Summer of CSRD Redux: An In-depth Look at EFRAG’s Proposed Changes to the ESRS 1 General Requirements Standard

As many of our readers will remember, during summer 2023, we published a 10+-part series that examined the requirements of ESRS 1, which is the cross-cutting standard that contains the general requirements for reporting under the EU’s Corporate Sustainability Reporting Directive.

In connection with the Omnibus simplification process, EFRAG recently published Exposure Drafts proposing changes to the European Sustainability Reporting Standards. The Exposure Drafts are a significant rethink of the ESRS, reducing current ESRS disclosure requirements and length by approximately 60%. In this post, we take a detailed look at the proposed simplifications, clarifications, reliefs and other changes to ESRS 1.

The Road to Adoption – A Look Backwards and Forwards

EFRAG developed the Exposure Drafts based on the European Commission’s Omnibus proposal and subsequent guidance provided to it by the Commission. EFRAG also engaged with various stakeholders individually and through organized outreach and took into account disclosures under the first year of CSRD reporting.

Over the next couple of months, EFRAG will be conducting public consultations and receiving additional feedback from stakeholders. EFRAG’s public consultation is open until September 29 (see this Ropes & Gray post). EFRAG is scheduled to deliver its technical advice (finalized draft amended ESRS) to the Commission by the end of November.

Before EFRAG’s final draft ESRS are adopted by the Commission as a Delegated Act, the proposed Delegated Act will be subject to a consultation period (typically four weeks). Once amended ESRS are adopted by the Commission as a Delegated Act, the Delegated Act will then be subject to a two-month scrutiny period by the European Parliament and the Council. The Delegated Act will amend the ESRS once it is published in the EU Official Journal. Accordingly, amended ESRS will not be adopted until sometime in 2026.

In parallel to its public consultation on the Exposure Drafts, EFRAG has launched a Cost-Benefit Analysis that is being conducted by external consultants. The purpose of the CBA is to assess the potential costs and benefits of the proposed ESRS simplifications. The CBA study will be carried out through December 2025, with active stakeholder engagement taking place this month and in September. This engagement includes a stakeholder survey, available here. The survey is open until September 12.

The Six Levers of Simplification

EFRAG identified six key levers of simplification, which underpin its approach and proposed ESRS amendments:

• Simplification of the double materiality assessment;
• Better readability and conciseness of sustainability statements and better connectivity with corporate reporting;
• Modification of the relationship between minimum disclosure requirements and topical specifications;
• Improved understandability, clarity and accessibility of the ESRS;
• Introduction of other horizontal burden-reduction reliefs; and
• Enhanced interoperability with the International Sustainability Standards Board standards.

In parallel, EFRAG performed a “bottom-up” review of all datapoints to prioritize direct relevance and usefulness in decision-making, with a focus on core data.

The application of these simplification levers and the datapoint review has resulted in the following proposed changes across the ESRS, which are discussed in detail in this post as they relate to ESRS 1 (also see this Ropes & Gray post):

• ESRS disclosure requirements (datapoints) and length have been reduced by approximately 60%.

This has been done principally by reducing details in narrative disclosures and the accompanying guidance. The ESRS still cover the same reporting areas and topics, but with a less prescriptive and more flexible approach.

• General requirements have been made more efficient.

EFRAG has simplified the materiality assessment process, emphasized the role of fair presentation and reinforced that only information that is relevant for users has to be included. In addition, the proposed amendments are intended to promote less granular and more focused reporting.

• The ESRS have been restructured for enhanced understandability and clarity.

All voluntary disclosures have been deleted from the standards, language has been streamlined so the standards are easier to read and redundancies have been eliminated.

• There is more flexibility in how information is presented and several new reliefs have been added.

Companies can structure their sustainability statement in a way that facilitates integration with investor communications, such as using an executive summary. There is broad use in the ESRS of the principle of undue cost or effort. Similarly, reliefs are introduced regarding forward-looking quantitative information.

• There is greater interoperability with global standards.

