Efforts to simplify the European Sustainability Reporting Standards (ESRS) are now underway following the release of a formal work plan and timeframe. Published on 25 April by the European Financial Reporting Advisory Group (EFRAG), the Work Plan outlines steps the body will take to meet a deadline of 31 October this year for providing technical advice on how best to streamline the standards.

The plan is a key step in the European Commission’s Omnibus project. In the European Commission’s mandate to EFRAG, EU Financial Services Commissioner Maria Luís Albuquerque highlighted the urgent need for a fast-track process to implement the simplifications, stressing their importance in light of the current geopolitical and economic landscape. Streamlining the ESRS and enhancing their usability would support companies in their sustainability reporting efforts, she noted.

Four levers

In a programme of work to be led by its Sustainability Reporting Board (SRB), EFRAG will conduct a rapid series of stakeholder engagement exercises in the next six months to help shape the advice it will provide. In particular, the SRB will seek views on how to apply four levers that it has already identified as likely to produce “substantial simplification.”

First, EFRAG proposes to revise the presentation and architecture of ESRS, including how the standards articulate crosscutting and topical provisions. This will involve revision of the standards’ content, along with a restructuring of the approach to narrative minimum disclosure requirements in both the crosscutting and topical standards.

Second, EFRAG seeks to address the standards’ most challenging provisions. That includes clarifying how the crucial materiality principle should be applied to avoid unnecessary reporting, as well as addressing problematic data points and provisions. These challenging elements have been identified based on existing feedback from stakeholders and the most frequently asked questions that EFRAG has received through its ESRS Q&A platform.

Next, EFRAG will evaluate general burden-reduction reliefs for ESRS, to reduce compliance efforts across the range of disclosures. This may include reliefs on reporting information about acquisitions and disposals, certain types of confidential and potentially business-sensitive data, as well as metrics affected by estimation uncertainty and lack of data quality.

The fourth lever involves substantially reducing the number of required data points. That means identifying those that are the least important or necessary and either deleting them or transferring them from mandatory to voluntary status. EFRAG describes this lever as a “critical” part of the burden reduction effort.

Crunched timeline

As part of its stakeholder engagement tasks, the SRB will carry out one-to-one interviews with auditors and hold workshops with business associations, investors, rating agencies, civil society organisations, academics and national standard-setting bodies in EU member states.

By the end of May, the SRB also aims to complete one-to-one interviews with a sample of preparers that have already issued ESRS statements. The sample will aim to achieve diversity in geographies, sectors and business sizes.

Importantly, the work plan notes that in view of the “exceptionally short time” to conclude the simplification process, a public consultation of a typical 120-day or reduced 60-day duration – as stipulated in EFRAG’s due process – will not be feasible. Instead, a shorter consultation of between 30 and 45 days will take place over the summer.

In a statement, EFRAG said: “The SRB is fully committed to the objective of reducing the reporting burden for companies while ensuring that ESRS remain practical, effective and proportionate and support the quality and robustness of sustainability disclosures. EFRAG’s approach will build on the experience of first-wave companies that implemented ESRS as currently adopted for their 2024 financial year.”

Commenting on EFRAG’s Work Plan, ICAEW Head of Corporate Reporting Strategy Sally Baker notes: “As a result of their complexity, the current ESRS pose significant challenges for stakeholders, so it is positive to see that there is now a clear plan in place to streamline the standards. As we explored in our thought leadership report Shaping Sustainability Standard Setting, interoperability and avoiding disclosure overload are key considerations in the future success of sustainability reporting. This simplification process provides the EU with a window for considering those important attributes. We encourage EFRAG to make the most of the opportunity.”