7 September 2022

To rebut or not to rebut that is the question for the EFRAG TEG

'Rebuttable presumptions' is the main area of discussion at EFRAG following the European body's consultation on its European Sustainability Reporting Standards (ESRS) exposure drafts, a stakeholder has told Corporate Disclosures.

Indeed, the topic occupied a good chunk of the discussions at the EFRAG Sustainability Reporting Board (SRB) meeting last Monday (5 September), where the idea of an 'explicit light' approach to materiality was floated. The idea would require companies to disclose the items assessed as not-material but would not require them to justify their omission.

On Tuesday, it was the turn of EFRAG's Technical Expert Group (TEG) to look at the topic and assess how it would work in practice.

One proposed way was to include a list at the end of companies' reports declaring which disclosures were deemed immaterial without justifications as to why.

Julian Muller, sustainable finance office at European consumer organisation BEUC, was in favour of this solution which he said would be very useful to civil society organisations who are looking at companies' disclosures on one particular topic.

Capital markets economist, Luca Bonaccorsi, was not completely in favour but said that it made sense to require less information from companies to reduce the reporting burden.

But Phillippe Diaz, project manager at WWF Germany's sustainable finance unit, said that the list of omissions would be "more or less meaningless" without the justifications.

Julia Menacher, senior expert in sustainability reporting and international accounting at Allianz Group, said that the list wouldn't be very informative and that the omissions would be "obvious" to those reading the report.

Many said that the list would make the reports too confusing, such as Klaus Hufschlag, senior vice president at Deutsche Post DHL Group, who argued that the list would "not add true value".

Diaz and Piotr Biernacki, president of the Foundation for Reporting Standards, argued that the GRI's content indexes approach could be a good solution to reduce the reporting burden while still providing added value to a list of omitted disclosures.

Under the GRI approach, organisations are required to specify which disclosures have been omitted in the report's content index and select one of four options (not applicable/ legal prohibitions/ confidentiality constraints/ information unavailable) to explain each omission.

Diaz and Biernacki said that the GRI content indexes are very useful for those looking at reports.

One element where most TEG members agreed was that, while there could be a case for companies not to explain why they omitted specific disclosure requirements, they should still be required to justify their reasons for omitting whole topics.

Other topics of considerations in reviewing the standards after the consultation are defining incident in ESRS G2, time horizons and subsidiary exemptions. TEG and SRB will hold a joint meeting today (September 7) to discuss how to move forward with the draft standards.