The ESRS have been more closely aligned with international standards – in particular the International Sustainability Standards Board standards – when compatible with the CSRD provisions and the EU’s simplification objectives. However, some of the proposed ESRS amendments cut in the other direction, such as some of the proposed incremental reporting reliefs.

Hardly a Paragraph Has Been Left Untouched

EFRAG has substantially rewritten ESRS 1. EFRAG characterizes the changes to the individual ESRS 1 paragraphs and Application Requirements as follows, in descending order:

• Moved: 115; in many cases, this involves streamlining and combining disclosures, rather than just moving paragraphs.
• New: 69
• Deleted: 60
• Amended: 56; in some cases, the changes are editorial, involving only language simplification, while in other cases the changes are more substantive.
• Unchanged: 28
• Merged: 1

This means for preparers and other readers that going through the ESRS 1 changes involves a detailed line-by-line slog. For all of the Exposure Drafts, including draft ESRS 1, EFRAG has published a Log of Amendments. Each Log of Amendments indicates in a three-column format (1) the current ESRS text, (2) the proposed amendments, with additions underlined and deletions struck through, and (3) a Comment/Rationale discussing the proposed changes.

There also are proposed structural changes that apply to all of the ESRS, including the following:

• Application Requirements have been moved to the end of the section to which they relate, rather than appearing at the end of the applicable standard.
• Non-mandatory content – framed as “may” rather than “shall” – has mostly been moved to a separate “Non-Mandatory Illustrative Guidance” document. This guidance contains some of the non-mandatory content from the current ESRS and other content from some of the current EFRAG Q&A. The Non-Mandatory Illustrative Guidance has been significantly streamlined relative to the current ESRS.

EFRAG notes that the Non-Mandatory Illustrative Guidance is not intended to be a checklist that an undertaking must consider. EFRAG has indicated that the legal status of the Guidance will be confirmed by the European Commission in due course. This will include whether portions of the Guidance are to be part of the ESRS Delegated Act or published by EFRAG as guidance only. The latter is the preference of the EFRAG Sustainability Reporting Board.

• The ESRS text has been improved and streamlined, in particular for ESRS 1.

Many of the more consequential proposed changes to ESRS 1 are discussed below, largely in the order in which they appear in the ESRS 1 Exposure Draft. Some of EFRAG’s changes move, combine and/or clarify current language, incorporate current FAQs and/or reflect current market practice. Therefore, not all of the changes will seem new to readers.

There are of course also significant proposed revisions to the other current ESRS. Those Exposure Drafts are not discussed in this post. Those drafts also are intended to align with the six simplification levers and also underwent the datapoint review discussed above.

Finally, keep in mind that, as reflected in their name, the Exposure Drafts are drafts. They still are subject to comment and further revision.

More Emphasis on Fair Presentation

There is more emphasis in ESRS 1 on the ESRS being a principles-based fair presentation framework, rather than a compliance framework. More specifically, the ESRS 1 Exposure Draft indicates that the objective of reporting is to present fairly the undertaking’s material impacts on people and environment, as well as the material sustainability risks and opportunities in relation to ESG topics. ESRS 2 (General Disclosures) will require an explicit statement that the general requirements of ESRS 1 have been applied for the preparation of the sustainability statement. (See ESRS 2 Disclosure Requirement BP-1, paragraph 5). EFRAG decided this emphasis is needed to reduce the risk of over-burdening reporting associated with a compliance exercise. (See paragraph 3)

In the FAQs that accompany the Exposure Drafts, EFRAG indicates that the fair presentation basis was heavily debated by the EFRAG Sustainability Reporting Board and a minority of the members expressed reservations on this change when approving the ESRS 1 Exposure Draft. The EFRAG SRB is therefore seeking specific feedback on this provision in the public consultation.

More Clarity and Emphasis on Materiality

• The ESRS 1 Exposure Draft includes a dedicated chapter on materiality. (See Chapter 3) This approach is intended to clarify the concept of materiality of information, give it greater prominence and have it as an overarching filter for the inclusion of information in the sustainability statement.

