Recently the first set of proposed European Sustainability Reporting Standards (ESRS) standards that were developed by the European Financial Reporting Advisory Group (EFRAG) were delivered to the European Commission (EC).
EFRAG’s role with the EC is to be its technical advisor on corporate reporting matters – both financial and non-financial. EFRAG is working very closely with the EC as it looks to finalise Europe’s Corporate Sustainability Reporting Directive (CSRD). The CSRD will soon be turned into legislation replacing the current Non-Financial Reporting Directive that currently exists.
Below are the most significant changes that EFRAG has made to its Exposure Drafts (EDs) on the ESRS that were issued earlier this year:
- The number sustainability standards included in the first set of ESRS delivered to the European Parliament has been dropped from 13 to 12 as the result of the content of the two proposed governance standards being merged into one
- The number of KPIs and specific disclosure requirements contained in all the EDs on ESRS has been significantly reduced. Across all the ESRS the total number of disclosures, if material, that are now required has reduced from 136 to 84
- The 'rebuttable presumption' principle, that was a notable feature of the original EDs has been dropped. Simply put this now means there is no longer a need to provide comprehensive disclosures when a disclosure requirement set out in the ESRS has been considered 'non-material', and
- The requirements that surround a reporting entity having to provide detailed disclosures about the value-chains it participates in have been clarified. Based on feedback received from the ED process a phased 3-year approach to disclose what is required has now been included.
Full details and links updated ESRS documents can be found at www.efrag.org.
The European Council (EC), who gave its final approval to the CSRD last week, will now consult EU bodies and Member States on these draft standards, before adopting the final standards as delegated acts in June 2023, followed by a scrutiny period by the European Parliament and EC.
The reporting requirements in Europe will be phased in over time for different kinds of companies. The first companies will have to apply the standards in financial year 2024, for reports published in 2025. Listed SMEs will be obliged to report as from 2026, with a further possibility of voluntary opt-out until 2028. However, they will be able to report according to separate, proportionate standards that EFRAG will develop next year.
EFRAG also announced last week that its focus in the next few months will be on drafting a second set ESRS that will draft sector specific standards:
- Five sectors covered by GRI: agriculture, coal mining, mining, oil and gas (upstream), oil and gas (mid-to downstream), and
- Five high-impact sectors: energy production, road transport, motor vehicle production, food/beverages, textiles. This second set of draft ESRS will also focus on some specific standards for SMEs.
We hope you find this information helpful in giving you some insight into EFRAG’s progress on the ESRS. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or your local member firm.