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EU: CSRD adopted by Council and Parliament, and EFRAG submits first set of reporting standards to the Commission

CSRD and draft reporting standards 

The European Parliament and the Council have finally adopted the Corporate Sustainability Reporting Directive (CSRD) (see Council press release). The CSRD will now need to be published in the Official Journal of the European Union (OJEU) and will enter into force 20 days afterwards. The reporting requirements under the CSRD will be phased in, with the first companies reporting in 2025, for the financial year 2024 (see our previous blog post).   

In-scope companies will need to report in accordance with the EU sustainability reporting standards which will be adopted by the European Commission. The Commission has asked the European Financial Reporting Advisory Group (EFRAG) to provide recommendations for these standards.

In June 2022, EFRAG published exposure drafts of the first set of the European Sustainable Reporting Standards (ESRS) for public consultation (see our previous blog post). EFRAG received about thousand responses and position papers, including from the European regulators (see our previous blog post on the EBA and ESMA responses). 

Based on the results of the consultation, EFRAG have substantially amended the ESRS. Given the volume of changes, EFRAG considered whether the new drafts of the ESRS require re-exposure but came to the conclusion that given that the revised ESRS reflect the results of the public consultation and do not include other fundamental changes, there is no need to consult on them again.

EFRAG’s revised package includes a Cover Letter explaining the main changes and a Due Process Note containing more detailed explanation, as well as:

  • two cross-cutting standards: general requirements and general disclosures; and
  • topical (sector-agnostic) standards:
    • five standards related to the environment (climate change, pollution, water and marine resources, biodiversity and ecosystems and resources and circular economy),
    • four social standards (own workforce, workers in the value chain, affected communities and customers and end-users), and
    • one standard on governance (business conduct).

Key changes to the ESRS

The main changes to the exposure drafts of the ESRS include the following:

  • One of the major asks received by EFRAG during the consultation was to improve the alignment of the ESRS with the international disclosure standards being developed by the International Sustainability Standards Board (ISSB). The ESRS now follow the same structure as the ISSB draft standards, although with changes necessary to reflect the EU principle of double materiality. EFRAG has also sought to align with ISSB key concepts and definitions, including scope of consolidation, definition of impact and financial materiality and stakeholders. (See our previous blog posts here and here for more on the ISSB standards.)
  • Significant reduction in the number of disclosure requirements from 136 to 82 and phasing-in periods for many of them. However, EFRAG noted that some of the content that have been removed may be considered in future sector-specific standards.  
  • Deletion of the concept of the “rebuttable presumption” (i.e. the presumption that all mandatory disclosure requirements should be presumed material, rebuttable with reasonable and supportable evidence). This has now been substituted by a “materiality assessment process”. In-scope companies will now need to report on a set of “mandatory for all” disclosures, implement and report on materiality assessment process covering both impact materiality and financial materiality, and provide additional topical disclosures only for those sustainability matters that companies assess to be material. As highlighted in the Cover Note, “the centrality of the materiality assessment process will mean that, with very rare exceptions, no company will be required to report on all of the datapoints […], and most undertakings will only be reporting on a subset of the ESRS, because only a subset of sustainability matters will be material for them.”
  • Value chain information is now not required for each disclosure. Companies are now required to include this information only when required by the topical standards and disclosure is limited to impacts, risks or opportunities that are material. Besides, the inclusion of the value chain information may be postponed by three years, except for datapoints required by other EU regulation.
  • To respond to concerns raised during the consultation in relation to commercially sensitive information, the ESRS now include an option to omit specific pieces of information related to intellectual property, know-how or the results of innovation, subject to certain conditions.
  • The revised ESRS clarify that climate transition plans (as well as policies, actions and  resources, targets, removals, and carbon credits) are to be disclosed only if they have been developed.
  • The reporting standard on governance has been deleted to align with the requirement of the CSRD to focus on the composition and role of the management bodies with respect to sustainability matters.

In the Cover Note, EFRAG encourages the Commission to consider establishing a mechanism for interpretation of the standards, that would support their implementation and address the questions that will arise in practice.

Next steps 

According to EFRAG’s press release, the Commission will now consult the relevant EU bodies and Member States, before adopting the final ESRSs as delegated acts in June 2023, which will then be followed by a scrutiny period of the delegated acts by the Parliament and Council.

During the next 12 months, EFRAG will focus on the drafting of disclosure standards for small and medium-sized undertakings (SMEs), as well as sector-specific reporting standards for the five industries covered by the Global Reporting Initiative (GRI) (agriculture, coal mining, mining and both upstream and mid-to-downstream oil and gas), and five high-impact sectors (energy production, road transport, motor vehicle production, textiles, and food and beverage).


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