The European Commission published the long-awaited draft delegated act on the first set of European Sustainability Reporting Standards (ESRS) on June 9, 2023. Companies and stakeholders had until July 7, 2023 to submit comments on the draft. The final version is expected to be published by the end of July.
The draft is based on the ESRS drafts developed by the European Financial Reporting Advisory Group (EFRAG) (Set 1), which were submitted to the EU Commission in November 2022. It includes some significant changes compared to the original drafts, which aim to reduce entities’ reporting requirements and increase flexibility.
Background
In December 2022, the Corporate Sustainability Reporting Directive (CSRD) was adopted, providing the legal basis for a comprehensive adaptation and expansion of sustainability reporting in Europe and thus also in Germany. Under the CSRD, the European Commission is empowered to issue delegated acts on sustainability reporting standards (European Sustainability Reporting Standards, ESRS).
EFRAG was mandated by the European Commission to develop draft ESRS. In November 2022, following an extensive process, the drafts of the first set of ESRS (Set 1) were published by EFRAG and submitted to the European Commission.
Content of the draft and main changes compared to EFRAG’s drafts.
The European Commission’s draft endorsement of the ESRS, which has now been published, is based on the drafts developed by EFRAG. It includes some significant changes to reduce entities’ reporting requirements and increase flexibility:
- Mandatory disclosures are limited to the general disclosures in ESRS 2 General Disclosures. All other reporting requirements are subject to the materiality provision.
- A phasing-in of certain requirements is provided to assist entities subject to sustainability reporting requirements for the first time with initial adoption.
- Companies with fewer than 750 employees can waive certain disclosures in the first year of application.
- All companies have the option of not disclosing certain information in the first year of application. Previously mandatory data points are now disclosed voluntarily.
- Flexibilities are introduced for some mandatory data points, e.g. disclosures on the financial impact of sustainability risks and stakeholder engagement.
The EU Commission has worked closely with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) to ensure interoperability with global standard-setting initiatives.
If you would like advice on this or have any questions, please do not hesitate to contact us. We will be happy to help you with the introduction or audit of your sustainability reporting.
