Legal & Regulatory News

ESMA responds to EFRAG's consultation on the first set of draft European Sustainability Reporting Standards

08 August 2022

On 8 August 2022, the European Securities and Markets Authority (ESMA) released its response to the European Financial Reporting Advisory Group's (EFRAG) public consultation on the first set of draft European Sustainability Reporting Standards (ESRS). The ESRS will eventually form a critical component of the European Commissions' proposal for a Corporate Sustainability Reporting Directive (CSRD) in which companies that fall within scope will be required to publicly report certain environmental and social information pertaining to their business activity.

ESMA's response indicates their strong support for the fact that the ESRS are built around the principle of double materiality, but raises concerns with the proposed "rebuttable presumption" approach under the ESRS. This rebuttable presumption would mean that, while all mandatory disclosure requirements would be presumed material under the ESRS, this presumption would be rebuttable where undertakings have reasonable and supportable evidence – an approach that ESMA argue may lead to a checklist approach from companies or the perception that the ESRS offer a 'menu' of disclosure options. Instead, ESMA argue that EFRAG should focus on pursuing proportionality objectives via other means, such as allowing for the gradual phasing-in of certain requirements, reducing the complexity of the requirements themselves and / or deferring some disclosure requirements to the later development of industry-specific standards.

ESMA encourage EFRAG to continue engaging with the International Sustainability Standards Board to ensure further alignment of the ESRS and the IFRS Sustainability Standards to benefit both users of sustainability reporting and the companies that prepare the reporting. The final draft ESRS is expected to be published to the European Commission in November 2022.

Click here to view the ESRS consultation cover letter.

Click here to access ESMA's response.