EFRAG Unveils Simplified European Sustainability Reporting Standards
The European Financial Reporting Advisory Group (EFRAG) has announced the publication of its finalised proposed update to the European Sustainability Reporting Standards (ESRS), designed to greatly simplify and lessen the sustainability reporting obligations for companies under the EU’s Corporate Sustainability Reporting Directive (CSRD).
The new proposed ESRS would substantially reduce reporting requirements for CSRD companies Tweet This!, with EFRAG decreasing the number of datapoints in the standard by over 70%, also featuring notable simplifications in key areas such as materiality assessments and data collection from companies’ supply chains.
In a statement announcing the publication of the updated ESRS, EFRAG stated that simplifying the sustainability reporting standards for companies “fosters greater competitiveness by easing the regulatory landscape without compromising the fundamental objective of the Green Deal to advance sustainability in the European Union.”
The simplification of the ESRS is a key element of the European Commission’s Omnibus I initiative, which seeks to substantially reduce the sustainability reporting and regulatory burden on companies. This initiative targets regulations such as the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM).
In June 2020, the European Commission tasked EFRAG with developing the initial ESRS, which the Commission adopted in 2023. Following the introduction of the Omnibus package, the Commission assigned EFRAG the responsibility of developing technical advice to revise the ESRS to align with the proposal’s simplification objectives.
The final version of the new standard is expected to apply to significantly fewer companies than initially predicted, as EU lawmakers are set to raise the coverage threshold for the CSRD to companies with at least 1,750 employees and €450 million in revenue. This is a departure from the EU Commission’s original proposal of 1,000 employees, effectively excluding approximately 90% of companies compared to the pre-Omnibus CSRD regulation.
One of the most notable revisions in the updated standard is a substantial decrease in the volume of data required, with EFRAG cutting mandatory datapoints by 61% and removing all voluntary disclosures. This results in an overall reduction of over 70% in datapoints, surpassing the 68% reduction proposed in EFRAG’s draft revised ESRS published in July.
A major focus area for simplification during the revision of the ESRS was the double materiality assessment (DMA), which EFRAG described as “the most challenging area.” The update aims to “avoid unnecessary administrative efforts, refocus on usefulness of the information, and help companies and users to disclose only what really matters.” The revisions to the DMA include an option to adopt a top-down approach, updated definitions of key concepts, simplified provisions for assessing the effects of remediation, mitigation, and prevention measures, a streamlined list of non-mandatory topics, the possibility to report solely on material sub-topics, and a clarification that companies are not required to perform a full DMA annually unless there are significant changes.
Other significant updates in the revised ESRS include removing the standard’s preference for using direct data in value chain reporting and providing greater flexibility for companies to use estimates, thereby easing the burden of direct data collection from suppliers.
The revision also introduces a series of relief measures, most notably a proportionality mechanism that requires reporting on “reasonable and supportable information that is available without undue cost or effort,” along with the phasing in over time of challenging disclosures.
EFRAG also emphasised the enhanced interoperability of the revised ESRS with the International Sustainability Standards Board’s (ISSB) standards developed by the IFRS Foundation. This includes alignment in areas such as linking entity-specific information with fair presentation, the “undue cost or effort” mechanism, the treatment of anticipated financial impacts and associated reliefs, and the adoption of similar wording for several datapoints.
Following the release of the new standards by EFRAG, the EU Commission will need to prepare a Delegated Act to formally amend the initial ESRS.
Patrick de Cambourg, Chair of the EFRAG Sustainability Reporting Board (SRB), stated:
“This simplification reflects a crucial balance: supporting Europe’s competitiveness and reducing unnecessary burden, while preserving the EU’s leadership in sustainable finance and its commitment to the Green Deal. The Simplified ESRS provide a clearer, more proportionate framework that strengthens trust, transparency and our collective ability to address long-term sustainability challenges.”
References:
https://www.esgtoday.com/efrag-releases-simplified-european-sustainability-reporting-standards/