EFRAG reveals direction of EU reporting standards

Draft sustainability reporting standards are expected in 2022

September 17, 2021

The European Financial Reporting Advisory Group (EFRAG) has outlined its proposals for EU-wide sustainability reporting standards.

The newly published Climate Standard Prototype paper outlines 10 disclosure areas and is designed to be compatible with Task Force for Climate-related Financial Disclosures.

The new standards will provide a “robust basis” for the EU’s Corporate Sustainability Reporting Directive (CSRD), which will extend the scope of reporting to all large companies as well as all companies listed on regulated markets, excluding micro-enterprises. Likewise, the CSRD will necessitate the audit of reported information and will require companies to “tag” information so that it can be universally accessed.

The new disclosure regulations will replace the EU’s Non-Financial Reporting Directive, which had been broadly criticised for being vague and ineffective.

The 10 disclosure areas fall within three separate categories.

The first category – strategy – encompasses business policy and climate, climate impacts, risks and opportunities, and climate governance.

The implementation category describes disclosures on policies and targets as well as actions and resources.

The third category, performance measurement, covers energy consumption, scope 1, 2 and 3 greenhouse gas emissions, as well as the EU’s taxonomy for sustainable activities and financial exposure to physical and transition risks and opportunities.

The draft paper is now set to be submitted to a review panel of EFRAG subcommittees for feedback and consensus-building. Once this has been completed, a final draft will be produced and reviewed by a soon-to-be established expert working group. The proposal will not be opened to public feedback.

It is expected that EFRAG will deliver its draft standards for the CSRD to the European Commission in mid-2022.

At the start of September, EFRAG began seeking appointees for 11 industry groups to review the bloc’s sustainability reporting standards.