On 3 June, E3G provided a technical response to the European Commission’s open consultation on the draft Delegated Act containing the European Sustainability Reporting Standards (ESRS).
Last year, the Omnibus I simplification package brought amendments to the Corporate Sustainability Reporting Directive (CSRD). Among the proposed changes, EU policymakers included a revision of the ESRS, the technical disclosure standards under the Directive. These standards define how companies and financial institutions report their sustainability-related information, providing a template for ESG transparency and data comparability.
E3G welcomes the European Commission’s decision to broadly align with the European Financial Reporting Advisory Group (EFRAG)’s final advice on the standards. This achieves an already significant simplification exercise estimated to reduce over 60% of previous datapoints. Moreover, we strongly support the preservation of double materiality as the foundation of sustainability reporting, maintaining impact and financial materiality as interconnected lenses to interpret ESG-related matters.
However, before finalising the standards, E3G recommends the European Commission address specific areas for improvement which are necessary to ensure greater comparability and high-quality of sustainability-related information.
E3G’s four recommendations for the Commission:
- Introduce stricter justifications and time limits for reliefs and phase-ins: EFRAG’s simplified ESRS introduced permanent reliefs and phase-ins that lack sufficient justifications and sunset clauses, risking opportunistic behaviour and undermining the transparency goals of the CSRD. We recommend time-limiting key reliefs – including the ‘undue cost or effort’ exemption, omission of financial effects, and joint operations exclusion – to the 2029 financial year.
- Clarify specific provisions regarding climate transition plans: Here, we welcome the Commission’s decision to preserve climate transition plan requirements in ESRS E1, recognising their value to investors, regulators, and policymakers, but urge stronger wording to prevent companies from disclosing plans that are largely incompatible with the 1.5°C Paris Agreement goal. Additionally, we call for mandatory climate scenario analysis to be reinstated, as making it voluntary would represent a regression from the original ESRS structure and create divergence with the global baseline standard, the IFRS S2.
- Reintroduce clear boundaries for calculation of GHG emissions: The Commission’s decision to allow companies to freely choose among three GHG accounting boundary methods – without justification or prioritisation – risks creating significant comparability issues and opportunities for boundary manipulation. We recommend reinstating financial control as the mandatory baseline, with operational control as the only permitted alternative when financial control reporting proves insufficient.
- Reintroduce EU Taxonomy indicators across the ESRS standard: The removal of EU Taxonomy indicators – particularly CapEx alignment, CapEx plans, and OpEx alignment – from ESRS climate transition plan disclosures undermines regulatory coherence and weakens the framework’s ability to estimate and incentivise transition finance. We recommend reinstating these Taxonomy-related datapoints within ESRS E1-1, adapted to the simplified ESRS structure, to restore the connectivity between the two sustainable finance regulations.
The Commission will now analyse the feedback received to determine the final version of the Delegated Act. Next, the ESRS will undergo a two-month scrutiny period by the European Parliament and the Council of the EU, before being formally adopted.
