EFRAG simplification 2

/in , , /by

EFRAG is working to make corporate sustainability reporting simpler and, in some cases, clearer and more relevant.

I’ve had the opportunity to go through the proposed new ESRS 2 and ESG standards. Again, this is not a comprehensive overview but some points which I found interesting.

Less granular approach to narrative disclosures

I like this change, as I like the narrative side of the reports.

Options for the disclosure of anticipated financial effects

I’m not sure about this one. The sustainability report is supposed to complement the financial report, but the problem is that quantifying financial effects is not easy. There is a lack of mature methodologies as well as concerns from some companies about disclosing commercially sensitive information. EFRAG has specifically asked for feedback on this, and I am interested to see what preparers and users think.

More focused reporting

Good; some of the previous language was too vague and all-encompassing.

Flexible approach to granularity and in terms of the level of aggregation

Note this does not apply everywhere, but it does add some power back to the report writer.

Voluntary datapoints are deleted

At first glance, the deleted datapoints were not uniform. For instance, I saw very little cut from the beginning of E1 Climate Change, but quite a bit from E2 Pollution. I began to carefully list and count the deleted datapoints, but there is still a lot of ambiguity.

Clarity between direct data and estimates

Another good change; I use many estimates for VSME reports for small businesses.

Public consultation

EFRAG has a questionnaire for preparers and users to give feedback on the proposed changes. The deadline for submission is 29 September 2025.

Want to talk green?

I can help you to stay compliant with changing sustainability reporting requirements, communicate what’s important, and find added value in the process.

info at davidjcord.com

First thoughts on the ESRS 1 simplification

/in , /by

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.

Want to talk green?

I can help you to stay compliant with changing sustainability reporting requirements, communicate what’s important, and find added value in the process.

info at davidjcord.com

Status of ESRS simplification

/in , , , /by

A Green MEP is denounced in the European Parliament for suggesting the CSRD remain unchanged (dramatised).

In my career I have read (and contributed to) thousands of annual financial reports. I think I have become quite good at efficiently getting the information I want out of them. I could not be as quick and efficient with the current EU sustainability reports. Luckily help is on the way.

The new CSRD sustainability reports are problematic. They often are too burdensome on the reporting entity and too irrelevant for the reader. This spring, the European Parliament decided to take another look at the sustainability reporting requirements with the goal of simplifying them.

This decision was broadly welcomed by the corporate world. The Greens/European Free Alliance voted against it, with understandable worry that the requirements would be watered down.

Current status

The European Commission asked EFRAG to make recommendations how to reduce the sustainability reporting burden on companies without compromising the core goal. At the end of June 2025 EFRAG sent a progress report to the Commission. Here is my brief summary based on EFRAG’s list of goals:

I. Simplification of the Double Materiality Assessment

    There are too many ambiguities and uncertainties when companies do their assessments. It is becoming a compliance exercise, a checklist to follow and a process, with less focus on the outcome.

    Proposed solutions

    • Reduce complexity
    • Clarify information materiality
    • Emphasise usefulness to decision-making

    II. Better readability and inclusion into corporate reporting

    Currently, the ESRS are too granular, too focused on a myriad of tiny details. There can be dozens of pages of irrelevant EU Taxonomy disclosures in a report. Also, companies can’t tell their own sustainability story because they have to focus on the tiny details.

    Proposed solutions

    • Allow executive summary as introduction
    • Option to disclose most granular information in appendices
    • EU Taxonomy information in specific appendix
    • Reducing duplication of information

    III. Modification of Minimum Disclosure Requirements and topical specifications

    Again, the requirements are too burdensome, too granular and too ambiguous. There are too many overlapping disclosure requirements from different sections and topics.

    Proposed solutions

    • Reduce mandatory datapoints
    • Clarify when disclosures are necessary and when they are voluntary

    IV. Improved understandability, clarity and accessibility

    • Reduce voluntary disclosures
    • Clearly separate mandatory and non-mandatory content, restructure standards

    V. Miscellaneous burden reductions and clarifications

    • How to account for M&A
    • IFRS relief
    • Commercially sensitive information
    • Non-relevant datapoints from other EU regulations
    • Forced to report information even when it is irrelevant or unavailable; Reduce ‘undue cost and effort’
    • Exclude non-material activities from calculations
    • Clarify boundaries and responsibilities (leasing, pension funds; operational control approach; value chain estimates or direct data collection)
    • Forward-looking statements, anticipated financial effects

    VI. Enhanced interoperability between standards

    • ESRS and ISSB standards

    Cut by half?

    EFRAG hopes to reduce the number of mandatory datapoints by 50 per cent (some whispers say they are aiming for 66 per cent), which would be great if they can pull it off without reducing the usefulness of sustainability reports. Another goal is to reduce granularity and ‘boilerplate text’ to promote narrative disclosures, which is something I’m personally looking forward to.

    What’s next? Here is an updated timeline which takes into account the Commission’s pushing back their deadline for EFRAG’s suggestions by a month.

    Key dates

    14 April 2025: Legislation postpones reporting requirements

    May-July 2025: EFRAG works on Exposure Drafts to amend the ESRS

    11 July 2025: Commission adopts ‘quick fix’ act so wave one companies don’t have additional reporting in 2025 and 2026, compared to 2024

    August-September 2025: Publishing Exposure Drafts and public consultation

    30 November 2025: EFRAG delivers advice to EU Commission on revision and simplification

    31 December 2025: Unofficial goal to finalise simplification packages

    Early 2026: Conceivable time for final adoption

    Want to talk green?

    I can help you to stay compliant with changing sustainability reporting requirements, communicate what’s important, and find added value in the process.

    info at davidjcord.com