CSRD update - latest from EFRAG TEG as it proposes significant reductions in ESRS datapoints and clarifications on DMA process

Although the final ESRS will not be published for several months, it is clear that these new standards will differ significantly from the original ESRS. Understandably, there has been a focus on EFRAG reducing the number of ESRS data points. However, it is becoming increasingly clear that EFRAG's qualitative changes will have a significant impact on how firms prepare for CSRD, and on the eventual content of their CSRD reports.

EFRAG has been preparing the “Amended ESRS Exposure Draft” for formal consultation. The latest indications from the working group of the EFRAG SR Technical Experts Group, set out in a “cover note”, suggest that the scaling back of the ESRS might go even further than originally required by European legislators:

• The number of mandatory (“shall”) data points has been reduced by over 50%.
• Almost all voluntary ("may") disclosures have either been eliminated or moved to guidance, with only a very small number still under consideration.

EFRAG has also been exploring ways to simplify the double materiality assessment (DMA). While the DMA remains part of CSRD, EFRAG have taken on board feedback: “While there have been benefits from the DMA exercise and the involvement of various internal actors, including at board level, frequent comments concern a disproportionate effort compared to the result, an excessive focus on process rather than outcome …” This sentiment is shared by many companies.

To address these concerns, EFRAG has taken the following steps:

1. A new section has been introduced in ESRS 1 presenting “practical considerations” in the execution of the DMA, replacing some of the pre-existing DMA guidance in the old ESRS 1. This clarifies that the DMA should normally be started using a top down approach, identifying the most obvious material topics. Prior to this, some firms had believed a bottom up approach was necessary, starting from the specific disclosure standards and working up.
2. The role of information materiality has been clarified and made more prominent.
3. More emphasis has been put on the objective of fair presentation of disclosures in CSRD reports, a key concept which is retained by the ISSB and many other reporting frameworks.

See the full “cover note” for details of EFRAG's other proposed amendments to address stakeholder feedback on simplification, readability and understandability.