourable KPIs, use unverified marketing measures or avoid a difficult ESRS metric. The entity-specific layer must be balanced and material. It should explain adverse outcomes, data limitations and methodological changes where these are necessary for understanding.

Entity-specific does not mean “additional information” without limit

The revised ESRS distinguish entity-specific disclosures needed for fair presentation from supplementary non-material information that may be included under controlled conditions. Entity-specific disclosures are driven by material IROs and information materiality. Supplementary information must be clearly identified and must not obscure material information.

Common triggers include:

• an emerging issue that is not represented in the ESRS topic list;

• a sector-specific impact with a distinctive pathway, affected population or outcome;

• a material IRO covered only at a high level, where the prescribed information does not explain the undertaking's exposure or management response;

• a material social topic for which the topical ESRS prescribes narrative disclosures but no sufficiently useful metric for the undertaking's facts;

• a business-model feature that creates a material impact through a product, platform, franchise or service arrangement;

• a localised environmental impact where group-level information would obscure significant variation;

• a material risk or opportunity tracked by management through an internal metric that is relevant to users but not prescribed by ESRS;

• a significant change in business model or technology that makes prior disclosures incomplete.

The reporting team should not assume that every internal ESG KPI belongs in the sustainability statement. The question is whether the information is needed to understand a material IRO, meets information materiality and contributes to fair presentation.

Stage 1 - define the material IRO precisely

Start with the impact, risk or opportunity, not the metric. The record should identify:

• the affected people, environmental resource or financial exposure;

• whether the impact is actual or potential, positive or negative;

• the activity, product, service or business relationship creating the connection;

• geography and value-chain position;

• time horizon;

• severity, likelihood and financial-effect considerations;

• the evidence supporting materiality.

A vague label such as “digital responsibility” is not a sufficient design basis. “Potential discriminatory outcomes for low-income applicants arising from automated credit models in three markets” is specific enough to test information needs.

Stage 2 - perform a structured ESRS coverage gap analysis

Map the IRO to:

1. ESRS 2 general disclosures;

2. the most relevant topical standard and sub-topic;

3. applicable policies/actions/metrics/targets requirements;

4. any metric-specific boundary or methodology;

5. existing entity-specific disclosures in prior periods.

Classify each information need as:

• fully covered by an ESRS DR;

• partly covered but needing more granularity;

• not covered;

• covered by another mandatory legal disclosure that may be incorporated or cross-referenced;

• non-material and excluded;

• unresolved and requiring technical review.

The gap analysis should be retained as evidence. It explains why the organisation added information and helps reviewers distinguish a necessary entity-specific disclosure from voluntary narrative.

Stage 3 - identify the user need and disclosure objective

Write a one-sentence objective before choosing a KPI. For example:

This objective guides the selection of narrative and metrics. It also prevents the team from reporting an activity metric, such as the number of seller training sessions, when users need outcome information about unsafe products and response effectiveness.

Stage 4 - select sources without claiming equivalence

The revised ESRS allow undertakings to use available best practices, frameworks or reporting standards, including IFRS industry-based guidance and GRI Standards, when developing entity-specific disclosures. This is a source-selection permission, not a statement that the external framework is legally equivalent to ESRS.

A practical source hierarchy is:

For every external source, record the version, purpose, differences from ESRS, modifications made and why the resulting measure is useful for the material IRO.

A metric specification should contain enough information for a different preparer to reproduce the result and for an assurance provider to test it.

The revised ESRS specify that an entity-specific metric should provide relevant information, be measured in a way that faithfully represents the matter using reasonable, supportable and verifiable information and assumptions, and include sufficient context.

Figure 2. Entity-specific metric design and assurance loop. Branded educational visual by London Reporting Academy.

Methodology note

The public disclosure should normally explain:

• what is measured and why;

• boundary and exclusions;

• data sources and collection frequency;

• calculation or classification method;

• significant assumptions and estimates;

• quality limitations;

• changes from the prior period;

• whether the measure is externally assured and to what scope.

The internal methodology should be more detailed and contain worked examples, decision rules, system fields, control steps and issue escalation.

Comparability over time

The revised ESRS require consideration of comparability over time and with other undertakings in the same sector. Comparability does not prohibit improvement. It requires transparency when definitions, boundaries, systems or estimates change.

Use a change policy that distinguishes:

• method improvement - same underlying phenomenon, better measurement;

• scope change - acquisitions, disposals, new products or boundary decisions;

• error correction - prior information was incorrect;

• classification change - revised categories or severity criteria;

• new metric - information was not previously reported;

• retired metric - no longer relevant, replaced or immaterial.

Where practicable, restate comparatives. Where restatement is not practicable or would not be meaningful, explain the effect and present a bridge.

Sector comparability

External metrics may improve comparability only if definitions and boundaries are genuinely aligned. Copying a SASB or GRI metric title while changing the formula can reduce comparability. Name the source, identify adaptations and avoid unqualified “aligned with” claims.

Organisation. A European online marketplace connects third-party sellers with consumers. Its materiality assessment identifies material potential and actual impacts on consumers from unsafe electrical products and delayed removal of repeat offenders.

