Omnibus Simplification of the European Sustainability Reporting Standards Gains Momentum – An In-depth Look at the EFRAG Work Plan for the Next Six Months

On April 25, EFRAG officially submitted to the European Commission its adopted work plan for the simplification of the European Sustainability Reporting Standards (ESRS). The ESRS contain the reporting requirements under the EU’s Corporate Sustainability Reporting Directive. The work plan outlines the steps EFRAG will take to fulfill its mandate from the Commission to provide technical advice on the revision and simplification of the ESRS. The EFRAG work plan, and ESRS simplification more generally, are discussed in this post. 

As part of the European Commission’s Omnibus proposal published in late February (see this Ropes & Gray post), the Commission indicated it plans to simplify and streamline the ESRS and provide clarity and legal certainty to undertakings. According to the Commission, the revision of the ESRS will substantially reduce the number of mandatory ESRS data points by:

• Removing those deemed least important for general purpose sustainability reporting;
• Prioritizing quantitative data points over narrative text; and
• Further distinguishing between mandatory and voluntary data points, without undermining interoperability with global reporting standards and without prejudice to the materiality assessment of each undertaking.

The Commission’s revision also is intended to improve consistency with other pieces of EU legislation and provide clearer instructions on how to apply the materiality principle, ensuring that undertakings only report material information and reducing the risk that assurance providers inadvertently encourage undertakings to report information that is not necessary or dedicate excessive resources to the materiality assessment process. The revision also is intended to simplify the structure and presentation of the ESRS.

On March 27, the European Commission delivered its formal request for technical advice on the ESRS to EFRAG. EFRAG, formerly known as the European Financial Reporting Advisory Group, is the technical adviser to the European Commission that developed the draft ESRS issued under the CSRD. Its mission is to serve the European public interest in both financial and sustainability reporting by developing and promoting European views in the field of corporate reporting.

In its March 27 letter, the Commission requested that EFRAG communicate its timeline and work plan to the Commission by April 15. The Commission’s goal is to adopt the necessary delegated act amending the ESRS within at the latest six months after the entry into force of the “content” directive proposal under which the substantive amendments to the CSRD will be made. An earlier version of the work plan was voted down by the EFRAG Sustainability Reporting Board on April 15. After some modifications, a work plan was adopted by the SRB on April 25. That work plan is available here.

As indicated in the work plan, and consistent with the Commission’s Omnibus proposal, EFRAG’s goal is to produce a set of revised ESRS that better support relevant and decision-useful general purpose sustainability statements, while leading to a substantial reduction of both the reporting effort and the mandatory datapoints. The Commission has asked EFRAG to deliver a revised draft of the ESRS by October 31. EFRAG’s work plan sets out the key activities, deliverables and stakeholder engagement that EFRAG will undertake in order to meet that deadline. The work plan contemplates the following internal timeline and steps: 

April to mid-May

Establish a vision on actionable levers for substantial simplification (to be confirmed following stakeholder feedback) and gather evidence from stakeholders and analyze issued reports and other sources. These activities will occur in parallel.

Simplification levers

The EFRAG SRB will form an initial “top-down” vision on the levers that will be used for achieving substantial simplification. Priority will be given to establishing the strategic direction for overarching matters (e.g., materiality assessment, report structure, interaction of cross-cutting and topical standards, other key levers and interoperability with international standards). Selected technical issues also will be analyzed. The actionable levers at the strategic- and technical issue-level first will be applied to the cross-cutting provisions and then to the topical provisions. 

The levers initially identified, and that will be further specified following the evidence gathering phase, are:

• Revising the ESRS presentation and architecture. This includes the articulation of cross-cutting and topical provisions, including the revision of the content and the restructuring of the approach to narrative minimum disclosure requirements.
• Addressing the most challenging ESRS provisions, including clarification of the application of the materiality principle to avoid unnecessary reporting and documentation burdens and of some other provisions based on stakeholder feedback and frequently asked questions. The possibility of leveraging other international standards to streamline language will be considered. EFRAG also will seek to address the imbalance that exists between reporting effort and the relevance of disclosures.
• Evaluating general burden reduction reliefs to reduce the compliance efforts across ESRS disclosures. This may include relief for (1) reporting information about acquisitions and dispositions, (2) some confidential and business sensitive information and (3) metrics affected by estimation uncertainty and lack of data quality.
• Substantially reducing the number of required datapoints. This will include considering the relevance of disclosure requirements, with a focus on narrative disclosures. EFRAG will identify for each disclosure requirement the datapoints that are least important, less decision-useful and/or not needed to meet the relevant disclosure objectives. The burden reduction effort will include deletions and moving some datapoints from mandatory to voluntary. Alignment with other current EU regulations and international standards also will be considered. Datapoint reduction will be considered both from a burden reduction and numerical perspective.

Evidence gathering

As part of its evidence gathering, EFRAG is seeking public input and will engage in interviews/workshops with stakeholders. EFRAG issued a public call for input on April 8, which is open until May 6 (see this post). Interviews and workshops are taking place in April and May. These include (1) one-on-one interviews with a sample of wave 1 preparers (i.e., fiscal 2024 reporting companies) across a range of geographies, sectors and sizes; (2) one-on-one interviews with auditors; (3) workshops with business associations; (4) workshops with investors and rating agencies; (5) workshops with civil society organizations and academics; and (6) workshops with national standard setters in different European countries.

For its analysis of issued reports and other sources, EFRAG will consider, among other things: (1) reporting practices by wave 1 reporters and feedback from users and other stakeholders; (2) identification of ESRS provisions that need clarification; (3) amendments suggested in letters sent by stakeholders to the Commission prior to the Omnibus proposal; and (4) leveraging the simplification work done in developing standards for listed SMEs.

Second half of May to July

Draft and approve the exposure drafts amending ESRS. Key aspects to be considered in drafting suggested amendments include: (1) top-down definition of the simplification options for mandatory datapoints to be deleted as least important; (2) the materiality assessment; (3) burden reduction reliefs as a tool to address major operational issues; (4) presentation of the standards and interaction of cross-cutting and topical disclosures; and (5) key provisions that need clarification. 

EFRAG has indicated it intends to use the current ESRS as its base document, amending those where necessary to meet the simplification objective. It intends to avoid redrafting provisions where not required for simplification or clarification.

August and September

Publish the exposure drafts and receive and analyze feedback from stakeholders (including via public consultation).

The target date for publishing the ESRS exposure drafts is the end of July. 

Given EFRAG’s short timeframe for delivering drafts to the Commission, EFRAG will run a shorter-than-usual public consultation on the drafts of 30 to 45 days. This will be combined with two weeks of approximately ten outreach events to solicit structured public feedback, which will occur at the beginning of September.

October

Finalize and deliver the technical advice to the European Commission. The exposure drafts will be updated based on the feedback received during the public consultation. In its work plan, EFRAG indicates it will monitor the legislative process relating to the Omnibus content proposal, for possible repercussions on the draft amendments.

A high-level impact assessment will accompany the revised ESRS to be released at the end of October. EFRAG estimates that it will be able to deliver a full cost-benefit analysis and basis for conclusions within three months following the delivery of the draft amendments. 

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