Insights

After the DMA: An intro to data gap assessments

27 November 2024

As companies prepare to comply with the Corporate Sustainability Reporting Directive (CSRD), conducting a data gap assessment has become a crucial step following the Double Materiality Assessment (DMA). A data gap assessment pinpoints discrepancies between a company’s existing information and the relevant reporting requirements of the European Sustainability Reporting Standards (ESRS). This process helps companies understand their readiness for ESRS reporting.

In this article, we walk through:

Why conduct a data gap assessment?

A data gap assessment identifies the inconsistencies between the company’s current data availability and the relevant reporting requirements of the ESRS. While conducting a data gap assessment is not legally required under the ESRS, it is an essential process for most companies to undertake to achieve regulatory compliance.

How so?

After performing a DMA and applying the concept of “information materiality,” a company determines which sustainability information must be reported in the ESRS sustainability statement. At this stage, many companies realise they must step up their reporting efforts to meet ESRS requirements and ensure compliance.

By identifying missing critical information, a data gap assessment allows companies to make better estimates of the investments needed to meet reporting requirements on time and with high quality.

Clarification: “Data” in the ESRS is not just quantitative!

A common misconception is that ESRS data refers exclusively to numerical or quantitative information, such as greenhouse gas emissions, or employee sick leave numbers. However, the majority of ESRS data, approximately 70%*, is qualitative in nature, meaning disclosures are text-based and allow for deeper explanations.

*Source: EFRAG IG 3 – List of ESRS datapoints – Explanatory note

The data gap assessment process

There is no single correct approach to conducting a data gap assessment. Nevertheless, to achieve the best accuracy and effectiveness, we recommend following a structured process, as outlined below.

1. Identify relevant data points

Before meaningfully assessing data gaps, companies need to conduct a DMA. This step is essential as the DMA determines which of the ten topical ESRS Standards apply to your organisation.

That said, it is important to note that the DMA alone does not suffice. To specify which exact ESRS Disclosure Requirements (DRs) or data points your material impacts, risks, and opportunities (IROs) relate to, it is necessary to apply an additional “filtering” mechanism, known as the concept of “materiality of information” (ESRS 1, paragraphs 31–35; ESRS 1, Appendix E).

Once you’ve identified the relevant DRs and data points, we recommend determining your reporting ambition. This step is important because some data points are subject to Transitional Provisions (ESRS 1, Chapter 10) or phase-ins, which may allow your organisation to omit certain data points in the first reporting year. Additionally, some data points are voluntary. By completing this step, you will finalise the list of data points to include in your first ESRS report.

2. Assess data gaps

With the finalised list of data points, your company can begin assessing data gaps accurately.

We recommend using EFRAG’s IG 3 (List of ESRS data points) Excel sheet as a foundation for your assessment. This tool compiles all reporting requirements at the data point level in an organised and relatively user-friendly format. You should then tailor the sheet to suit your specific reporting scenario.

Now, you’re ready to assess your company’s ESRS data gaps. We recommend focusing on internally available information to ensure accuracy, even if it isn’t currently reported externally or fully documented. This could include metrics retrievable from internal systems, like HR databases, or existing processes that haven’t been formally recorded.

This step requires collaboration with various departments within your organisation to understand the current state of your sustainability data landscape. It also provides a valuable opportunity to onboard key internal stakeholders – such as potential future data owners – to the reporting requirements and specific data points your organisation must address.

You might also be able to leverage some of the information already gathered during the DMA, as overlaps may occur.

3. Estimate the reporting workload

To extract meaningful conclusions from your data gap assessment, consider how granular your analysis needs to be — for instance, whether it will be needed to evaluate time and resources required on a data point, Disclosure Requirement, or Standard level.

Ultimately, the goal of your data gap assessment should be to provide a clear estimation of the workload that lies ahead for you and your team. This will allow you to effectively communicate the required efforts to meet ESRS reporting requirements and ensure alignment across the organisation.

What´s next? Immediate steps after the data gap assessment

With a clear understanding of the road ahead, it’s time to start planning the next steps.

Assess team capacity
Evaluate whether your sustainability reporting team is adequately staffed to meet the company’s ESRS reporting objectives. If significant gaps are identified, your organisation may need to invest in additional human resources to support the reporting process.
Establish a data governance structure
The next logical step is to set up a robust data governance framework. Assign dedicated data owners for each material Disclosure Requirement, and clearly outline their roles and responsibilities.
Consider data management tools
Investing in an ESRS data management system may also be worth exploring to streamline data collection and reporting.
Outline the report structure
Finally, you can begin drafting the structure of your ESRS report, setting the foundation for a smooth reporting process.

Want to know more about CSRD and data gap assessments?

Connect with our ESRS Lead:

Ditte Maria Olsen