Summary
On 9 June, the European Commission (EC) published for a 4-week consultation the draft delegated act (DA) setting out the first set of European Sustainability Reporting Standards (ESRS) comprising of sector-agnostic standards covering disclosure requirements (DR) of environmental, social and governance information. The EC will collect feedback on the draft DA until 7 July.
The EC has made the following modifications to the draft ESRS Set 1 submitted by EFRAG in November 2022, with the aim of ensuring proportionality and facilitating the correct application of the standards by undertakings:
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- Streamlining of reporting obligations, while not affecting the pursuit of the objective: avoiding overlaps, removing unnecessary burdens, using as much as possible digital and interoperable solutions
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- Extending scope of materiality: all standards, DRs and datapoints within each standard will be subject to materiality assessment by the undertaking, except for the “General disclosures” standard (ESRS 2);
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- Additional phasing-in:
- Undertakings with <750 employees may omit:
- In the first year: scope 3 GHG emissions data and ESRS S1 (own workforce)
- In the first two years: ESRS E4 (Biodiversity), ESRS S2 (value chain workers), ESRS S3 (affected communities), ESRS S4 (consumers and end-users)
- All undertakings may omit in the first year: anticipated financial effects related to non-climate environmental issues (pollution, water, biodiversity, resource use), and certain datapoints related to their own workforce (social protection, persons with disabilities, work-related ill-health, work-life balance);
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- Additional disclosures made voluntary: including for example biodiversity transition plans, certain indicators about “non-employees” in the undertaking’s own workforce, and an explanation of why the undertaking may consider a particular sustainability topic not to be material;
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- Further flexibilities in certain disclosures: eg. regarding DRs on the financial effects arising from sustainability risks, engagement with stakeholders and the methodology to use for the materiality assessment process;
- Technical modifications to ensure coherence with the EU legal framework;
- Modifications following the engagement with the ISSB and GRI to ensure a high degree of interoperability with ESRS;
- Editorial and presentational modifications improving clarity, usability and coherence.
The EC estimates the total cost reduction from the proposed additional phase-in measures during the phase-in period of €1.172m and the cost reduction of proposed modifications on materiality and voluntary disclosures of €230m.
As many respondents to previous consultations stressed the need for additional guidance to enable undertakings to apply the standards in an efficient and consistent manner, the EC is putting in place an interpretation mechanism to provide formal interpretation of the standards and has asked EFRAG to publish additional guidance and educational material.