The European Commission has adopted today (3 July) simplified versions of the European Sustainability Reporting Standards (ESRS), via a delegated act, with the revised standards set to take effect from next year.
As part of the Omnibus I package announced in February last year, the EU body announced measures to reduce the burden of complying with the Corporate Sustainability Reporting Directive (CSRD).
Following amendments CSRD thresholds, 85% fewer companies are obliged to disclose in line with the ESRS and now the reporting standards themselves have been streamlined.
EFRAG was tasked with revising the standards and, following months of drafting and outreach, approved and submitted its final technical advice at the end of last year.
Under EFRAG’s recommended updates, the materiality assessment requirements were simplified, voluntary disclosure requirements were dropped, new proportionality mechanisms were introduced, a greater emphasis was placed on principles-based reporting, and the number of mandatory datapoints was reduced by 61%.
Building on EFRAG’s drafts, the Commission made further “targeted modifications”, to the ESRS which were released for a four-week consultation in May.
Amongst other things, these further revisions establish new provisions for companies to omit commercially sensitive information, allow companies to choose whether to use financial control or operational control when defining their reporting boundaries, and introduce greater discretion for considering geographic contexts when carrying out the materiality assessment.
Taking into account reductions in value chain data requests, the Commission estimates that the simplifications to the standards will save in-scope EU companies €4.7bn in costs between 2027 and 2031- a 44% cost reduction compared with the forecasts for complying with the original versions of the ESRS.
In addition, the reduction in the number of companies scoped into the CSRD requirements is estimated to save €4.4bn a year in overall corporate reporting costs.
The Commission has also adopted a voluntary sustainability reporting standard, based on the ESRS with simplified disclosures. This standard will establish the value chain cap, with companies scoped into the CSRD not permitted to require their value chain partners to provide sustainability information not covered in the standard.
Both the ESRS and the voluntary will be submitted to the European Parliament and the Council of the EU for a two-month scrutiny period. Once formally adopted by the EU institutions, companies subject to the CSRD will be obliged to apply the updated reporting standards from financial year 2027.