The European Financial Reporting Advisory Group (EFRAG) revealed that it is currently considering changes to the European Sustainability Reporting Standards (ESRS) underlying the EU’s CSRD regulation that would reduce datapoints reported by companies by approximately two-thirds, and include a “drastic decision” to eliminate voluntary disclosure, or “may” datapoints.
The plans were released with the publication of EFRAG’s “Amended ESRS Exposure Draft,” ahead of a meeting to discuss the draft. EFRAG specified that the draft does not yet represent its official position on its ESRS update. If approved, the changes would mark an even more dramatic reduction in datapoints than EFRAG’s recently reported plans to reduce more than 50% of ESRS datapoints.
The meeting follows the release in late February of the European Commission’s Omnibus I package, aimed at significantly reducing the sustainability reporting and regulatory burden on companies, with proposals for major changes to a series of regulations including the Corporate Sustainability Reporting Directive (CSRD), as well as the Corporate Sustainability Due Diligence Directive (CSDDD), the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM).
As part of the Omnibus package, the Commission proposed plans to revise the ESRS, with the aim of substantially reducing the number of data points required by the sustainability reporting standards.
EFRAG was mandated by the European Commission in June 2020 to prepare the initial ESRS, which were adopted by the Commission in 2023. Following the release of the Omnibus package, the Commission mandated EFRAG with developing technical advice to revise the ESRS in line with the proposals simplification objectives.
In the new draft document, EFRAG stated that its goal “is to produce a set of revised ESRS that better support relevant and decision-useful general-purpose sustainability statements, in line with the policy aim of the CSRD, while leading to a substantial reduction of both the reporting effort and the number of mandatory datapoints.”
The publication outlines several key focus areas for EFRAG’s efforts to revise the ESRS, including a significant focus on simplifying the double materiality assessment (DMA), which it said “has been identified as a significant source of burden in practice,” with a new section of “practical considerations,” including clarifying that “the expected level of evidence to support the conclusions must be reasonable and proportionate,” as well as other adjustments to avoid unnecessary details in reported information.
The draft also includes revisions aimed at enabling more readable and concise sustainability statements, including introducing options to have an executive summary in the report, and to use appendices to disclose the most granular information such as detailed metrics.
Other key levers to simplify reporting obligations in the draft covered areas including modifying the relationship between Minimum Disclosure Requirements (MDR) and topical specifications to achieve significant reductions in mandatory reporting requirements, introducing additional reliefs, and enhancing interoperability with IFRS S1 and S2.
In the draft, EFRAG said that it has reviewed all mandatory datapoints in order to achieve a substantial reduction, following a “more principle-based approach,” and using criteria to eliminate the least relevant disclosures. Following its review, EFRAG said that it expects to reduce mandatory, or “shall,” datapoints by more than 50% “while preserving the integrity of the core objectives of the CSRD,” and that it “took a drastic decision in relation to the former “may” datapoints (voluntary disclosure),” to eliminate all “may” datapoints.
In total, the draft estimates that the revision will reduce ESRS datapoints by approximately 66%.
Click here to access the draft report.
