Compared to previous version prepared by EFRAG in November, 2022, the revised draft ESRS has essential updates. Feedback on the drafts will be accepted until 7 July, 2023. The European Commission plans to adopt the final standards as legislation by August 2023.
On 9 June, 2023, the European Commission published near-final drafts of future mandatory sustainability reporting standards for European companies. The documents now published include:
- A draft delegated regulation that will make the ESRS law in the EU;
- An Annex I containing the revised draft ESRS;
- an Annex II with a list of acronyms and a glossary of terms.
The overall structure of the standards has not been changed by the European Commission. However, the amendment makes only ESRS 2 mandatory, the remaining standards are subject of materiality assessment. Based on their assessment of materiality, companies must determine which information (disclosure requirement and data point) is considered material. Therefore, under the change, there is no obligation to disclose information on climate change (ESRS E1) and own workforce (ESRS S1). In terms of forcing companies to improve their performance on ESG issues, this is seen by some financial professional bodies as a regulatory step backwards.
Additional provisions for the phasing-in periods
In their first reporting year, companies will be allowed to omit reporting on anticipated financial effects from all environment-related impacts, risks and opportunities. This is an understandable relief for them, as the collection and reporting of such data has not been a common practice for companies in the past. The term “potential financial effects” has been changed to “anticipated financial effects”, that gives bigger flexibility for companies with regards to value future financial effect.
Some disclosure requirements and data points included in ESRS S1 “Own workforce” may be omitted for the first reporting year. Special relief has been introduced for companies and groups with less than 750 employees in relation to ESRS E1, E4, S1-S4.
Some disclosures are now voluntary, for example the transition plan for biodiversity and ecosystems (ESRS E4) and some information on non-employee workers in ESRS S1.
Towards international harmonisation
Other amendments improves interoperability with international frameworks, like the forthcoming standards from the International Sustainability Standards Board (ISSB) and Global Reporting Initiative (GRI).
Join the conversation, give a feedback to the European Commisssion!
Reactions from different stakeholders have been mixed, with the EC proposing significant changes after a three-year consultation process. Feedback on the drafts will be accepted until 7 July 2023. The European Commission plans to adopt the final standards as legislation very soon, by end of July – beginning of August 2023.
We encourage all stakeholders to give feedback to help shape this landmark piece of legislation that will define our common future!
Author: Mária Farkas – Senior Sustainability and CSRD Expert at denxpert