The obvious changes that need to be made include supplementing or modifying ESRSs in all those places where clarifications issued by EFRAG as part of the Q&A Platform mechanism were necessary. In many places, there is no precise definition of a term, or it is unclear whether a given indicator should be calculated only for employees or also for other persons performing work for the company. However, such changes can be treated as a kind of smoothing of the standards and making them easier to apply.
During the discussions on April 1 and 3 at the SR TEG meetings, I was most surprised by how difficult it is to convince all those not involved in report preparation of the need to align the content of individual ARs with DRs. Today, our standards contain the content of individual disclosure requirements (DR) separately, and then, in Appendix A to a given standard, the content of all application guidelines (AR). This physical separation of content means that every time we want to focus on a specific disclosure requirement, we have to have both texts in front of us (DR and the corresponding AR points) in front of us. All SR TEG members involved in the preparation of reports in companies unanimously support the idea of combining these fragments of text; at the same time, all those who do not prepare reports (auditors, representatives of financial institutions, and others) do not see such a need.
This non-obvious, interesting proposal, which I mentioned at the beginning, concerns dividing AR into two types of information. Today, the AR section contains entries of various kinds. Some of them are mandatory and most often concern the need to use a specific formula to calculate a measure, use a specific table formula, or take into account specific facts and circumstances when preparing disclosures. Other parts of the AR are optional and are actually examples of good practice. A proposal has therefore been made to include these examples in a separate section of the standard and to clearly indicate that they are guidelines. These guidelines are, of course, non-binding.
We would then have the following internal structure of standards:
- DR, or disclosure requirement, specifying what a company must disclose
- AR, or application requirement, specifying how a company must disclose what a given DR concerns (e.g., calculation formulas, table formulas)
- Guidance, i.e., guidelines indicating examples and good practices that may (but do not have to) be taken into account when applying a given DR.
Do you think this arrangement would be more transparent and easier to use?
On Thursday, April 3, 2025, we also conducted a very detailed analysis of how the European Commission's proposal for a new definition of value chain cap, i.e., rules determining what information reporting companies may and may not request from their smaller business partners, will affect the future content of ESRSs. The short conclusion of the analysis: the new definition has no impact on the ESRS standards, because in practice the Commission has proposed to eliminate the value chain cap, i.e., it has removed the protection of smaller business partners from being asked excessive questions. I am unable to include a longer conclusion with an explanation in this newsletter, but I may address this issue in the future.
Work on revising the ESRS is in full swing at SR TEG. The work plan is still being finalized (as I announced a week ago) and will be ready early next week. An online questionnaire will definitely be launched in the near future, where you will be able to submit your comments and suggestions for changes – as soon as it is ready, I encourage you to take part in it 😊
P.S. Thank you to everyone who responded to my request for suggestions for changes to the ESRS three weeks ago 😊 I am trying to incorporate some of the suggestions into the work of the SR TEG. As for some of them, I don't really see that as a possibility. For example, the term due diligence has long been translated into Polish as due diligence (e.g., in the UN Guiding Principles on Business and Human Rights), so I do not see any possibility of changing this translation today. The idea of introducing VSME enriched with a double materiality assessment as a mandatory standard is unlikely to be feasible given the European Commission's plans for the largest companies, but the concept of reinstating the obligation for companies with fewer than 1,000 employees is being considered – and perhaps a standard modeled on VSME would be mandatory for these companies. However, this depends primarily on the legislative work on the „big” Omnibus project.
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