As a part of the Omnibus proposal, EFRAG is requested by the commission for technical advice to modify the delegated act on European Sustainability Reporting Standards (ESRS).
The aim is to reduce number of mandatory datapoints by more than 50% while maintaining the core objectives and integrity of Corporate Sustainability Reporting Directive (CSRD).
Workplan
Following a tight deadline, EFRAG workplan is to
- Setup a vision on actionable levers for simplification, following stakeholder consultation and analysis of issued reports, by May 2025.
- Draft and approve the Exposure Drafts (EDs) (read: updated standards), amending the current European Sustainability Reporting Standards (ESRS), by July 2025
- Publish the EDs, receive and analyse stakeholder feedback, by September 2025
- Finalise and deliver the technical advice to the commission by October 2025
While EFRAG claims that it is currently on schedule, it has requested the commission to provide some extra time to ensure right level of stakeholder consultation and feedback is gathered in the process.
Summary – Progress report
EFRAG recently published an interim progress report on the simplification.
EFRAG stressed that the updated (simplified) standards will put greater emphasis on the principles, rather than the checklist of granular information.
It will adopt a less granular approach to the narratives, focusing on the ‘core’ information and excluding least relevant qualitative and quantitative information
As a part of this report, EFRAG identified 6 key levers to reduce the number of mandatory datapoints by at least 50%.
Lever 1 – Simplification of DMA
Why? Too much focus on the process rather than the results, and extensive documentation required (by auditors like non-materiality of each and every item in ESRS 1 AR16 and scoring at an IRO level)
What to expect?
- Sharper focus on the goal – reporting on material matters, rather than a compliance exercise. More emphasis will be on fair representation of material matters. This is crucial towards the auditors to reduce the burden for preparers.
- Clarifying that a ‘top-down’ analysis of most obvious material topics considering the business model, sector and / or peers should suffice.
- Further stress the importance information materiality criteria – whether the information to be disclosed is important for stakeholders in decisions making – for decision-usefulness while reporting on material matters
- Clarity on gross or net approach for impact materiality
- Information disclosure restricted to sub-topic-related datapoints if material. This means that only specific disclosure requirements / datapoints will apply, not the full standards, if a sub-topic is material.
Lever 2 – Better readability / conciseness of the sustainability statements
Why? Datapoints are too granular and are mixing critical information; difficulties in ‘telling the story’ towards stakeholders – flexibilities provided not understood by preparers and auditors
What to expect?
- Further clarify the areas of flexibility. Less prescriptive recommendations like ‘executive summary’ at the beginning of the sustainability statements, option to disclosure more granular information / metrics in dedicated sections or appendices, discouraging fragmentation and / or repetition of information
Lever 3 – Modifications in MDRs and topical specifications
Why? Minimum Disclosure Requirements (MDRs) combined in ESRS 2 and in topical standards are considered burdensome, often duplication / repetition and granular, leading to excessive (disclosure) information.
What to expect?
- MDRs in ESRS 2 will be revised / reduced and will remain mandatory
- Drastic reduction in MDRs for Policies, Actions and Targets (PATs) in topical standards
- Further clarify that PATs may be focused at topic / management level (rather than IROs)
- PATs can be limited to a sub-topic w/o triggering disclosures at the topical level (same as last point in Lever 2)
Lever 4 – Improved understandability, clarity and accessibility of the standards
Why? Extensive discussions on “voluntary disclosure” bet. the preparers and auditors and seen as a checklist, rather than a good practice for mature companies.
What to expect?
- Amending the general structure of the standards, separating mandatory and non-mandatory content
Lever 5 – Introduction of other suggested burden-reduction reliefs
Why? To address a number of concerns which companies face while reporting on sustainability information
What to expect?
- Several modification to existing reliefs and additional reliefs are expected. These include 1. introduction of ‘undue cost and effort’ relief in line with IFRS; 2. acquisition and disposal relief; 3. two additional relief on metrics (own operations and value chain); 4. relief on ‘anticipated financial effects’ and 5 boundary of GHG emissions reporting, aligning with IFRS S2 and GHG Protocol.
Lever 6 – Enhanced interoperability
Why? To all opportunities in order to align the provisions and avoid unnecessary misinterpretations or differences, particularly between the ESRS and the ISSB Standards.
What to expect?
- GHG emissions reporting boundaries to align with IFRS S2 (and GHG Protocol)
- Common provisions will have the same wording as IRFS S1 and S2 where possible.
What’s next? ERAG is expected to discuss the revised version of the amendments (‘V2’) in the EFRAG Board on July 2. Exposure Drafts are planned for mid-July and the consultation will be begin in the last week of the month.