The work on the draft standards that EFRAG led was transparent. The meetings of the Sustainability Reporting Board and Sustainability Reporting TEG are webcast and the documents discussed are published on EFRAG's website. Unfortunately, this transparency was lacking at the stage when the draft standards were in the hands of the Commission. The final document included brief explanations of only a select few of the biggest changes to the standards. The minor ones, no less important, were not explained.
ESRS Standard E5 includes disclosure requirement E5-4, based on which the company will report on resources entering the organization. Par. 31 (a) mandates the total weight of all products and materials that were used during the reporting period. The Commission has clarified that materials include technical and biological materials (technical and biological materials). Unfortunately, there is no definition in the standards of what technical materials or biological materials are. Nor are these terms defined in other EU regulations.
Such a change immediately raises a series of questions: Why did the Commission introduce it? Which materials should be considered technical and which should be considered biological? How will the auditor determine that the company has correctly counted the amount of materials if there is no definition of them? Creating regulations that are vague and are created in a non-transparent process should be considered a lack of due diligence, to say the least.
Similar problems arise in the same paragraph, in items (b) and (c). In paragraph (b), the Commission added a requirement to report how the company applied the „cascading principle” to biological materials. „Cascading principle” is commonly understood as a principle defining a hierarchy of approaches to resources to eliminate or reduce waste generation. Such methods as reuse or repurposing do not apply to materials used in the biological cycle. Cascaded use also applies to the use of biomass, but this is not defined in the law, while there are scientific papers exploring this topic. Under (c), there are terms added by the Commission such as „secondary reused components” and „secondary intermediary products,” among others. These, too, are not defined in either ESRS standards or EU regulations.
If so many pitfalls can be found in a single disclosure requirement of a single standard that make it difficult or even impossible to properly collect data for a report, what else can we expect from a close reading of all the standards? Many problems will only emerge at the stage of collecting data and counting individual indicators, or even when the process is verified by the auditor. I am afraid that many questions about the application of the standards will not be able to be answered by EFRAG through the Q&A mechanism, but will have to be addressed directly to the European Commission.
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