EFRAG provides an update on the simplification of the ESRS

On 20 June, EFRAG published its Progress Report, providing an update on the work carried out to date to simplify the European Sustainability Reporting Standards (ESRS).

Following its public consultation and aiming to comply with the sustainability reporting simplification aligned with the European Commission's request and the EU political agenda, EFRAG is activating six strategic levers:

LEVER 1: Simplification of the Double Materiality Assessment (DMA)

EFRAG suggests the following in relation to the Double Materiality Assessment:

• Reducing the overall complexity of the process and the extent of unnecessary scoring:
  • Starting the DMA process by the analysis of the business model to identify the most obvious material topics (a ‘top-down’ approach)
  • Requiring a reasonable and proportionate level of evidence to support the conclusions, particularly in circumstances when it is obvious that a given topic is material for the sector, for peers and/or for the business model
• Clarifying and strengthening the information materiality criteria, emphasising decision usefulness
• Introducing the filter of information materiality for all datapoints (including the ESRS 2 datapoints)
• Clarifying:
  • the interaction between the identification of material impacts, risks and opportunities (IROs’) and the assessment of material topics and sub-topics
  • the illustrative nature of the list of topics in ESRS 1, AR 16
  • the assessment of material topics and sub-topics; and the expected level of granularity in reporting (topical or sub-topical, unless reporting at the IRO level is either required or necessary for a specific disclosure)
• Addressing (i) how to define positive impacts and how mitigation, prevention and remediation actions are considered in assessing an impact for materiality (gross or net approach); (ii) whether the undertaking can include in its sustainability statement information about non-material  matters and (iii) if so, under which conditions
• Clarifying that when only a sub-topic is material, the undertaking must limit the information reported to that sub-topic without triggering the reporting of all the datapoints in the relevant topical standard. To support this step, a non-mandatory appendix will illustrate which disclosures relate to a specific sub-topic
• Placing emphasis on the objective of fair presentation, a key concept which is retained by the ISSB and many other reporting frameworks, to promote relevance and faithful representation, and to prevent a purely compliance-driven approach.
  
   

LEVER 2: Better readability/conciseness of the sustainability statements and better inclusion in corporate reporting as a whole

EFRAG notes the general feeling that companies had difficulties in ‘telling their story’ with respect to sustainability topics, in sharing their views with their stakeholders and that some considered that the content of the sustainability statements was too detailed. It was also difficult to distinguish the requirements to comply with from the non-binding content.

Therefore, EFRAG is clarifying areas of flexibility by:  

• Providing the option to have an ‘executive summary’ at the beginning of the sustainability statement
• Providing the option to disclose the most granular information, such as detailed metrics, in dedicated sections or appendices
• Clarifying that presenting the EU Taxonomy-related information in a specific appendix is allowed.
• Suggesting the provision of additional information on non-material matters in dedicated sections or appendices
• Discouraging fragmentation and/or repetition of information pertaining to the same topics.

LEVER 3: Critical modification of the relationship between Minimum Disclosure Requirements (MDR) and topical specifications

The evidence collected by EFRAG shows that: 

• The current architecture of the ESRS is a source of complexity in their implementation due to the overlaps that exist between MDRs in ESRS 2, on the one hand, and topical mandatory datapoints, on the other. Similar overlaps exist between ESRS 2 and topical standards in the areas of governance and strategy and in relation to the disclosure requirement IRO 1
• The datapoints in the narrative disclosures of Policies, Actions and Targets (PATs) in the topical standards are considered too granular.

In response, EFRAG is implementing the following preliminary decisions: 

• Maintaining cross-cutting MDRs at the ESRS 2 level in terms of ‘shall’ under a revised/reduced number of datapoints
• Drastically reducing the mandatory PAT specifications (‘shall datapoints’) in the topical standards to the strictly essential ones, the rest being either deleted or moved to non-mandatory guidance.
• Clarifying that PATs are only to be reported ‘if you have’ them (i.e., no behaviour mandated) and if related to materials matters
• Replicating the same approach also for the topical specifications of ESRS 2 (Appendix C of ESRS2).  

LEVER 4: Improved understandability, clarity and accessibility of the standards

The following amendments are being proposed: 

• Changing the approach to the “voluntary disclosure” and reducing significantly this category
• Amending the general structure of the Standards, separating clearly mandatory and non-mandatory content. 

LEVER 5: Introduction of other suggested burden-reduction reliefs

EFRAG has identified several concerns of a different nature that need to be addressed, such as:

• Acquisitions and disposals
• IFRS reliefs
• Commercially sensitive information
• EU regulation datapoints
• Relief for metrics when necessary input is not available
• Relief on metrics to exclude non-material activities from calculations
• Boundaries of reporting and value chain
• Reliefs for anticipated financial effects.

All these reliefs are expected to substantially reduce unnecessary reporting efforts across disclosures and enhance reporting relevance, while being carefully assessed to avoid unintended consequences such as weakening incentives to build the data ecosystem and flows needed to meet Green Deal objectives, or causing an undue loss of transparency for users.

LEVER 6: Enhanced interoperability

EFRAG is considering where to further align the provisions, wording and avoid unnecessary misinterpretations or differences, particularly between the ESRS and the ISSB Standards (including change of the reporting boundary for GHG emissions with the adoption of the consolidated financial perimeter as a basis for the reporting).

In conclusion, EFRAG is systematically reviewing all the mandatory datapoints based on the list previously published by EFRAG in the IG 3: List of ESRS datapoints to achieve a substantial reduction of their number. It is also taking into account the need to reduce granularity of narrative datapoints and the fact that many datapoints could either be deleted or moved to non-binding guidance without hindering the overall objective of yielding high-quality data by focusing on ‘core’ information.

The proposed updated version of ESRS is expected to be published for public consultation in August 2025.