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EFRAG Proposed European Sustainability Reporting Standards


The EFRAG (European Financial Reporting Advisory Group), recently validated its first set of standards, which it is submitting for public consultation until early August 2022.

This is a major step forward in the implementation of non-financial reporting standards significantly expanding the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently.


Here after we present the structure of the standards drafts together with some short notes. A link to the official website and to the public consultation online and/or PDF documents is included at the end of the article.


The drafts are composed of 13 Standards: 2 General, 5 Environment, 4 Social and 2 Governance


GENERAL STANDARDS





EFRAG’s draft requires organizations to “report sustainability matters on the basis of the double materiality principle.” Under double materiality, companies would be required to disclose not only on how sustainability matters affect their own performance and position, but also on their own impact on sustainability matters






ENVIRONMENT STANDARDS

The Climate Change (ESRS E1) would require disclosure of “gross indirect Scope 3 GHG emissions in metric tons of CO2 equivalent,” which encompasses a broad set of emissions outside of companies’ direct control.



SOCIAL STANDARDS

The drafts indicate significant disclosures regarding sustainability-related factors in the value chain.



GOVERNANCE STANDARDS

Focus on governance factors, including:

(a) Role & Composition of the management and supervisory bodies, (including with regard to sustainability matters)

(b) description of the diversity policy applied and its implementation

(c) internal control and risk management systems


The Business Conduct Draft Standard focusses on a limited number of practices :

(a) business conduct culture

(b) avoiding corruption & bribery

(c) transparency



PUBLIC CONSULTATION


EFRAG invites comments on all aspects of the Draft ESRS. Comments are expected no later than 8 August 2022. The Cover Note explains in more detail the context and the process including the responsibilities of the PTF -ESRS and the EFRAG Sustainability Reporting Board; the key features of the EDs and the objectives and practical aspects of the public consultation.


Link to the draft ESRS and consultation documents:


https://www.efrag.org/lab3