The European Commission adopted an updated version of the European Sustainability Reporting Standards (ESRS) on Friday.
The draft delegated act promises to reduce the data points that big companies in the region are obliged to report by 60%, and removes all optional data points from the framework.
“These changes are expected to reduce reporting costs by more than 30% per company, in line with the Commission’s target of reducing burdens associated with reporting requirements by 25%,” according to a statement.
Notably, the Commission has retained the regime’s double materiality principle, despite pressure to adopt the same approach as global sustainability standards, focusing solely on financial impacts, risks and opportunities (IROs).
However, the new ESRS contains a number of other significant changes.
For starters, companies won’t have to go through each potential IRO and provide analysis on whether it’s deemed to be material to the business or not.
Instead, they will only have to address material topics in their sustainability statements
On emissions data, the latest version allows firms to choose whether they prefer to report on emissions within their financial control, or those within their operational control.
Companies that publish climate transition plans containing targets that don’t align with limiting temperatures to 1.5°C must explain why.
The revised ESRS has reduced reporting responsibilities around microplastics and human rights.
Filip Gregor, head of responsible companies at law firm Frank Bold, and a member of the expert body that advised the Commission (EFRAG), said the Commission had “largely respected EFRAG’s technical advice” and produced “a framework that’s simpler and more accessible, yet still designed for meaningful reporting rather than compliance exercises”.
However, he argued, in certain instances policymakers gave in to lobbying from “those who wanted less transparency” rather than just a simpler disclosure framework.
“These changes won’t reduce burden, but will create real gaps for investors and stakeholders,” Gregor said, referring to the softening of requirements on emissions, microplastics and human rights.
The Commission also published a draft regulation on Friday that laid out a voluntary version of the ESRS for small and medium-sized enterprises in Europe.
Both delegated acts will now be handed over to the European Parliament and Council for a scrutiny period of two months – expendable by another two months — during which time co-legislators may veto them.
If no objections are raised, the new laws should be published in the Official Journal of the European Union by the end of the year.