Materiality to Users of General Purpose Sustainability Statements

• The criterion of “materiality of information” has been clarified, connecting it with users’ needs. EFRAG proposes adopting the definition of materiality from IFRS S1, stating that information would be material if “omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make based on those reports, including financial statements and the sustainability statement.” (See paragraph 21(a)). Because of a concern that “[l]imiting to decision usefulness to primary users of financial reports would be not compatible with double materiality,” EFRAG propose to expand the definition to provide that information also is material when it is necessary for the users to understand the undertaking’s material impacts, risks and opportunities (IROs) and how it identifies and manages them. (See paragraph 21(b)).

According to the Exposure Draft Comment/Rationale, this new sub-paragraph was intensively discussed when developing the draft. The EFRAG Sustainability Reporting Board considered possible alternatives to provide more emphasis on decision usefulness for these users. According to EFRAG, preparers’ views were split on legal risk and the cost differential between providing a generic understanding and sufficient details to take decisions. The Exposure Draft reflects a compromise text.

Topic, Sub-topic, Datapoint and IRO Information to be Reported

• An undertaking must report on a topic when it relates to one or more material IROs identified through its double materiality assessment. The relationship between the identification of material IROs and the topics and sub-topics to be reported has been clarified. According to the ESRS 1 Exposure Draft, information is to be presented either at the topical level or at the IRO level, depending on what provides the most relevant information, such as reflecting their nature or the way they are managed by the undertaking. (See paragraph 22). This new language is intended to encourage more focused and less granular reports, limiting disclosure at the IRO level to when it is needed. The Comment/Rationale notes that this sets a general requirement to be applied across all the disclosures in ESRS 2 and the topical standards and entity-specific disclosures.
• Only content in a topical standard that relates to material sub-topics is to be reported. (See paragraph 23 Comment/Rationale). When a material IRO relates to a particular sub-topic, the undertaking only needs to report the material information related to that sub-topic within the relevant topical standard. (See AR 21).
• In response to feedback that the materiality filter should be universally applied to all datapoints, ESRS 2 is now also subject to this filter and only datapoints that are material are to be reported. The ESRS 1 Exposure Draft Comment/Rationale notes that, for some preparers, it was not always clear that the materiality of information principle of current ESRS 1 paragraph 31 also applies to the mandatory ESRS 2 datapoints. (See deleted paragraph 29 Comment/Rationale).
• Current ESRS 1 paragraph 32 has been eliminated. This paragraph indicates that, if the undertaking concludes that climate change is not material and therefore omits all disclosure requirements in ESRS E1 (Climate Change), it must disclose a detailed explanation of the conclusions of its materiality assessment with regard to climate change, including a forward-looking analysis of the conditions that could lead the undertaking to conclude that climate change is material in the future. (See deleted paragraph 32). Note that climate has been retained in cross-cutting ESRS 2 (General Disclosures), although it has been scaled back to only require that reporting companies provide the basis for a conclusion that climate change is not material. (See paragraph 28(b) of ESRS 2).

Materiality Assessment Sources of Evidence

• The ESRS 1 Exposure Draft indicates that the following are usual internal and external sources of evidence and information that an undertaking may use in conducting a materiality assessment: (1) the undertaking’s sustainability due diligence and risk management processes; (2) engagement with affected stakeholders; (3) industry and peer group experience; (4) external ratings, reports and statistics and scientific data; and (5) experts’ engagement. (See paragraph 27).

This paragraph has been added with the objective of acknowledging the various internal and external sources of evidence that an undertaking can rely on in conducting an impact materiality assessment. The list is illustrative. All of the sources do not need to be consulted to reach a conclusion on materiality.

Gross vs. Net

The ESRS 1 Exposure Draft addresses the so-called “gross vs. net” issue that many companies (and their advisors) have been grappling with.

