14 July 2023 — News

Europe needs robust sustainability reporting standards that enable a successful implementation

Europe needs robust sustainability reporting standards that enable a successful implementation

Accountancy Europe supports European Sustainability Reporting Standards (ESRS) as a tool to provide relevant, comparable and verifiable information and ultimately support the transition towards more sustainable business models.  

We have actively contributed to all the ESRS development phases. In our recent feedback to the European Commission’s (EC) draft delegated act, we presented a detailed analysis of the standards and voiced the urgent changes needed for improvement.

Strengthen the Materiality only approach

Accountancy Europe supports principle-based standards, which underpinned by materiality provide relevant information. We welcome the EC’s approach whereby if the materiality assessment concludes that a certain impact, risk, or opportunity is material, the company should report on that sustainability matter e.g., climate, pollution using the respective standard. [1] We insist that clear double materiality guidance is more crucial than ever and recommend the EC clarifies the legal status of the upcoming guidance, currently being developed by EFRAG.  

The EC’s DA also made some disclosure requirements voluntary. The EC should clarify this aspect as “voluntary disclosures” conflict with the outcome of the materiality assessment: if a topic is deemed material, then the respective disclosure requirements must be provided in any case.

Achieve Consistency between all EU Sustainable Finance initiatives

We appreciate that the EC’s materiality approach has raised compliance questions with other European Union (EU) laws, such as the Sustainable Finance Disclosure Regulation, which mandate certain datapoints now subject to the materiality assessment in the ESRS. 

Accountancy Europe strongly calls for consistency between all Sustainable Finance EU legislative initiatives to ensure smooth implementation of legislation that helps achieve the EU Green Deal’s objectives.

Ensure International alignment

Interoperability between ESRS and the International Sustainability Standards Board’s (ISSB) standards is necessary to reduce the reporting burden and a requirement in the Corporate Sustainability Reporting Directive. 

We appreciate the progress achieved but call on the EC to further align the ESRS with the ISSB standards, particularly on the “financial materiality” definition and approach.

Next steps

The EC introduced further phase-ins to help all companies, especially smaller ones, to apply the standards effectively. While we welcome these, the challenges for all stakeholders in the reporting ecosystem to implement the upcoming ESRS still remain, particularly due to the lack of field-testing and the short implementation time left. 

Accountancy Europe insists that high-quality implementation is paramount, but high-quality reports will be a journey: preparers, assurance providers and enforcers will need to work together, support and learn from each-other. We call for a public communication to establish a shared understanding on compliance, assurance and enforcement. 

The EC is analysing the feedback received and is expected to adopt the delegated act with the ESRS on 28 July 2023. It will then be submitted for the Council’s and European Parliament’s scrutiny before being enforced on 1 January 2024. 

[1] This does not apply to ESRS 2 General disclosures, which is still mandatory.