ESRS Simplification: Balancing Transparency and Reporting Burden

The European Sustainability Reporting Standards (ESRS) form the backbone of the Corporate Sustainability Reporting Directive (CSRD), providing companies with detailed requirements on how to disclose sustainability-related information. Since their adoption in 2023, ESRS have faced scrutiny from businesses, investors, and policymakers over their complexity and reporting burden. Recent moves by the European Financial Reporting Advisory Group (EFRAG) and the European Commission to simplify the standards highlight an evolving effort to balance transparency with practicality [1][2]. This article explores the trajectory of ESRS simplification, its implications for companies and stakeholders, and strategic considerations for businesses preparing for compliance.

Context: ESRS and the CSRD

The CSRD dramatically expands the scope of sustainability reporting in Europe. Applying to nearly 50,000 companies, it requires detailed disclosures on environmental, social, and governance (ESG) matters, aligned with the principle of double materiality, covering both how sustainability issues impact the company and how the company impacts people and the planet [2]. ESRS translate these obligations into technical requirements.

While ESRS were designed to ensure comparability and decision-useful disclosures, their initial scope proved extensive. Companies and stakeholders raised concerns about the feasibility of complying with thousands of disclosure datapoints, especially for small and medium-sized enterprises (SMEs). This prompted calls for simplification, including proportional requirements and a sharper focus on material impacts [4].

Key Developments in ESRS Simplification

Revised Exposure Drafts

In 2024, EFRAG released revised ESRS exposure drafts, opening a 60-day public consultation. The revisions aim to streamline requirements and focus disclosures on the most material sustainability topics. This marks a significant shift from the initial standards, which were criticized for their breadth and complexity [1].

Reduction in Data Points

One of the most significant changes under discussion is a proposed 66% reduction in required datapoints across ESRS. This would bring disclosure requirements more in line with global standards such as the ISSB framework, while still retaining Europe’s emphasis on double materiality [5].

The Quick Fix

In April 2024, the European Commission adopted a “quick fix” allowing companies already reporting sustainability data under other frameworks to avoid duplicative disclosures. This adjustment acknowledges the reporting fatigue companies face and underscores the EU’s willingness to prioritize interoperability [3].

Progress Reports and Ongoing Reforms

EFRAG continues to publish progress reports on simplification efforts, highlighting engagement with stakeholders across industries. These updates stress the need for clarity, proportionality, and reducing administrative burden without compromising transparency [6].

Comparison: Original vs. Revised ESRS

기능	Original ESRS (2023)	Revised ESRS Drafts (2024)
Number of datapoints	Approx. 1,200+	Reduced by up to 66% [5]
범위	Broad, covering all ESG topics regardless of materiality	Streamlined, emphasizing material impacts [1][4]
Applicability	Large companies and SMEs in scope of CSRD	Greater proportionality for SMEs
Alignment	Divergence from ISSB standards	Improved alignment and interoperability [3][5]
Stakeholder feedback	Criticized for complexity and burden	Positive reception to simplification efforts

Implications for Companies

Benefits

Reduced complexity: A lighter reporting burden lowers compliance costs.
Better alignment: Increased interoperability with international standards helps multinational companies streamline reporting.
Focus on materiality: Prioritizing significant impacts improves the relevance of disclosures.

Risks

Loss of granularity: Simplification could reduce transparency on certain ESG issues.
Comparability challenges: Companies may interpret materiality differently, creating inconsistencies.
Transition uncertainty: Ongoing changes may complicate compliance planning.

Strategic Recommendations for Businesses

Stay engaged with consultations: Companies should participate in EFRAG’s ongoing consultations to shape practical disclosure requirements [1].
Prioritize materiality assessments: Robust double materiality assessments are essential for determining which topics to report under simplified ESRS.
Leverage interoperability: Businesses already reporting under frameworks like ISSB or GRI should map existing disclosures to ESRS to minimize duplication [3][4].
Invest in data readiness: Even with fewer datapoints, data quality and traceability remain critical for credible reporting.
Monitor evolving guidance: Continuous updates from EFRAG and the European Commission will shape final compliance obligations [6].

Broader Implications for the ESG Landscape

The simplification of ESRS reflects a broader trend: balancing rigorous sustainability disclosure requirements with the realities of business operations. The shift underscores the EU’s recognition that overly complex reporting obligations risk undermining both compliance and the credibility of sustainability reporting. This debate echoes other regulatory adjustments, such as the Omnibus package reforms.

At the same time, the focus on materiality aligns ESRS more closely with global standards, supporting comparability while maintaining Europe’s leadership on double materiality. This could strengthen investor confidence and reinforce the EU’s role as a global pioneer in sustainability regulation.

Closing Thoughts

The evolution of ESRS demonstrates the EU’s commitment to balancing transparency with feasibility. By reducing datapoints, emphasizing material impacts, and aligning with international frameworks, the revised standards seek to address business concerns while maintaining robust disclosures. For companies, the path forward lies in proactive engagement, robust materiality assessments, and leveraging interoperability. Simplified ESRS are not a retreat from ambition but a recalibration, one that may ultimately enhance the effectiveness and credibility of sustainability reporting in Europe.

참조

[1] https://www.efrag.org/en/news-and-calendar/news/press-release-efrag-shares-revised-esrs-exposure-drafts-and-launches-60day-public-consultation
[2] https://www.esgtoday.com/efrag-releases-proposed-simplified-csrd-sustainability-reporting-standards/
[3] https://finance.ec.europa.eu/publications/commission-adopts-quick-fix-companies-already-conducting-corporate-sustainability-reporting_en
[4] https://www.globalreporting.org/news/news-center/esrs-simplification-must-focus-on-the-most-significant-impacts/
[5] https://www.esgtoday.com/efrag-considers-66-reduction-in-european-sustainability-reporting-standards-datapoints/
[6] https://www.efrag.org/en/news-and-calendar/news/efrag-releases-progress-report-on-esrs-simplification