• When assessing the materiality of actual negative impacts – those that occurred during the reporting year or in prior years – the severity of the impact is to be evaluated considering the outcomes of any mitigation or prevention measures implemented before the impact occurred. Actual impacts in the reporting period include both new impacts and those persisting from prior periods. If the undertaking has taken remediation actions during the reporting period to address actual negative impacts, these actions are not to be considered when assessing the materiality of the impact. If the impact is deemed material based on this assessment, the undertaking must disclose the remediation actions undertaken and the expected or actual outcomes. (See paragraph 34).
• When supportable evidence exists that mitigation or prevention actions taken reduce the severity and/or likelihood of potential negative impacts that could occur in the future, the effect of these actions is considered in assessing the materiality of the impacts. However, if the undertaking needs to maintain significant ongoing mitigation and/or prevention actions to contain the severity and/or likelihood of occurrence of the potential impact below a materiality level, the impact is to be assessed without considering the mitigation and/or prevention actions. Future remediation actions and policies are not considered in the materiality assessment of potential impacts. (See paragraph 35).
• AR 12 and 13 and Appendix C have been introduced to provide additional guidance and explanation.
• This proposed amendment is the subject of a specific question and field test in EFRAG’s public consultation. The field test intends to examine how the proposed revised approach affects the double materiality assessment process and reporting outcomes, and to support more consistent application. Preparers are invited to apply by August 18 to join the field test.

Assessing Positive Impacts

• An undertaking’s positive impacts are to be assessed in their own right and are not to be netted against negative impacts. The results of the undertaking’s mitigation or remediation actions on negative impacts caused by or contributed to by its compliance with law and regulation are not positive impacts. However, if its business activities, products and services mitigate or remediate negative impacts of another party, this is considered a positive impact of the undertaking. (See paragraph 36).

This new paragraph is intended to respond to implementation questions asking EFRAG to define positive impacts. In the related Comment/Rationale, EFRAG indicates that, to avoid boilerplate disclosure and provide relevant information about positive and negative impacts, netting is not allowed. EFRAG also indicates that including a reference to philanthropy was considered but discarded. Only impacts that derive from business activities, products and services qualify as positive impacts to be reported.

Conducting the Double Materiality Assessment

The ESRS 1 Exposure Draft clarifies how to perform the DMA. The clarifications are intended to achieve an efficient approach that only requires further detail and assessment when a higher-level assessment does not result in clear materiality conclusions.

• In conducting its DMA, an undertaking is expected to:
  • Focus the assessment of its own operations and upstream and downstream value chains on areas where material IROs are deemed likely to arise based on its business model, nature of activities, business relationships, geographies or other factors; and
  • Use reasonable and supportable evidence to estimate the levels of severity and likelihood of impacts and the likelihood and magnitude of financial effects of risks and opportunities.

The related Comment/Rationale indicates that these practical considerations do not trigger a re-assessment of the DMA conclusions of undertakings that reported for fiscal 2024. They are meant to support reduced efforts going forward for these preparers and for new reporters. (See paragraph 45).

• An undertaking is not required to assess every possible IRO across all areas of its operations and upstream and downstream value chains to identify the topics to be reported. (See paragraph 46) This paragraph has been added to avoid preparation of detailed information on IROs that are not relevant for users and to support understanding of what is “undue cost or effort” (discussed below and later in this post) in the context of the DMA.
• To identify material IROs, an undertaking must use reasonable and supportable information that is available without undue cost or effort. Information used by an undertaking in preparing its financial statements, operating its business model, setting its strategy, conducting its sustainability due diligence and managing its IROs is considered available to the undertaking without undue cost or effort. (See paragraph 47). This “without undue cost or effort” relief has been introduced to limit the burdens for preparers and align with IFRS S1.
• An undertaking may avoid unnecessary complexity:
  • By starting from the topics or sub-topics for which a conclusion on the materiality of its IROs can be derived on the basis of its business model, upstream and downstream value chain, peer analysis and strategic and business priorities; no further investigation is necessary to include or exclude them from the sustainability statement; and
  • By subsequently addressing topics or sub-topics related to other IROs; for those likely to be material, a limited further assessment may be sufficient.

