Upright’s stance: The “numbers optional” approach in the new ESRS draft would undermine credibility

EFRAG is currently consulting on a critical detail within the amended European Sustainability Reporting Standards (ESRS): how companies should report the anticipated financial effects of sustainability issues. The consultation puts forward two distinct paths:

• Option 1: Requires both qualitative and quantitative disclosures, aligning with global standards and meeting investor demands for hard data.
• Option 2: Makes quantitative disclosures entirely voluntary, a move that risks turning decision-useful reports into vague storytelling.

As this crucial feedback period continues, Upright’s message to EFRAG is unequivocal: adopting Option 2 would be a profound mistake, threatening the credibility, comparability, and global interoperability of the ESRS framework.

Quantification may be harder – but it pays off

Opting for qualitative-only reporting would be a mistake. While it may ease some short-term reporting challenges, the long-term cost would be high – reducing the credibility, comparability, and decision-usefulness of CSRD disclosures:

1. Numbers enable better decisions – for everyone: Qualitative information is essential, but without quantitative data, it risks becoming vague storytelling. Investors need numbers to assess a company's financial position, performance, and cash flow, and reporting companies themselves need numbers to build credible transition plans, allocate capital effectively, and manage risks.
2. Global alignment is at stake: A move to qualitative-only reporting would create a damaging misalignment with the ISSB Standards being adopted by major economies outside the EU. This would lead to inconsistent reporting for multinationals and undermine the credibility of the ESRS.
3. It removes the incentive to improve: The argument that qualitative-only reporting eases reporting burdens ignores a crucial point: it also removes the incentive for companies to build more mature methodologies and reporting practices. The solution to a lack of skills or resources is not to lower the bar, but to build those capabilities.
4. Mitigation plans require quantification to be credible: ESRS already requires companies to disclose their mitigation and adaptation strategies. Without financial figures, however, these disclosures risk being aspirational narratives. Investors need to see the numbers to trust a company's actions, and boards need them to oversee strategy and ensure accountability. It makes a material difference, for example, whether a €50 million investment in mitigation actions lowers risk exposure from €200 million to €100 million or to €190 million. Quantification is essential to show if strategies are truly effective.
5. It creates a distorted picture of the green transition: The public debate about the green transition often focuses on the costs while dismissing the benefits as "too difficult to monetise." Quantitative financial effects are essential to show both sides of the ledger: the costs of the transition and the reduced risks and new opportunities it creates. Without this balance, the transition looks like a cost centre rather than a driver of long-term value.

Example: Quantifying a decade of change – how Neste moved from fossil fuels to renewables

A common argument against quantitative financial effects is that they are too complex or require privileged internal data. However, this is a challenge that can be overcome. To illustrate, Upright applied its science-based, data-driven approach to quantify the financial effects for Neste, a Finnish oil and gas company that has undergone a major shift toward renewables, using only public data.

In 2014, roughly 87% of Neste's revenue came from fossil oil and gas products. Upright's quantification of Neste's anticipated financial effects for 2014 shows -€1.3 billion in sustainability-driven risks (equivalent to 8% of 2014 revenue) and €0.4 billion in opportunities (equivalent to 3% of 2014 revenue). Over the following decade, Neste made multi-billion-euro investments in renewables and decisively shifted its portfolio.

The results of this transformation are clear in the numbers. Upright's quantification of Neste's 2023 financial effects shows sustainability-driven risks fell to -€1.0 billion (equivalent to 4% of 2023 revenue), while opportunities increased substantially to €1.8 billion (equivalent to 8% of 2023 revenue). For investors and for Neste's own management, the difference is decisive. With quantification, the transformation becomes visible and measurable: in less than a decade, sustainability-driven risks halved as a share of revenue while opportunities almost tripled.

Takeaway

Option 1 in EFRAG's Amended ESRS is not just the better choice; it is the only credible path forward. Quantification transforms narratives into measurable results, providing invaluable insights for both external investors and internal decision-makers. It is time to embrace the challenge of quantification, not shy away from it. To do otherwise would be a disservice to investors, reporters, and the broader goal of a sustainable economy.

Contributors:

Markus Weckman, VP, Corporates at Upright

Dr. Philipp Back, Specialist, Impact Data at Upright

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