How the EU Commission and EFRAG Plan to Support Companies With the European Sustainability Reporting Standards (ESRS)

On 16 May 2024, the European Commission hosted a half-day hybrid event entitled ‘Supporting companies in applying the European Sustainability Reporting Standards (ESRS)’ which I was fortunate to attend in person in Brussels. The event was designed to discuss the help businesses impacted by CSRD need to get to grips with the requirements. 

Below is my write-up of the event including some policy updates that were discussed.

In her opening address, DG Fisma Deputy Director General Alexandra Jour-Schroeder reminded us to keep the bigger picture in mind - i.e. why the EU is doing this.

Substantial funding is needed for the transition to a sustainable economic system. Sustainability reporting ensures that adequate information is provided to investors and financial markets. The ESRS set the stage to access green finance and will help EU companies to become more competitive in the context of the transition.

An eye-opening reality-check panel discussion on "What support do companies need?" followed and brought everybody down to earth. From the conversation, three priority areas were made clear:

1. The knowledge gap on ESRS and CSRD is still too wide.
This is especially true at the management and board level. Auditors are questioning materiality assessments on the basis of insufficient involvement of leadership and the board. Companies that have never performed a materiality assessment need to learn how to conduct one. Companies that conducted materiality assessments in the past need to unlearn outdated and unfit-for-purpose practices, such as sending generic surveys to random stakeholders.

2. There is a clear need for reliable and credible digital solutions.
In the last 12 months, many new solutions have popped up in the market promising a one-stop solution, but they lack the capabilities and credentials to effectively deliver. It is clear that the era of manual approaches and spreadsheets is over - the challenge is building the right tech stack (something we’ve been working on at Datamaran for some time, check here).

3. There is still a lack of practical how-to guidance.
Despite EFRAG's best efforts to make implementation guidance available as fast as possible, there is still a lack of guidance for CSRD-impacted companies. This is exacerbated by the poor quality of the official translation of the standards into some local languages. Thankfully, more guidance is expected soon - both from EFRAG and the EU Commission, check the policy updates below.

Member states are implementing national initiatives to help with these issues. Some examples were shared, such as: 

• The Danish Business Authority launched a free carbon accounting tool - which already has 10,000 subscribers. 
• The German Sustainability Code is in the process of aligning with the ESRS and will launch a free-access web platform for ESRS reporting. 
• The Polish Chamber of Commerce is also launching a free ESG reporting tool. 

This is an interesting dynamic whereby national institutions are now stepping in and launching free tools to ease the burden on companies of compliance with the regulatory requirements. These tools focus on the operational part of data collection and reporting - the strategic part, i.e. materiality assessment and governance oversight, remains "complicated" (and that’s the challenge we focus on at Datamaran). An emerging challenge in light of these national initiatives is fragmentation and duplication - it's unclear at this stage how these efforts will or can be harmonized.

Three weeks ago, DG Reform approved a new flagship project under the Technical Support Instrument (TSI) which will fund member states' initiatives to facilitate CSRD and Taxonomy reporting. National authorities (e.g. the Ministry of Finance) will be able to apply to the TSI presenting projects in conjunction with private parties addressing CSRD and Taxonomy reporting. 

Policy updates discussed at the event included: 

• The EU Commission is releasing a new Q&A document on CSRD in June, ahead of the 6 July 2024 deadline for member states to transpose the directive in their national jurisdiction. The Q&A will focus on explaining from a legal perspective how the subsidiary exemptions work, clarifying some points on consolidated reporting and providing an interpretation of what "best effort" in collecting the necessary data for reporting means. This is a highly anticipated document from a legal perspective.
• EFRAG IG documents (value chain, materiality assessment, and the coveted final list of data points) are expected by May 30, 2024. Also released before summer: 108 explanations in response to questions received on the Q&A platform (EFRAG received 439 questions in total, out of which 176 require an explanation).
• EFRAG has other IG documents confirmed for 2024, Transition Plan guidance, and a mapping of ESRS AR16 sustainability matters to disclosure requirements. There was a question on whether EFRAG will publish IG on the governance of sustainability matters and while the need for this guidance was acknowledged, it is not currently in the plan of work.
• Digital iXBRL taxonomy: the EU Commission and ESMA are in charge of the adoption, and at this point, it is looking more likely than not that digital tagging won't be ready for the first batch of reports next year.
• The work on the ESRS sector-specific standards is progressing and a coalition of EFRAG SRB and TEG members is pushing to ensure that certain disclosure requirements in the sector-specific standards are required regardless of the materiality assessment.

The Datamaran platform has been purposefully designed to enable companies across the world to perform repeatable data-driven double materiality assessments that include a categorization of impacts, risks, and opportunities as required by CSRD. 

Our AI-powered platform also helps organizations to set and manage sustainability targets, monitor the ESG landscape including regulatory, reputation, and industry trends, and become audit-ready with a documented process and data trail. To find out more, fill out the form below and one of our team will be in touch to schedule a meeting.