(See paragraph 48 and AR 17, 18 and 19). The related Comment/Rationale indicates that the objective of this new paragraph is to ensure that the materiality assessment process is proportionate to the undertaking’s circumstances and resources. This provision also is intended to limit the evidence regarding DMA conclusions and encourage a focus on gray areas.

• An undertaking may adopt a top-down or a bottom-up approach to its DMA. (See AR 17).
  • In the top-down approach, the undertaking starts from the topic (or when appropriate sub-topic or entity-specific topic), unless an assessment at the individual IRO level is needed to make a materiality conclusion. Once the undertaking concludes on the need to report on a topic, it must identify the related material IROs, which will be presented in accordance with [Draft] Amended ESRS 2 IRO-2.
  • In the bottom-up approach, the starting point is the level of potential material IROs. Once identified as material, the IROs are aggregated into topic(s) for reporting purposes, unless not appropriate.

The Comment/Rationale indicates that adopting a top-down approach may be more pragmatic and reduce the complexity of the process and is expected to lead to the same materiality assessment outcome as the bottom-up approach. EFRAG also indicates that the top-down and bottom-up approaches are equally valid. Top-down is encouraged as more pragmatic, but the undertaking has flexibility to decide which of the two approaches to apply.

• Unless more investigation is necessary to determine the materiality of IROs, an undertaking does not need analyze every time horizon for all IROs or for impacts analyze separately each characteristic of severity. (See AR 18).
• The use of quantitative information or quantitative scoring is not required in all cases. A qualitative analysis may be sufficient for the undertaking to reasonably conclude that the IROs related to a given topic are material or not material. (See AR 19).
• Current AR 16, which lists topics, sub-topics and sub-sub-topics for consideration, is replaced by new Appendix A. Appendix A reduces AR 16 to two columns consisting only of topics and sub-topics. It deletes the sub-sub-topic level column from AR 16. Appendix A is further discussed later in this post.

Aggregation and Disaggregation

• Information on material IROs related to specific locations may be appropriately aggregated if they share common characteristics and the associated activities affect the same ecological area, such as a water basin, region, ecosystem or landscape. The appropriate level of aggregation or disaggregation may not obscure systemic interactions or specific local drivers of impacts. (See AR 22).
• An undertaking must consider disaggregating reported information by location – such as by site, water basin or local ecosystem – when material IROs are highly dependent on local context. (See AR 23).
• If a material IRO at the group level is not relevant for all subsidiaries or activities in the group, information can be provided at a disaggregated level reflecting only the activities for which the IRO is relevant. (See AR 24).
• A reporting undertaking is required to ensure that the level of aggregation or disaggregation does not obscure information that is material. (See paragraph 52) Information may be obscured if an inappropriate level of aggregation could reasonably be expected to influence the decision of primary users of general purpose financial statements and/or the ability of users of general purpose sustainability statements to understand the undertaking’s impacts. An inappropriate level of IRO aggregation may result from aggregating those IROs which do not have shared characteristics or disaggregating those which have shared characteristics. Information may also be obscured as a result of material information being hidden by immaterial information. (See AR 25).

Own Operations and Value Chain Reporting

Reporting Relating to Own Operations

• For group reporting, a reporting undertaking usually considers as part of its own operations the assets and liabilities, income and expense of the parent undertaking and its subsidiaries, located in or outside the EU, as determined in accordance with the applicable accounting requirements. An undertaking may exclude from the sustainability reporting boundary a subsidiary that has been excluded from the scope of the consolidated financial statements due to its immateriality, unless there are specific facts and circumstances that expose the group to material IROs arising from the subsidiary. (See paragraph 59).
• An undertaking may include subsidiaries with different reporting periods in its consolidated report, by adopting the applicable accounting provisions providing relief in those circumstances. (See AR 27).

