r3.0 Public Comment Letter to EFRAG (regarding ESRS): Sustainability Reporting requires integration of thresholds and allocations

“…sustainability reporting draw significant meaning from the larger context of how performance at the organisational level affects economic, environmental, and social capital formation and depletion at a local, regional, or global level.

…simply reporting on the trend in individual performance (or the efficiency of the organisation) leaves open the question of an organisation’s contribution to the total amount of these different types of capital.

…placing performance information in the broader biophysical, social, and economic context lies at the heart of sustainability reporting.

…reporting organisations should consider their individual performance … in the context of the limits and demands placed on economic, environmental, or social resources at a macro-level.”[3] [Emphasis added]

Figure 1: Sustainability Context Gap (Source: Bjørn et al 2017)[6]

an initiative that purports to be a sustainability initiative could not simply frame its work along the lines of, shall we say, incremental performance assessment. That is, companies that were improving each year in regard to water management, energy management, living wages and occupational health and safety should be recognized in the evolving … framework. But incrementalism alone, at the end of the day, [is] insufficient to be faithful to a sustainability reporting framework. [One] would have to take a further step and include [guidance] that would call for assessing — in addition to disclosures on backward-looking benchmarks, peer group comparisons, and improvements against a company’s own goals — performance against thresholds and limits.”[8] [Emphasis added]

We don’t have decades to get serious about Context in light of the ecological and social perils that lie ahead. I think the time for procrastination has passed and the time for aggressive movement is upon us. The world is issuing a collective wake-up call on the issue of thresholds and limits. We’ve lost precious time dawdling in the last decade. We can’t afford another decade of the same.”[9] [Emphasis added]

“We like to first point out one quote from the June 2019 [EC Sustainable Finance Taxonomy] report that is a posterchild of the problem of sustainability context: the use of term threshold in a non-scientific way, something that corrupts the complete intention of the ‘Sustainable Finance’ idea:

‘To ensure the broadest usability of the Taxonomy possible, the TEG had to arbitrate between granularity and flexibility as well as between complexity and clarity. A very granular Taxonomy, which uses precise metrics and thresholds, is expected to provide clarity and to minimize the risk of greenwashing. Nevertheless, there is a risk that requirements that are too granular and stringent lower the willingness of stakeholders to take up the Taxonomy, due mainly to the costs to access the necessary data and adapting their internal processes. On the other hand, more flexibility in the definition of screening criteria may facilitate the use of the Taxonomy but increase significantly the risk of divergent interpretations and greenwashing. Another challenge regarding the definition of the screening criteria is setting the adequate level of thresholds. Setting too low or too high thresholds, which do not reflect best market practices, would undermine the Taxonomy’s ultimate goal of redirecting financial flows towards sustainable investments. Consequently, the selection of the Taxonomy’s thresholds has been carefully considered, based on existing standards and consultation processes with experts in the relevant sectors.’[11]

This explanation makes it clear that the EU Technical Expert Group is approaching thresholds not as biophysical realities that must be abided in order to achieve sustainability in the real world, but rather as political variables open to negotiation amongst those with diverse positions of power. Therefore, it’s vital to understand that the term “thresholds” used throughout the 400+ page document is not sustainability thresholds, but rather thresholds as defined to “reflect best market practices” with the “ultimate goal of redirecting financial flows towards sustainable investments.” Of course, this raises the question of just how those investments can possibly be ‘sustainable’ if the thresholds used to measure them are divorced from biophysical reality?”[12] [Emphasis added]

“how the targets respect and are in alignment with ecological thresholds (e.g. the biosphere integrity and land-system change planetary boundaries[xiii]) and allocate responsibility for respecting these thresholds to the organisational level.”[14] [Emphasis added]

“The implementation of materiality implies the use of thresholds and/or criteria.”[16] [Emphasis added]

“Impact materiality is a characteristic of a sustainability matter or information in relation to an undertaking. A sustainability matter is material from an impact perspective if it is connected to actual or potential significant impacts by the undertaking on people or the environment over the short-, medium- or long-term. This includes impacts directly caused or contributed to by the undertaking in its own operations, products or services and impacts which are otherwise directly linked to the undertaking’s upstream and downstream value chain, and not limited to contractual relationships.”[18]

