As the deadline for the EU sustainability reporting standards draft approaches, concerns have been raised about its alignment with the recommendations of EFRAG.
Companies in the European Union (EU) and beyond are gearing up to comply with the forthcoming Corporate Sustainability Reporting Directive (CSRD) and adopt the European Sustainability Reporting Standards (ESRSs).
The EU recently released near-final drafts of the mandatory sustainability reporting standards for EU companies. These drafts have undergone revisions in response to stakeholder feedback received on previous versions.
The European Financial Reporting Advisory Group (EFRAG) presented the initial drafts to the European Commission (EC) in November of the previous year. The last step before finalising the first set of ESRSs is a four-week public consultation, which closes on 7 July 2023.
While the draft standards received broad support from key EU bodies, concerns were raised regarding their alignment with international standards and the lack of clarity on fundamental concepts such as materiality and reporting on a company’s value chain.
In response to the feedback, the EU has made changes in several key areas. Only ESRS 2 General disclosures will be mandatory, while other disclosures will be subject to a materiality assessment. This aims to reduce the reporting burden on companies, but they will need sufficient time to conduct thorough materiality assessments.
Phasing-in provisions have been introduced, granting additional relief for companies, particularly those under 750 employees. This relief includes extended timelines for disclosures related to environmental financial implications, social standards and biodiversity.
Despite these adjustments, further concerns have been raised.
German Investment Funds Association BVI expressed reservations about the draft ESRS. BVI said asset managers may not obtain the necessary information from companies, hindering their reporting obligations.
“We call on the European Commission to follow the recommendations of its expert commission EFRAG and adjust the draft. Companies should be required to report on key environmental and social indicators so asset managers can assess the credibility of companies’ transition plans,” said BVI.
In June, investor group Eurosif warned that the draft ESRS would undermine the SFDR owing to data disclosures that could leave out valuable information.
The final ESRSs are expected to be adopted in August 2023, with companies mandated to adopt them from 1 January 2024, subject to no objections being raised by the EU Parliament and Council.
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