Value Chain Information

• Reported information extends beyond own operations to material IROs connected with the undertaking through its direct and indirect business relationships in the upstream and/or downstream value chain. This is to be done based on reasonable and supportable information that is available without undue cost or effort, when this is necessary to allow an understanding of the undertaking’s material IROs and to meet the qualitative characteristics of information. Current paragraph 63 has been streamlined and a reference to reasonable and supportable information available without undue cost or effort has been added as a general relief in accordance with the IFRS standards. (See paragraph 60).
• In identifying material IROs that are connected with the undertaking through its business relationships in the upstream and downstream value chain, and when reporting on metrics that comprise upstream and downstream value chain information, an undertaking may use information collected directly from counterparties in the upstream and downstream value chain or estimates, depending on practicability and reliability considerations related to the necessary input. When developing estimates, the undertaking may use internal and external information, such as data from indirect sources, sector-average data, sample analyses, market and peer groups data, other proxies or spend-based data. (See paragraph 62).

This paragraph replaces current paragraph 69. EFRAG notes in the Comment/Rationale to this paragraph that there is excessive emphasis in the current ESRS on collecting direct data from counterparties in the value chain, possibly resulting in unnecessary collection efforts. EFRAG further notes that preparers reported that estimates are more reliable than direct data when the counterparty is not mature. This amendment is intended to provide flexibility to decide whether to report based on estimates (using proxies or secondary data) or to report based on direct information collected from counterparties. EFRAG indicates that there is not a preference for direct data. The two steps – first try to collect direct data with reasonable effort and afterwards proceed with an estimate – are now replaced with a single step process.

• In the context of the ESRS, the information required to be obtained from undertakings in the upstream and/or downstream value chain may not exceed the limit set by relevant EU law and regulation. This is part of the broader Omnibus simplification discussion (see Ropes & Gray posts here and here). This limitation also applies to non-EU undertakings. (See paragraph 63).
• As noted above, the materiality assessment regarding the upstream and downstream value chain may be conducted without direct information from counterparties, using average regional or sector data or generally available information about the incidence of IROs in the given context. Where the materiality of specific IROs remains unclear, the undertaking may need to seek additional information from entities in its value chain. (See paragraph 65). This paragraph is intended to clarify flexibility that exists in performing the DMA and to reflect current practice.
• Business relationships include investments and shareholdings in joint ventures or associates. (See paragraph 68).
• Proportionally consolidated joint ventures are excluded from the value chain since they are part of the consolidated assets, liabilities, income and expense of the consolidated reporting group and therefore part of own operations. (See paragraph 69, which amends current paragraph 67, and the related Comment/Rationale).
• Metrics in topical ESRS do not require inclusion of upstream and downstream value chain data, with the exception of Scope 3 greenhouse gas emissions data. For the following items, the standardized metrics in the ESRS are limited to own operations, however the disclosure is able to inform about aspects of the value chain: (1) removals of GHG emissions ([Draft] Amended ESRS E1-9); (2) secondary microplastics ([Draft] Amended ESRS E2-4); (3) substances of very high concern in procured components or articles ([Draft] Amended ESRS E2-5); and (4) waste ([Draft] Amended ESRS E5-5). When necessary on an entity-specific basis in accordance with paragraph 10 of [Draft] Amended ESRS 1, an undertaking is required to include upstream and downstream value chain data. (See AR 28).

Provisions and Exceptions for Determining the Respective Reporting Boundaries of Own Operations and the Value Chain

• IROs arising from the use of a leased asset do not depend on whether the asset is legally owned or leased. The lessee is causing and contributing to the impacts of the leased asset during the lease period and therefore reports the IROs in its own operations. The lessor is directly connected with the impacts of the leased asset and therefore reports the IROs as part of its downstream value chain. (See paragraph 70). This new paragraph is intended to clarify the treatment of leased assets and address questions received on the EFRAG Q&A platform. The Comment/Rationale indicates that the treatment of leases is compatible with operational control in the GHG Protocol.
• IROs arising from assets that are held by an undertaking’s long-term employee benefit fund are connected with the undertaking through its business relationship in the upstream value chain. (See paragraph 71).

