Criterion undue cost or effort (I already wrote about it in July 2025.) is introduced in the simplified ESRS 1 draft in section 7.3. Point 87 therein indicates that an entity should use reasonable and supportable information that can be obtained without undue cost or effort for purposes such as:
- identification of significant impacts, risks, and opportunities (i.e., throughout the entire materiality assessment process);
- determining the scope of the value chain in relation to material impacts, risks, and opportunities (i.e., identifying, as part of the materiality assessment or during the preparation of the report, where material IROs occur in the value chain);
- determining what information from the value chain should be obtained in relation to relevant IROs;
- preparing information about metrics (i.e., collecting source data used to calculate them).
The standard does not specify what cost or effort can be considered excessive. Only in point 89 do we receive two guidelines:
- When the cost or effort is excessive depends on the circumstances in which a given company operates. In other words, it will be different in every company, and it is impossible to provide a single definition, threshold, or formula that we could use to determine what „excessive” means.
- When determining when the cost or effort is excessive, we must balance the costs and efforts incurred by the company on the one hand, and the benefits that report users derive from the information on the other.
The second tip can be translated as follows. If it is difficult for me to obtain data for calculating a specific metric (of course, we are talking about a significant metric, i.e., one related to a significant impact, risk, or opportunity), and at the same time, the users of the report would derive relatively little benefit from its publication, then I can apply the criterion undue cost or effort and not disclose or reveal this metric in its entirety. But if, in the same situation, the benefits of publishing the metric would be significant, then I should also raise the bar and incur a higher cost or effort.
It may seem reasonable. However, a question immediately arises: how can the benefits of publishing a given metric be measured? Is there an objective way to do this? Should we ask report users? What should we ask them? „Would you like us to include metrics X and Y in the report?” Or perhaps „Why do you need metrics X and Y in our report?” Or simply „How would you benefit from having metrics X and Y in our report?” And how would we then weigh the responses from different stakeholders, who, after all, have different needs? We are not going to hold a popularity contest for metrics. Besides, such an approach (asking stakeholders) would mean that instead of reducing the cost of preparing the report, we would have a new burdensome obligation: to study the benefits of disclosing specific metrics. Can you imagine the discussions with certified auditors, in which we would have to properly document and prove all these activities?
Adding a criterion to the standards undue cost or effort It makes sense in relation to the test of materiality, but in the case of measures, in my opinion, it is redundant because it overlaps with the already existing and simple principle of materiality of information.
What is more, this criterion has been applied in the new ESRS 1 in another worrying way. Point 91 allows for the non-disclosure of some metrics relating not only to the value chain, but also to the company's own operations. What does this mean? I fear that it means what usually happens when exemptions go too far. Solid, properly reporting companies (i.e., probably well over 90% of the population) will report everything that is required without abusing the vague criterion. undue cost or effort. And the few companies that really want to hide something will hide it. For example, they will refer to the aforementioned criterion, explaining that collecting data on remuneration from all entities of the capital group was too difficult and therefore they do not disclose full data on gender pay gaps. Of course, it will turn out that it is most difficult to collect data from those entities where these inequalities are greatest. However, neither we, the recipients of the reports, nor even the auditor will know this. As a result, unreliable companies that abuse this exemption will gain an unjustified competitive advantage over companies that behave decently.
The ESRS standards have been significantly simplified. Of course, there is room for various exemptions and concessions for companies. However, these additional exemptions (from already greatly simplified disclosure requirements) should be transitional in nature and limited in time. For example, for the first year, two or three years of reporting. If an exemption is permanent, it contradicts the very idea of standards.
I hope that the criterion of excessive cost or effort will be carefully analyzed by all those who participate in the public consultation on the ESRS drafts and that they will express their opinions in them. And I continue to encourage you to participate. I described how to do this in detail a month ago.. Last week during We discussed the same topic during the SEG webinar.. And on September 19, we will devote ourselves to standard projects. another webinar, this time organized by Frank Bold (you can register for it on this website). Come on in 😊
P.S. If you haven't submitted your report for the contest yet Sustainability Reports organized by the Responsible Business Forum, is the deadline has been extended to September 15, 2025.
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