“Financial materiality in the context of sustainability reporting is a characteristic of a sustainability matter or information in relation to the undertaking. For the purposes of preparing sustainability reporting, a sustainability matter is material from a financial perspective if it triggers or may trigger significant financial effects on undertakings, i.e., it generates or may generate significant risks or opportunities that influence or are likely to influence the future cash flows and therefore the enterprise value of the undertaking in the short-, medium- or long-term, but it is not captured or not yet fully captured by financial reporting at the reporting date.”[19]

“The undertaking shall establish explicit thresholds and/or criteria to determine when a disclosure is complied with through a statement ‘not material for the undertaking’.”[20] [Emphasis added]

“When reporting on implementation the undertaking shall describe how it manages its material matters and their related impacts, risks, and opportunities. This covers information on policies and targets, actions and action plans, and resources allocation, whereby … allocation of resources refers to the decisions taken to support actions and action plans with identified financial, human or technological resources.”[21] [Emphasis added]

“A description of the undertaking-wide structure with regard to sustainability matters, including allocation of responsibilities and reporting lines, up to the administrative, management and supervisory bodies, including the role of: i. management level senior executives; and ii. other employees at the operational level.

When the undertaking has or will put in place initiatives to modify its strategy and business model(s), in order to reduce or eliminate the risk or to benefit from the opportunity and/or in order to prevent and mitigate negative material impacts and enhance positive material impacts (see ESRS 2 Disclosure Requirements SBM 3 and 4) the undertaking shall make explicit reference to the allocation of responsibilities and to the organisational structure put in place to address related impacts, risks and opportunities.”[23] [Emphasis added]

“The undertaking shall give a justification and appropriate evidence that the undertaking is not involved with the negative impacts through its activities or business relationships; or that the relative severity and likelihood of these impacts do not meet a threshold of impact materiality.”[24] [Emphasis added]

“reference to thresholds in the carrying capacities of vital capitals, and organization-specific allocations of the responsibility to create, preserve and/or maintain them with stakeholder well-being in mind.”[26]


A sustainable future relies on ensuring that no one falls short on life’s essentials, and that collectively we do not overshoot our pressure on Earth’s life-supporting systems. Societal or ecological thresholds identified by science help establish the foundations and ceilings that earth and society should seek to operate within to prevent harm to people and the natural environment.

From a measurement perspective, this means that outcomes for people are sustainable if they are within the acceptable range determined by societal thresholds, and outcomes for the natural environment are sustainable if they are within the acceptable range determined by ecological thresholds…

Thresholds are critical contextual reference points for organisations assessing whether an outcome is sustainable or unsustainable. They are distinct from other types of targets that organisations might set themselves which are not explicitly linked to a scientific assessment of what constitutes a sustainable outcome.


Whenever an organisation uses a shared resource or is part responsible for preserving or producing one, a further step is required to establish a fair allocation of the responsibilities involved. This becomes an organisation-specific threshold through a process called translation…

Allocation is the process of apportioning the responsibility to maintain thresholds in fair, just and proportionate ways that are specific to an organisation, making them practical for the organisation to apply when setting their own targets for measuring and managing sustainability performance.[28]” [Emphasis added]

“Tier One: Incrementalist Numeration

Numeration indicators focus on actual impacts, which include absolute indicators as well as “intensity” indicators that describe performance relative to a nonnormative counterpart (such as unit of production), and are therefore incrementalist by definition.

Tier Two: Contextualized Denomination

Denomination indicators contextualize actual impacts against normative impacts. Also known as “Context-Based” indicators, denominator indicators take into account sustainability thresholds in ecological, social, and economic systems, as well as allocations of those thresholds to organizations and other sub-system entities such as sectors, portfolios, or bioregional habitats.

Tier Three: Activating Transformation

Transformation indicators add transcontextual elements of implementation practices and policies (as well as more ephemeral emergence) to normative indicators in order to instantiate sufficient change within complex adaptive systems.”[30]



r3.0 is a pre-competitive & market-making non-profit delivering groundbreaking Blueprints, Transformation Journeys and Conferences for system value creation.

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r3.0 is a pre-competitive & market-making non-profit delivering groundbreaking Blueprints, Transformation Journeys and Conferences for system value creation.