According to Regulation (EU) 2019/2088 (SFDR), as of 10th March 2021 participants in financial markets and financial advisers must report on the integration of sustainability risks and the analysis of adverse incidences regarding sustainability in their processes and provide information on sustainability regarding financial products. For adequate advice and transparency in these matters, ESG factors are increasingly being incorporated into business risk assessment and investment and financing decision-making processes 🔁.
Understanding the key performance indicators for ESG - EFFAS
Learn about ESG - EFFAS standards & find out how organizations can benefit from using it
KPIs for ESG 3.0 publication have been developed by DVFA Society of Investment Professionals in Germany in conjunction with EFFAS European Federation of Financial Analysts Societies, and apply to profit‐oriented entities. While this framework is suitable for all entities regardless of size, scope, and legal form it has been specifically designed for stock‐listed companies and issuers of bonds.
ESG – EFFAS KPIs list
For each of the 114 subsectors following the Dow Jones Industry Classification Benchmark (ICB) lists of environmental, social, and governance KPIs were defined.
Subsectors included are:
Oil and Gas:
Exploration & Production, Integrated Oil & Gas, Oil Equipment & Services, Pipelines, Renewable Energy Equipment, Alternative Fuels.
Commodity Chemicals, Specialty Chemicals, Forestry, Paper, Aluminum, Nonferrous Metals, Iron & Steel, Coal, Diamonds & Gemstones, General Mining, Gold Mining, Platinum & Precious Metals
Building Materials & Fixtures, Heavy Construction, Aerospace, Defense, Containers & Packaging, Diversified Industrials, Electrical Components & Equipment, Electronic Equipment, Commercial Vehicles & Trucks, Industrial Machinery, Delivery Services, Marine Transportation, Railroads, Transportation Services, Trucking, Business Support Services, Business Training & Employment Agencies, Financial Administration, Industrial Suppliers, Waste & Disposal Services.
Automobiles, Auto Parts, Tires, Brewers, Distillers & Vintners, Soft Drinks, Farming & Fishing, Food Products, Durable Household Products, Nondurable Household Products, Furnishings, Home Construction, Consumer Electronics, Recreational Products, Toys, Clothing & Accessories, Footwear, Personal Products, Tobacco.
Health Care Providers, Medical Equipment, Medical Supplies, Biotechnology, Pharmaceuticals.
Drug Retailers, Food Retailers & Wholesalers, Apparel Retailers, Broadline Retailers, Home Improvement Retailers, Specialized Consumer Services, Specialty Retailers, Broadcasting & Entertainment, Media Agencies, Publishing, Airlines, Gambling, Hotels, Recreational Services, Restaurants & Bars, Travel & Tourism.
Fixed Line Telecommunications, Mobile Telecommunications.
Conventional Electricity, Alternative Electricity, Gas Distribution, Multiutilities, Water.
Banks, Full Line Insurance, Insurance Brokers, Property & Casualty Insurance, Reinsurance, Life Insurance, Real Estate Holding & Development, Real Estate Services, Industrial & Office REITs, Retail REITs, Residential REITs, Diversified REITs, Specialty REITs, Mortgage REITs, Hotel & Lodging REITs, Asset Managers, Consumer Finance, Specialty Finance, Investment Services, Mortgage Finance, Equity Investment Instruments 8995 Nonequity Investment Instruments.
Computer Services, Internet, Software, Computer Hardware, Electronic Office, Equipment, Semiconductors Telecommunications Equipment.
Three consecutive levels of ESG disclosure can be applied:
1. Entry Level (Scope I)
Entry Level presents the minimum of KPIs companies should disclose. Note that the majority of KPIs are identical for all subsectors although in some cases, notable Innovation, different specifications may apply. When companies do depart from the Entry Level they should provide explanations as to why they do not endorse the minimum level in a comply or explain manner.
2. Mid-level (Scope II)
3. High Level (Scope III)
Midlevel and High Level differ in terms of granularity and details of reporting. Both levels were modeled based on the observation that mainstream ESG disclosure often already exceeds the Entry Level. Note that Mid-Level and High-Level scopes are not available for all subsectors simply because the amount of material ESG aspects is not equal for all subsectors!
KPIs are presented with the following structure:
How to use the ESG – EFFAS KPIs list?
Companies need to determine which subsector according to ICB they qualify for.
EFFAS/DVFA requirements necessitate that corporates have a system in place to assess the importance of ESG aspects, as well as a systematic process for the correct generation of ESG data.
A systematic reporting process as defined by EFFAS/DVFA requires that roles and responsibilities be defined with respect to the quality of financial systems and accounting, along with process steps for data collection, release, dissemination, and validation.
It is recommended that corporates report ESGs and respective KPIs in a table format, which allows for easy data extraction and comparability.
Organizations should report absolute values e.g. in monetary terms or units. Under the premise that the basis for the consolidation of ESG data is identical to the basis for the consolidation of financials, reference numbers such as e.g. sales or units should be provided in an additional reference table.
It is not encouraged to report narrative‐style or prose text ‐ except for KPNs (Key Performance Narratives) for all specified ESGs with a limited number of words and providing answers to the question ESG – EFFAS framework poses.
Organizations should provide annotations on the basis of consolidation for ESG data when it differs from the basis of consolidation for financials.
Analysis of ESG importance and the assessment system must be adequate to legitimize the selection of ESG topics included in company reporting, as well as the type and scope of presentation vis‐à‐vis third parties.
Control measures must be specified for the ESG reporting process and their application as well as proper implementation of the overall ESG reporting process regularly audited by an independent third party.
Additional information in the form of organizational charts and descriptions of key functions can be published online.
Additional reports on individual ESG projects with particular relevance for reinforcement of the corporate strategy may be published in the ESG report or online.
Companies should report on how they interact with members of their supply chain, e.g. how suppliers' adherence to minimum ESG requirements is reviewed and how customers are informed about the company's ESG performance.
The company should present its communication with stakeholders in an aggregated form and highlight individual, especially relevant stakeholder relationships in the ESG report or via the Internet.
External assessments can be conducted, such as certifications of environmental management systems or CO2 volumes, along with external audits of ESG reports or ESG data in the management report.
Benefits of using the ESG – EFFAS KPIs list:
Support the companies in selecting the most relevant ESG data sets.
Ensure consistency and credibility in ESG data collection for investors and analysts.
Meet multiple stakeholder ESG reporting requirements.
Create collaboration across the organization.
Provide secure process flow and approvals for accountability.
👀 To read more about how to apply the sets of KPIs from KPIs for ESG 3.0 into industry/corporate.