Acquisitions and Dispositions

• When an undertaking acquires a subsidiary or a business during a reporting period, it may defer the inclusion of the subsidiary or business in its materiality assessment and sustainability statement until the subsequent reporting period. Similarly, when it loses control over a subsidiary or business in a reporting period, it may adjust the scope of the materiality assessment and the reporting boundaries from the beginning of the current reporting period. (See paragraph 72).
• If the undertaking uses this relief for major acquisitions or dispositions, based on available information, it is required to disclose significant events that affected the acquired/sold subsidiary or business between the date of acquisition and the end of the reporting period (or between the start of the reporting period and the date of disposal) when the events could have an effect on the subsidiary’s or business’s exposure to material IROs. (See paragraph 73). This additional disclosure is limited to major transactions for which the relief is used and to significant events that affect the subsidiary.
• An undertaking is not required to present comparative information for new material IROs where they are reported for the first time. (See paragraph 84(b)). This is a clarifying change to current paragraph 84.

Selected Reliefs

Reasonable and Supportable Information Available Without Undue Cost or Effort

• An undertaking must use reasonable and supportable information available at the reporting date without undue cost or effort:
  • To identify material IROs;
  • To determine the scope of its upstream and downstream value chain, including its breadth and composition, in relation to material IROs;
  • When extending the information to include upstream or downstream value chain information (as required by paragraph 61 of the ESRS 1 Exposure Draft); and
  • To prepare information on metrics.

This new paragraph is intended to align to IFRS S1 reliefs. However, EFRAG also notes in the Comment/Rationale that the scope of the relief is broader than the IFRS S1 standard since it includes all metrics, to provide for additional burden reduction. (See paragraph 87).

• Reasonable and supportable information must cover factors that are specific to the undertaking, as well as general conditions in the external environment. Reasonable and supportable information includes information about past events, current conditions and forecasts of future conditions. (See paragraph 88). This new paragraph is intended to align to IFRS S1 reliefs.
• The assessment of what constitutes undue cost or effort depends on the undertaking’s specific circumstances and requires a balanced consideration of the costs and efforts for the undertaking and the benefits of the resulting information for users. The assessment can change over time as circumstances change. (See paragraph 89). This new paragraph also is intended to align to IFRS S1 reliefs.

Metrics

• Activities within an undertaking or group may be excluded from metric calculations if, due to their nature, they are not expected to be a significant driver of the IROs the metric purports to represent, and their exclusion from the calculation is not expected to impair the relevance or faithful representation of the reported information. (See paragraph 90). This relief is intended to respond to the need to avoid unnecessary efforts to document that a given activity would have an immaterial contribution when calculating a metric before being allowed to exclude the activity.
• Except for ESRS E1-6 GHG emissions metrics, when without undue cost and effort an undertaking is able to use reliable direct or estimated data only for part of the scope of a relevant reporting boundary (or part of the value chain), it must specify when relevant that it has identified material IROs in its own operations or value chain but that the corresponding metric can currently only be partially estimated. In this circumstance, the undertaking must disclose the actions it has taken to increase the coverage and quality in future reporting periods and the progress compared to the previous reporting period. The undertaking also must assess at subsequent reporting dates whether reliable data or input to be used in the estimate has become available and, if this is the case, adjust the estimates and the disclosure accordingly. (See paragraph 91).

This relief extends to both own operations and the value chain and has no time limits. The Comment/Rationale notes that this paragraph responds to the concern that companies are forced to estimate and publish results that are not reliable due to lack of quality data. The relief does not allow an undertaking to completely omit a metric, but to instead provide a partial scope in the calculation. The EFRAG Sustainability Reporting Board discussed whether to include a time limit for own operations, but ultimately concluded that if the relief is accompanied by transparency on the status and progress of missing data, market discipline will ensure companies do not abuse and indefinitely not report on parts of the relevant scope. The Comment/Rationale notes that there were intense discussions about this point and that a specific question regarding this item is being asked in the public consultation.

• An undertaking may exclude joint operations over which it does not have operational control from the calculation scope of environmental metrics reported in accordance with ESRS E2 (Pollution), ESRS E3 (Water), ESRS E4 (Biodiversity and Ecosystems) and ESRS E5 (Resource Use and Circular Economy). (See paragraph 92). The Comment/Rationale notes that this relief responds to concerns about data availability. It also notes that for ESRS E1 (Climate Change) this is not applicable because that would introduce a difference from IFRS S2.

