The European Financial Reporting Advisory Group (EFRAG) has responded to concerns raised by stakeholders on the complexity of reporting under the European Sustainability Reporting Standards (ESRS). Feedback highlighted several challenges, including excessive data requirements, difficulties in interpreting the reporting framework, and tight implementation timelines. In response, EFRAG has proposed five key simplification measures designed to ease the reporting burden on companies while maintaining the integrity of the standards. These proposals aim to reduce data points by approximately 50% and improve the overall usability of the ESRS.
Key Takeaway: The proposed changes reflect a clear effort by EFRAG to make the ESRS more manageable, while still supporting transparent and meaningful sustainability disclosures. Businesses preparing for ESRS compliance should stay updated on these developments and be ready to adapt their reporting strategies accordingly.
Here is a summary of the proposed simplification levers:
1. Streamlining the Double Materiality Assessment
While double materiality remains a core principle of the ESRS, EFRAG proposes a more pragmatic approach:
- Organisations will be able to conduct a top-down materiality assessment to identify key sustainability topics, reducing the need for a time-consuming bottom-up scoring method.
- Clearer guidance will be provided to help link material impacts, risks and opportunities (IROs) with relevant subtopics and related disclosures.
- Additional clarification will be offered on how to determine whether an impact is considered material.
- Companies will receive direction on limiting reporting at the sub-topic level to avoid unnecessary data collection and disclosure.
2. Enhancing the Readability of the Sustainability Statement
Stakeholders noted that the current format of the sustainability statement is overly detailed and hinders narrative storytelling. To address this, EFRAG is introducing changes to improve structure and accessibility:
- An executive summary will be added to support high-level communication.
- Appendices will be used to house detailed information, reducing clutter in the main body of the statement.
3. Clarifying the Role of Minimum Disclosure Requirements
Concerns were raised about the burdensome and repetitive nature of the Minimum Disclosure Requirements (MDRs), particularly in ESRS 2. In response, EFRAG has proposed the following:
- A significant reduction in the number of mandatory policies, actions and targets (PAT) data points within the topical standards.
- Companies will only need to report PATs where they exist, aligning reporting requirements more closely with actual business practices.
4. Improving Clarity and Structure of the Standards
Many stakeholders reported confusion about the difference between mandatory and voluntary disclosures. To enhance usability:
- EFRAG will restructure the standards to clearly distinguish between mandatory and voluntary reporting requirements.
- A notable reduction in the volume of voluntary disclosures is also being considered.
5. Introducing Further Reporting Reliefs
To ease the transition to ESRS compliance, EFRAG is also exploring additional areas for relief:
- Allowances where data for certain metrics is unavailable.
- Clarification of definitions for terms such as ‘own operations’ and ‘value chain’ to ensure consistent application.
- More precise boundaries for greenhouse gas emissions reporting methodologies, minimising divergence from existing standards such as the GHG Protocol.
What happens next?
These proposed amendments, referred to as the Version 2 (V2) Amendments, are scheduled for discussion in early July. If implemented, they are expected to halve the reporting data burden for companies subject to the ESRS, marking a significant shift in the practical application of sustainability reporting in Europe.