EU amends ESRS, seeks to align, reduce reporting burden
The European Commission has now published, for a four week consultation period, a set of revisions to the European Sustainability Reporting Standards (ESRSs).
There are a considerable number of changes being proposed. From our perspective, perhaps the most important is an announcement that there will be significant additional harmonisation between the EU’s approach and that of the International Sustainability Standards Board (ISSB). The Commission has announced that all climate related definitions in IFRS S2 and ESRS E1, (with the exception of carbon credits) are to be “made common”. The approach of the two boards to financial materiality will also be aligned. This is a hugely welcome and significant development and should help ensure that users will be able to compare data more readily and that reporting companies will only need to develop one set of climate-related disclosures.
Although there is significant detail in many other aspects of the proposals, and we understand that there are ongoing intensive discussions underway, the exact mechanism for climate reporting has not yet been announced. Stay tuned. We suspect that this is highly relevant to upcoming digital disclosures.
Much of the public comment that we’ve seen on the many other aspects of the changes being proposed focus on the shift to permit a materiality assessment surrounding nearly all of the ESRSs. This is a process through which companies must determine which of the standards they will need to disclose against as part of the upcoming Corporate Sustainability Reporting Directive (CSRD). Some press articles have described the change as a shift from mandatory to voluntary. This is clearly not the case. The materiality criteria are objective, will (for public companies) be subject to audit review and also subject to supervisory review. That said, there is much debate about whether the Commission’s proposals will harm its own overall objectives to considerably expand corporate reporting.
The Commission has taken into account significant feedback from a wide range of particularly corporate stakeholders and is providing a much more generous phase-in approach to many of the new reporting requirements and cut a few out altogether. This is all developing quite quickly. Here at XBRL International our key focus is comparability and utility of the end reports. Many of our readers will need a lot of detail about implementation timelines and pathways and we urge you to dig into the documentation and discussions.
Read the directive and provide feedback here.
