31. July 2023

ESRS: COM publishes Delegated Act – Changes from the draft

On 31 July 2023, the European Commission (COM) published the Delegated Act on Set 1 of the European Financial Reporting Standards (ESRS). It follows that, for the first time, mandatory sustainability reporting standards are laid down in the European Union. In accordance with Article 49(3b) of the Accounting Directive (Directive 2013/34/EU), EFRAG had submitted the draft ESRS to the COM as technical advice in November 2022. After making its own adjustments, the COM had published the revised ESRS as draft Delegated Act on 9 June 2023, with a consultation period until 7 July 2023 (see here).

Based on more than 600 responses, the COM has made a number of adjustments and clarifications to the draft Delegated Act. Changes in the published final Delegated Act concern, among others, the following provisions:

  • ESRS 1 General requirements now explicitly states that the assessment of financial materiality corresponds to the identification of information that is considered material for primary users of general-purpose financial reports in making decisions relating to providing resources.
  • ESRS 1 further clarifies that, in addition to the disclosure requirements of ESRS 2 General disclosures, all disclosure requirements and datapoints in the environmental standards (ESRS E1 to E5) as well as ESRS G1 Business conduct relating to ESRS 2 IRO-1 (Description of the process to identify and assess material impacts, risks and opportunities) must be followed by the undertaking, irrespective of the outcome of its materiality assessment.
  • In the event of non-compliance with a topical standard, according to ESRS 1, disclosure choices in terms of justification and explanation are now confined to topical standards other than ESRS E1 Climate change: If the undertaking concludes that the topic “climate change” is not material and, therefore, does not report in accordance with ESRS E1, it must disclose, among other things, a detailed explanation of the results of its materiality assessment with regard to climate change.
  • Regarding the reporting requirements of the Sustainable Finance Disclosure Regulation (SFDR) and other EU legislation listed in ESRS 2, it continues to apply that the corresponding datapoints are generally subject to the materiality. However, according to ESRS 1, it must now be explicitly stated if the information in question is “not material”.
  • For financial institutions, when determining their GHG emissions, the requirement in ESRS E1 to consider the Partnership for Carbon Accounting Financials (PCAF) standard has been limited to Part A “Financed Emissions”. The reference to Part C “Insurance Associated Emissions” has been removed.

The final standards are now available in 23 language versions (here). In addition, the COM has published a detailed Q&A on the adoption of the ESRS.

On 7 July 2023, the DRSC submitted its response on the draft Delegated Act to COM. In addition, the DRSC published a briefing paper (German only) as well as a comparison between EFRAG’s draft ESRS of November 2022 and the COM’s consultation draft.