CSRD and ESRS
With the upcoming Corporate Sustainability Reporting Directive (CSRD), the need for uniform disclosure requirements that will apply to those companies that fall under this regulation arrived. Along with the CSRD comes the European Sustainability Reporting Standard (ESRS). The ESRS will become the framework companies that fall under the CSRD have to use to disclose their sustainability performance.
European Sustainability Reporting Standard (ESRS)
Some of the main takeaways from our first look at the ESRS are that the concept of “double materiality” is one core concept implemented into the ESRS. However, the ESRS is not only a collection of numbers and data – companies will have to disclose information related to strategy, targets, and forward-looking information.
One of the main takeaways and one of the most discussed aspects of the ESRS is the extensive amount of questions or disclosure topics that come with it.
ESRS in Public Discussion
The Draft ESRS EDs have been discussed in various forums and platforms. At this point, we would like to share some of the highlights from the discussions we have been following online and the conversations we have had on ESRS. The following overview is neither complete nor to be understood as a ranking. However, these are the topics we perceived as the ones most often discussed.
- The burden of granularity: The ESRS comes with 137 disclosure requirements and additional sub-disclosures. In addition to purely quantitative questions, they also include disclosures related to strategy, risks, opportunities, impacts and materiality characteristics. It is, however, unclear if the sheer number of disclosure requirements contributes to additional stakeholder insights.
- Convergence with other international ESG reporting standards: In a globalized world with international standards for corporate financial reporting, convergence on reporting of sustainability topics is needed to avoid double reporting, the additional costs that come with that and possible reduced comparability of non-financial reporting.
- Approach to materiality and the concept of “rebuttable presumption”: The concept of “rebuttable presumption” can result in companies having to report on and prove for each disclosure requirement whether it is material or not. At the same time, concepts like “double materiality” are already established.
- Potential disclosure of confidential business information: The ESRS requires, among others, the disclosure of forward-looking information that may be understood as confidential by the reporting company and that can be used by competitors to gain an advantage – which may be especially true for competitors from outside the European Union that do not have to mandatory disclose similar information.
We are curious to see which of the comments on the ESRS will be taken up by the EFRAG and what changes will result compared to the draft that has been available so far.
According to a press release by the EFRAG, the EFRAG Sustainability Reporting Board and the EFRAG Sustainability Reporting Technical Expert Group will consider all comments received.
After that, the EFRAG will hand over the resulting first set of Draft ESRS to the European Commission in November 2022 to be considered for adoption by way of delegated acts at a later stage.
Notes, further information and sources
Here is our collection of links and additional information:
- Press release by EFRAG Closing of the EFRAG public consultation on the draft ESRS EDs
- Presentation EFRAG SRB & SRT Joint Meeting – Key statistics – Survey 1
- EFRAG Paper on time horizons in ESRS 1
- Survey 1 – Submissions to the two-part online survey
- Survey 2 – Submissions to the two-part online survey
- Comment letters uploaded to the online survey
- Additional comment letters submitted to EFRAG
- EFRAG – Implications of the final CSRD
- EFRAG – Approach to materiality assessment in ESRS
- EFRAG – Alignment with IFRS Sustainability Standards