Classified and Sensitive Information

• Under the CSRD, individual EU member states may in their transposing legislation allow undertakings to limit information relating to pending developments or matters in negotiation if the board determines that disclosure would be seriously prejudicial to the commercial position of the undertaking, so long as the omission does not prevent a fair and balanced understanding of the undertaking’s development, performance and position and the impact of its activity. However, if an undertaking elects to use this exemption (if available), it will be required to consider disclosing for each omitted item that it has used the exemption. (See AR 35).

Other Presentation Matters

Taxonomy Regulation Disclosures

• Taxonomy Regulation disclosures may be included in a separate appendix. (See paragraph 106). The Comment/Rationale notes that this option allows undertakings to locate these disclosures in a separate appendix so as not to break the logic flow of the sustainability statement.

Executive Summaries

• An undertaking may provide an executive summary in the sustainability statement that includes the key messages about its material IROs and their management. The content and presentation of the executive summary must meet the qualitative characteristics of information. The undertaking may incorporate information by reference to an executive summary placed outside the sustainability statement, such as in another section of the management report, if it meets the conditions for incorporation by reference. (See paragraph 109).

The Comment/Rationale notes that feedback indicated that information in the ESRS sustainability statement may be too detailed to be compatible with the usual communication style adopted in investor communications. The introduction of an executive summary would allow companies to provide key messages compatible with investor communications. As noted in the Comment/Rationale, this already has been seen in practice in some 2024 reports. When implementing this option, companies would need to respect the qualitative characteristics of information, such as avoiding reporting mainly positive information in the executive summary and leaving negative information to the more detailed sustainability statement.

GHG Emissions

• An undertaking may present more detailed information about the calculation of its reported GHG emissions in a dedicated appendix or section of its sustainability statement, with an internal cross-reference to the environmental disclosures. (See AR 36).

Non-material Matters

• Additional information on non-material matters may be included on an annex. (See FAQ 9).

Transitional Provisions

• Transitional provisions apply from the first financial year an undertaking is subject to the preparation and publication of a sustainability statement. (See paragraph 121). In addition, Appendix D sets phase-in provisions for Disclosure Requirements or datapoints in the ESRS that may be omitted or that are not applicable in the first year(s) of mandatory application of the ESRS in the preparation of the sustainability statement. (See paragraph 127).

These clarifications are proposed to address the concern that it may not be clear that the first application of the ESRS is intended to depend on the timely transposition of the CSRD into national law.

Appendix A Topics

• As earlier noted, AR 16 has been replaced by Appendix A.
• The list has been changed from mandatory to non-mandatory/illustrative. It is not to be interpreted as a checklist by auditors and preparers.
• Some of the changes include the following:
  • With the deletion of the sub-sub-topics column, some of those items have been moved to sub-topics.
  • “Pollution of living organisms and food resources” has been removed from the list of sub-topics under ESRS E2 (Pollution), given the lack of a specific disclosure requirement or metric in the E2 standard connected to it. The Comment/Rationale also notes as a justification for exclusion that this sub-topic is particularly sector-specific (rather than sector-agnostic) and the methodology for measuring pollution in living organisms and food currently lacks maturity.
  • The ESRS S2 (Workers in the Value Chain) topics currently in AR 16 have been merged into a new Appendix A topic, “Own workforces and workers in the value chain,” which combines ESRS S1 (Own Workforce) and S2 topics.

Oher Items Under Discussion

The ESRS 1 Exposure Draft notes that the following items are not addressed in the Exposure Draft since they are under discussion for possible inclusion in level 1 Directive amendments as part of the Omnibus negotiations:

• The definition of value chain for financial institutions;
• A possible exemption to consolidate subsidiaries by undertakings that are financial holdings;
• Relief for the omission of confidential/sensitive information;
• Phase-in provisions; and
• Clarification of the meaning of “compatibility with 1.5 degrees” for transition plan disclosure.