European Securities and Markets Authority provides comments on first draft of European Sustainability Reporting Standards
On 8 August 2022, the European Securities and Markets Authority (ESMA) submitted its response to the European Financial Reporting Advisory Group's (EFRAG) public consultation on the draft European Sustainability Reporting Standards (ESRS).
ESMA encouraged an adequate feedback process for the ESRS consolidation, given the ambitious timeline for submitting the results to the European Commission.
The following topics were discussed:
- The ESRS should promote the disclosure of material sustainability information of high quality.
- While ESMA supports the proposed double materiality, it highlights the importance of users being able to properly focus on material information and avoid being overwhelmed by an immense amount of disclosure points.
- ESMA does not support the proposed rebuttable presumption, which suggests that all mandatory requirements are to be seen as material. Rebuttable presumption means that through the materiality assessment, a reporting company can, by providing evidence, disprove this assumption on a topic or sub-topic rather than having to report it.
ESMA recommendations therefore are:
1. Removing the rebuttable presumption and thereby avoiding explanations about the lack of materiality of certain disclosures.
2. Emphasizing the importance of the materiality assessment to make sure that only important information is included in the reports.
3. Clarifying that the materiality assessment is not meant to pursue proportionality purposes
4. Focusing on pursuing said proportionality purposes via other means.
ESMA also highlights that the ESRS should be consistent and interoperable with other EU legislation.
While the alignment with the requirements of the Corporate Sustainability Reporting Directive (CSRD) is appreciated, it is noted that the differences between cross-cutting standards and topical standards may lead to unnecessary confusion and complexity. Therefore, the alignment between those standards, sustainability reporting, and annual financial reports are recommended.
ESMA, like other noteworthy repliers (e.g., ECB), recommends further alignment with the Global Reporting Initiative (GRI), International Financial Reporting Standards (IFRS), International Sustainability Standards Board (ISSB) and Task Force on Climate-related Financial Disclosures (TCFD).
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