On 21 April 2021, The European Commission adopted a legislative proposal for a Corporate Sustainability Reporting Directive (CSRD). One of the key provisions of the CSRD is that companies in scope would have to report in compliance with European sustainability reporting standards (ESRS) adopted by the European Commission as delegated acts, on the basis of technical advice provided by EFRAG. On 15 March 2022, the EFRAG General Assembly also approved EFRAG’s Due Process Procedures EU Sustainability Reporting Standard- Setting.

In parallel with the governance reform, and in order to ensure that EFRAG’s new SRB would be in a position to deliver its technical advice to the European Commission in time for the European Commission to meet its own deadline to adopt the first set of ESRS, the PTF-NFRS was invited by EFRAG, following Commissioner McGuinness recommendation, to launch the preparation of a first set of ESRS Exposure Drafts based on the CSRD mandate. In order to meet the ambitious deadlines for submitting the first set of draft ESRS to the European Commission by November 2022 and to benefit from the longest public consultation period possible, it was critical that the public consultation on the Exposure Drafts (EDs) of the first set of ESRS be launched as soon as possible. 

The EFRAG SRB and the EFRAG SR TEG will consider the EDs in parallel with the public consultation and following the handover by the PTF-ESRS. Together with the input and results from the public consultation, the EFRAG SRB supported by the EFRAG SR TEG will agree the final first set of draft ESRS to be submitted to the European Commission. In consideration of the very tight timeline and of the available resources, the PTF-ESRS prioritised the preparation of the ESRS Exposure Drafts. The Cost-Benefit analysis, which is an important aspect of the standard development process, will be managed by EFRAG in parallel to the public consultation, in order for the EFRAG SRB supported by the EFRAG SR TEG to be in a position to provide a complete technical advice to the European Commission, as per the CSRD proposal.

EDs were prepared on the basis of the April 2021 CSRD legislative proposal, as at the time of their issuance the final text of the Directive is not available, pending the ongoing legislative negotiation by European Council and Parliament. Sustainable Finance Disclosure Regulation (SFDR) Principal Adverse Impact metrics (PAI KPIs) are indicators required to be reported by Financial Market Participants subject to the SFDR. In order for Financial Market Participants to be able to collect such indicators from their clients, these SFDR PAI KPIs as defined by the Regulatory Technical Standards (RTS) adopted by the European Commission on 6 April 2022, are included in the Exposure Drafts and specifically flagged as being SFDR PAI KPIs.

Aiming to capitalise upon and consolidate the sustainability reporting achievements to date the PTF-ESRS fully considered the lessons learned from the implementation of the current European legislation, the Non-Financial Reporting Directive (NFRD), the existing related guidelines and the best practices that have developed in such a context. Robust and constructive dialogue was also entertained with other leading international initiatives regardless of any cooperation agreement being formalised, with the common goal of both mutual understanding of approach and goals and search for ways to facilitate compatibility and convergence wherever possible.

Following this approach, standards are organised by categories which all complement and interact with each other. There are three categories of standards:

• The cross-cutting standards cover the general provisions applying to
• Topical standards cover a specific sustainability topic or sub-topic 
• The ESRS architecture foresees the preparation of sector-specific standards, not included in this consultation.

ESRS Exposure Drafts submitted to this public consultation follow this phased-in approach and, as a consequence, do not include SME-proportionate standards nor sector-specific standards. Such standards are still being developed and will be submitted to a separate public consultation as soon as possible. 

More information on the Draft European Sustainability Reporting Standards can be found at the link.