On June 10 and 12, we discussed proposed changes to ESRS 1 and 2 and disclosure requirements relating to policies, actions, and objectives. On June 17 and 18, we will focus on metrics. There is not enough space in this newsletter to describe all the proposed changes, but they will soon be available in the draft that EFRAG will present for public consultation. I will focus on three issues that are of the greatest importance or that have caused the most controversy.
The first issue is to clearly indicate in the standards that they are a system based on the principle of true and fair view, rather than a compliance system. This principle has been the foundation on which the ESRSs were created from the outset, but it was not sufficiently emphasized in their final version. Everything indicates that the concept of true and fair view will be included in Chapter 2 of ESRS 1, which until now has dealt exclusively with the qualitative characteristics of information. A true and fair view of a company in terms of sustainability requires the disclosure of all necessary information about its material impacts, risks, and opportunities, in accordance with the disclosure requirements contained in the standards and, if necessary, with the help of entity-specific disclosures.
The second issue concerns the scope of facilitations and exemptions in cases where companies have difficulties in obtaining the data necessary to calculate the metrics. The current set of standards provides for such facilitations, including in the form of transitional provisions on obtaining data from the value chain. These will certainly be maintained. However, a dilemma arises: allowing the estimation of metrics for which we do not have source data makes it easier for companies to prepare their reports, but it hinders the functioning of financial institutions that need these metrics and exposes the companies themselves to greater risk. Is it better not to provide a specific measure (because we do not have source data and the estimates are too uncertain), or is it better to require the provision of an estimated value (which is uncertain)? We have discussed this at length and do not seem to be getting any closer to agreeing on a position.
The third issue concerns the scope of simplifications involving the removal of content from the main part of the standards and transferring it to guidelines. The working assumption is that these would be guidelines contained within the standards themselves, but with a clear indication that they are not mandatory, but rather a collection of examples and incentives for good practice. This method can significantly streamline the standards, but SR TEG members fear that the sections on guidelines may be removed from the standards at later stages of the work. I share this view and believe that a longer, but unambiguous and precise provision is better than a short one that we are unable to apply because we do not know what it means.
These are not the only discussions that are taking place during the work on simplifying the ESRS standards, but I hope they give you a preliminary idea of what we may soon see. The first draft of the simplified standards will be available in just over a month and will be presented for public consultation. Of course, I encourage everyone to participate in the consultation process 😊
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