EFRAG’s amended ESRS: views from the accountancy profession

Accountancy Europe responded to EFRAG’s Exposure Drafts (ED) with the draft Amended European Sustainability Reporting Standards (ESRS). We congratulate EFRAG for delivering clearer, simpler, less granular and more practical standards, accompanied by a thorough communication package, despite the short deadlines set by the European Commission (EC).

We support the simplification objective, but the first-year application of the Amended ESRS will be the real test for the burden reduction. The cost-benefit analysis will only provide an indication; thus it is important to confirm the assessments with all key participants in the reporting ecosystem. Accountancy Europe has always emphasised that a robust due process underpins and legitimises standards. To counter the criticism on the original ESRS, the Amended ESRS should prioritise public technical discussions and transparency over any process shortcuts.

We include below our key suggestions for improvements to the Draft Amended ESRS before EFRAG delivers its technical advice to the EC.

Double materiality assessment simplification

We welcome the simplifications to the double materiality assessment (DMA), a key step in reducing reporting burden. We support making “materiality of information” the overarching principle and suggest reinforcing it by:

• clarifying who the “other users” are (other than financial users) and the types of decisions they make
• adding an objective to disclosure requirements to clarify why to report certain information.

Moreover, we support addressing the “gross vs net” issue and recommend:

• ensuring consistency between the main standard and Appendix C
• clarifying elements such as the approach for “potential impacts”, distinction between positive impacts and actions, etc
• providing similar guidance for risk and opportunities

Simpler standards

Accountancy Europe finds the Draft Amended ESRS in the ED easier to understand and clearer. We support reducing granularity, particularly removing all voluntary disclosures from the standards. We also welcome the clearer links between the “General Disclosure Requirements” and topical standards.

We suggest further improvements by:

• reinstating the requirement to cross-reference with the financial statements, to enhance connectivity and provide useful information
• clarifying how to prepare the Executive Summary, Appendices and sections with information material only to certain users, to ensure fair presentation and avoid greenwashing

We also support keeping the Non-Mandatory Implementation Guidance outside of the main ESRS to be adopted as delegated act. EFRAG should finalise this guidance later and incorporate guidance from feedback received from the ESRS revision process. Afterwards, we suggest EFRAG streamlines the “ESRS support ecosystem” and clarifies the role (e.g. retire or supersede them) of the existing supporting materials, e.g. the Q&As published for the original ESRS.

Interoperability

Accountancy Europe supports both European and international standards. Aligned standards reduce burden and facilitate the flow of global capital. We suggest aligning the ESRS with the International Sustainability Standards Board (ISSB) standards to the maximum extend, including by:

• requiring quantitative anticipated financial effects
• adopting consistent terminology (materiality, “undue cost and effort”, etc)
• using the same rules for GHG emission boundaries.

Accountancy Europe is an active contributor in EFRAG, and we stand ready to support its EFRAG in its delivery of technical advice to the EC with the Draft Amended ESRS.