The Adoption of the European Sustainability Reporting Standards is imminent

The legislative process on the ESRS is entering the final round with the evaluation of the feedback from the consultation phase and the corresponding expected selective adjustments to the delegated act. The adoption of the comprehensive sustainability reporting standards originally developed by the European Financial Reporting Advisory Group (EFRAG), which will be mandatory for the companies concerned in the future, is therefore imminent and should take place by the end of August this year at the latest.

Compared to the draft ESRS that the EFRAG submitted to the European Commission in November 2022, the revised draft published in June attempted to address the desire, expressed in many cases by companies and industry associations, for greater practicability and a maintenance of proportionality. While the basic structure and number of standards remained unchanged (a total of 12 standards consisting of 2 cross-cutting standards, 5 standards on environmental aspects, 4 standards on social aspects and one standard on governance aspects), the importance of the materiality assessment was strengthened, among other things, in that all standards except for the two cross-cutting standards (ESRS 1 and ESRS 2), which are mandatory in all cases, are now to be subject to a materiality assessment. In addition to the conversion of some previously mandatory disclosures into voluntary ones, the draft also provides for further simplifications for first-time application, from which companies with fewer than 750 employees in particular are to benefit. In the first year, for example, these companies may dispense with disclosures on biodiversity (E4), their own employees (S1), employees in the value chain (S2), affected communities (S3), and consumers and end-users (S4), as well as the disclosure of Scope 3 GHG emissions (E1), although the respective topics must still be included in the materiality analysis.

Responses to the drafts during the public consultation phase came predominantly from Germany (18% of comments), Belgium (17%), the Netherlands (13%) and France (10%). More than half of the feedback (51%) came from companies and industry associations, but private individuals (14%) and NGOs (14%) also participated with sometimes extensive feedback. As expected, the demands differed considerably between the various stakeholder groups, particularly with regard to the facilitation measures envisaged. Which comments will be taken into account in the revision phase and which facilitations will ultimately actually come into effect remains to be seen until the publication of the final delegated act.