First and foremost, work on simplifying ESRSs should be based on the experience gained during the first year of mandatory reporting and auditing. I intend to seek EFRAG's analysis of a representative sample of published reports, launch a questionnaire in which anyone can submit proposals for changes in an orderly manner, and conduct a series of interviews with representatives of companies, audit firms, and organizations that use the reports.
As regards the content of the standards, the main priority is to correct existing gaps, such as missing definitions or inaccurate references to external norms and standards. A number of such imperfections caused interpretation problems, which were resolved by EFRAG in explanations provided in the Q&A mechanism—now they can be introduced directly into the standards.
The structure of the standards, which are divided into disclosure requirements and corresponding application requirements, should be simplified. Basically, DRs specify WHAT should be reported, while ARs specify HOW it should be reported. However, in the AR sections themselves, many of the formulations are guidelines that are not mandatory („an entity may consider / may explain / may specify ...” etc.). Mandatory AR elements should be included in DR, while non-mandatory elements should be excluded from the standards and included in non-binding guidance that EFRAG should issue for each thematic standard. This will reduce the number of data points in ESRS by approximately 30-35%.
All figures that are required to be disclosed should be accompanied by formulas used to calculate them or tables in which they are disclosed. Such tables are included in the standards for certain issues, e.g., disclosure requirements E1-6 or S1-6. However, they are missing for the disclosure of pollutants and resources introduced and discharged from the organization, which is as complex as greenhouse gas emissions reporting. A template table in which we are to disclose something always simplifies the work, right?
Everything related to materiality assessment should be included exclusively in ESRS 1 (principles of conducting an assessment) and ESRS 2 (how to describe the assessment process and its results). Currently, many thematic standards contain additional requirements related to, for example, IRO-1; these should be integrated into the content of the two cross-cutting standards. Some elements of the description of the principle of double materiality of issues (impacts, risks, and opportunities) and materiality of information could also be written in a more unambiguous manner. This would allow IG1 to be shortened and, above all, avoid a multitude of doubts regarding the audit process.
I have described above a few basic changes that are worth introducing to ESRSs. What would you like to change? If you have any ideas or suggestions, please write back in response to this newsletter. I will review all emails in the second half of the week and will try to summarize them in next week's newsletter and, as far as possible, report them to EFRAG 😊
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