Coverage assessment. ESRS S4 provides relevant disclosures on consumer impacts, policies, engagement, actions and incidents. The reporting team concludes that the prescribed information does not provide enough granularity for users to understand the scale and effectiveness of the marketplace's specific detection and response model.

Entity-specific objective. Explain the exposure to unsafe listings, the speed and effectiveness of response, recurrence and limitations in seller identification.

Selected metrics.

1. substantiated unsafe-product cases per 100,000 active listings;

2. median time from validated alert to listing restriction;

3. percentage of substantiated cases involving a seller previously subject to a safety action;

4. percentage of high-risk listings covered by pre-listing conformity-document checks;

5. number of consumers notified after confirmed exposure, with a narrative explanation of coverage limitations.

Method decisions. “Substantiated” is linked to a defined internal case status supported by regulator notice, verified testing or completed investigation. The denominator uses average monthly active listings. The response-time clock starts when an alert is validated, not when it is first received. Repeat-seller logic uses a controlled seller-identity matching method and discloses limitations where sellers create new accounts.

Evidence. Case-management extracts, product-testing records, regulator notices, seller master data, system timestamps, reconciliation to customer notifications, methodology approval and access-control logs.

Illustrative disclosure - adapt to facts.

Why it works

The disclosure connects the metric to a material impact, defines the unit and period, provides a comparative, reports an adverse trend, explains an estimate and links performance to actions. It does not claim that faster removal proves that all consumer harm was prevented.

Not every information gap should be filled with a number. For an emerging risk, a decision-useful entity-specific disclosure may explain:

• the nature and pathway of the IRO;

• exposure and affected groups;

• governance and decision rights;

• scenario or sensitivity analysis;

• response options and dependencies;

• uncertainty and data-development plan.

A weak metric can create false precision. The design team should use qualitative information where measurement is immature, while explaining the limitation and improvement plan.

Entity-specific disclosures deserve heightened governance because the standard does not provide a complete ready-made method.

Minimum controls include:

1. gap assessment approval - technical reviewer approves why prescribed ESRS information is insufficient;

2. source review - methodology sources, versions and adaptations are documented;

3. metric specification approval - owner, subject-matter expert, reporting and assurance-readiness reviewer sign off;

4. data lineage - each value traces to systems, transformations and evidence;

5. model governance - estimates, algorithms and proxies have validation and change control;

6. comparative control - changes and restatements are assessed consistently;

7. balanced disclosure review - adverse results and limitations are not suppressed;

8. board or delegated committee review - material new metrics and public claims receive appropriate oversight;

9. annual relevance review - confirm whether the metric remains material, useful and aligned with evolving ESRS or sector standards.

An assurance provider is likely to ask:

• Why was entity-specific information necessary?

• What user need does the disclosure address?

• How was the source or methodology selected?

• Are definitions complete and consistently applied?

• Is the boundary consistent with the material IRO?

• How were estimates validated?

• How are incidents classified and prevented from double counting?

• Why are comparatives meaningful?

• What controls operated and what evidence remains?

• Does the narrative fairly explain limitations and negative performance?

The reporting team should answer these questions in the design file before drafting the public wording.

1. Treating “no ESRS metric” as “no disclosure”. Perform the coverage and granularity test and design the needed information.

2. Starting with an available internal KPI. Start with the material IRO and user need, then test whether the KPI is relevant.

3. Using external standards without documenting differences. Record source, version, adaptations and residual ESRS requirements.

4. Reporting activity instead of outcome. Pair training, audits or checks with impact, coverage or effectiveness information.

5. Changing definitions annually without a change policy. Maintain version control, comparatives and restatement decisions.

6. Hiding uncertainty behind a precise percentage. Explain assumptions, proxies, ranges and data-quality limitations.

7. Using group averages that obscure a severe local impact. Disaggregate where significant variations arise.

8. Assuming assurance will be lighter because the metric is company-designed. Expect more challenge on relevance, method and controls.

• Revised ESRS 1 paragraphs 11-12 and AR 2-5: trigger, reporting areas, metric quality and source options for entity-specific disclosures.

• Revised ESRS 1 paragraphs 19-21 and AR 6-7: fair presentation and statement-level assessment.

• Revised ESRS 2 GDR-M and GDR-T: metric and target context for entity-specific information.

• EFRAG IG 1: non-authoritative guidance for identifying entity-specific matters under the 2023 ESRS.

• IFRS industry-based guidance and GRI Standards: possible sources, subject to adaptation and no automatic equivalence.

Must every material IRO have an entity-specific metric?

No. The undertaking needs material information sufficient for fair presentation. Depending on the IRO and data maturity, that may be narrative, a metric, a target, a scenario analysis or a combination.

Can we copy a SASB or GRI metric directly?

It may be a useful source, but the organisation should confirm relevance, boundary, method and comparability, document adaptations and meet ESRS materiality and fair-presentation requirements.

Are entity-specific disclosures outside the assurance scope?

No. If they form part of the ESRS sustainability statement, they are part of the reported sustainability information and should be prepared for the applicable assurance scope.

Can an entity-specific metric replace a prescribed ESRS metric?

Not merely because the internal measure is easier or more favourable. Prescribed applicable material information must still be addressed unless a specific relief or other rule applies. Entity-specific information fills gaps; it is not a general substitution right.