First thoughts on the ESRS 1 simplification

The proposed changes aren’t exactly cutting the Gordian Knot, but they are welcome improvements.

EFRAG has released their proposed simplification of ESRS. Here are my initial thoughts of the proposed ESRS 1 amendments.

EFRAG has boasted that their revision has:

• Reduced mandatory datapoints by 57%
• Cut full set of disclosures by 68%
• Shortened the total length by 55%.

This will not be a comprehensive examination of the changes, but what I find interesting.

Undue cost or effort is clearer (sort of)

The idea is that complying with the CSRD shouldn’t be too big of a burden. ‘Undue cost or effort’ isn’t precisely defined, but we do have some clarifications. Basically, if you already have the information (or should have it), then it shouldn’t be a problem to use it for your sustainability report.

For example, a company might already have the information from:

• Making their financial statements
• Operations
• Setting their strategy
• Conducting sustainability due diligence
• Managing impacts, risks and opportunities.

See ESRS Chapter 7.3

Member states could offer limited opt-outs

This is a curious addition in the section regarding classified and sensitive IP. It gives EU member states the ability to give companies the right to limit information if its release could be ‘seriously prejudicial to the commercial position’ of the company, provided the omission does not prevent a good understanding of the company.

There was already provisions for classified information, so it is interesting that this new section was added for individual countries to opt-out.

See ESRS Chapter 7.8

Sub-subtopics simplified

There has been some news about EFRAG cutting the sub-subtopics, but many were not exactly deleted. Here’s a simplified example.

Old

1. Own workforce
   1. Working conditions
      • Secure employment
      • Working time
      • Work-life balance
      • Adequate wages

New

1. Own workforce and workforce in the value chain
   1. Working conditions (adequate wages, work-life balance, working time, secure employment)

In this case, the sub-subtopics weren’t eliminated at all; they were simply moved up to the subtopic level. There isn’t anything wrong with this, but it is a bit disingenuous to claim this will reduce the burden on companies. The only thing this might change is the report’s layout.

See new Appendix A.

Miscellaneous improvements

• Less unnecessary direct data collection from value chain
• Simplify rules for M&A
• Common sense relief for metrics
• Executive summary allowed

I worked on several executive summaries which were unofficial, but now the rules specifically allow them as part of the reports.

Conclusion

Overall, I like what EFRAG has done. I just mentioned a few changes that caught my attention, but there are many other updates, as well as a big effort to simplify the language, clarify ambiguities and reorganise the information. I’ll follow up this post with one about ESRS 2.

Of course, keep in mind that these are only proposed changes. Nothing is official yet.

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