What You Need to Know about EFRAG’s ESRS Simplification Plans

The European Financial Reporting Advisory Group (EFRAG) has published their progress report on the Omnibus simplification package, here's what you need to know:

EFRAG is working towards an October 31st deadline to deliver its advice to the EU Commission on the simplification of the European Sustainability Reporting Standards (ESRS).

They have gathered extensive evidence of what hasn't worked well, including consulting with businesses and experts, as well as analysing 700 first-year reports published under the EU’s Corporate Sustainability Reporting Directive (CSRD).

EFRAG is currently drafting the amendments based on this evidence and, with no major obstacles anticipated,  are on track to meet their deadline for submission to the Commission. The first complete draft with metrics is done and they expect the second version to be published at the start of July, and opened for public consultation.

Because of the tight timeline, the public consultation will be brief. EFRAG has asked the Commission for an extension to allow more time, which would push back the October 31st deadline.

It's expected that the burden reduction will be substantive, with EFRAG predicting more than a 50% reduction in required data points, with many others either deleted or made voluntary.

Five levers have been identified to simplify the ESRS:

Lever 1: Simplifying 'Double Materiality' The ‘Double Materiality Assessment’ – an analysis of both financial and impact materiality – was identified as the biggest burden in year 1 reports. It was a great source of confusion for businesses. EFRAG is considering introducing a simplified "top down" approach, which will determine materiality straight from the business model. More guidance will be published.

Lever 2: Improving readability and flexibility

Businesses will have more flexibility in reporting, though EFRAG still aims to preserve comparability across companies.

Lever 3: Reducing disclosure volume

This should be achieved by amending the relationship between the Minimum Disclosure Requirements and topical specifications.

There will be a reduction in the number of data points in topical standards, specifically the Environmental (E) and Social (S) standards.

Lever 4: Clarifying what’s mandatory

Following some confusion around the mandatory vs voluntary elements of the ESRS, EFRAG will aim to clarify these distinctions in the next version.

Lever 5: Improving interoperability and reducing burden EFRAG will also consider other proposals to reduce reporting burden, alongside ongoing work to improve alignment with other frameworks, including  the International Financial Reporting Standards  (IFRS) which has been developed as the international framework by the International Sustainability Standards Board (ISSB).

This is of course all preliminary and subject to change as the work is ongoing. Need help navigating this evolving regulatory landscape? Our team and AI tools can support you through these fast-changing times. Contact diana.rose@insig.ai for more information.