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March 30, 2023

Efrag asked to reprioritise work on EU sustainability reporting standards

European commissioner for financial stability, financial services and the capital markets union Mairead McGuinness said the change in timetable “will avoid overlapping consultations” (Photo: Francois Walschaerts/AFP via Getty Images)
European commissioner for financial stability, financial services and the capital markets union Mairead McGuinness said the change in timetable “will avoid overlapping consultations” (Photo: Francois Walschaerts/AFP via Getty Images)

The European Commission has asked the European Financial Reporting Advisory Group to delay its work on sector-specific standards and provide additional guidance on its existing sector-agnostic proposals.

The technical advisory group mandated to develop the European Sustainability Reporting Standards has received a request by the European Commission to delay its work on sector-specific standards as the EU attempts to make it easier for businesses to digest proposed requirements and participate in consultations.

The news follows the release last November of the first 12 sector-agnostic, or horizontal, draft ESRS. This year, the European Financial Reporting Advisory Group was supposed to build sector-specific draft ESRS, as well as work on sustainability standards for small and medium-sized enterprises. 

Instead, Efrag confirmed in a statement yesterday that it is adjusting its workplan to reflect this change in priority while “continuing under a modified timetable” its work on sector-specific standards and standards for SMEs. The first set of industries targeted under the delayed sector-specific ESRS are: agriculture; coal mining; mining; upstream and mid-to-downstream oil and gas; as well as energy production; road transport; motor vehicle production; textiles; food; and beverages.

In a speech on March 21, commissioner for financial stability, financial services and the capital markets union Mairead McGuinness explained the change in timetable “will avoid overlapping consultations and ease the burden on all stakeholders wanting to contribute to this busy agenda”. 

“We know that the EU sustainability reporting standards will be challenging for companies. And that’s why we’re asking Efrag, who developed the draft standards, if you like, to focus attention on providing additional guidance for companies to apply the first set of horizontal standards,” she added.

Following the commission’s request, Efrag is increasing staff numbers as part of an “ESRS implementation support function”, while also focusing on digitalising the first set of ESRS. 

The ESRS are key to the EU Corporate Sustainability Reporting Directive, which will oblige nearly 50,000 companies in the bloc to report progressively from 2024 on social, environmental and governance factors.

The standards are based on the principle of “double materiality”, whereby companies disclose the impact of sustainability factors on their business, as well as how their business activities impact the environment and wider society. They differ from the first two sets of reporting standards developed by the International Sustainability Standards Board, which focus on financial materiality only and come into force in January 2024.

McGuinness’s request for the change came a week after European Commission president Ursula von der Leyen emphasised, in another speech, the EU’s intention to reduce and streamline red tape for companies to enhance the competitiveness of the European single market.

The goal is to agree by autumn to a reduction of corporate reporting requirements by 25 per cent. “It won’t be easy but it’s an effort we have to make,” von der Leyen said.

 

A service from the Financial Times