The European Commission has now reviewed this package and proposed a number of modifications to the original EFRAG advice, or Set 1 ESRSs, including the following:
· Materiality: Proposed removal of mandatory requirements for all undertakings in scope on topical standards (E1: Climate and parts of S1: Own workforce) which will now like other topical areas be subject to a double materiality assessment by the undertaking. ESRS 2 “General Disclosures” will remain mandatory for all undertakings in scope for the Corporate Sustainability Reporting Directive. This measure is expected to lead to a significant burden reduction for undertakings and helps to ensure that the standards are proportionate.
· Phased In Requirements: Additional phased in requirements to what was initially proposed by EFRAG allowing undertakings more time to be ready for compliance. For example, undertakings with less than 750 employees may omit scope 3 GHG emissions data and the disclosure requirements specified in the standard on “own workforce” in the first year that they apply the standards.
· Voluntary Disclosures and Additional Flexibility: Proposal to make certain disclosures voluntary with conversion of additional data points from the ESRS to voluntary from mandatory, for example, biodiversity transition plans and certain indicators about “non-employees” in the undertaking’s own workforce. In addition, some added flexibilities in certain disclosures, for example in the disclosure requirements on the financial effects arising from sustainability risks, on engagement with stakeholders, and in the methodology to use for the materiality assessment process.
· Other Proposed Changes: Inclusion of technical modifications to ensure better alignment with other provisions in the Accounting Directive and with other relevant pieces of legislation and some editorial and presentational modifications, for example, the introduction of a drafting convention to clearly identify all terms for which ESRS has a precise definition.
The Commission anticipates that the proposed additional phase-in measures and removing certain mandatory reporting requirements will allow undertakings additional time and reduce the cost burden of application of ESRS (estimated cost reduction during the phase-in period of EUR 1.172 million).
On 9 June 2023, the European Commission issued its draft delegated act on Set 1 of European Financial Reporting Standards (ESRS) including the modifications set out above. This consultation on the draft delegated act is open to feedback until 7 July 2023.