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EFRAG Consults on Sector-Specific Standards

Jan 18 2024 #climate, #compliance, #environment, #esg, #social, #supply-chain

The CSRD comes into force for the first in-scope companies this year. The mandatory reporting framework for the EU is set to expand over time and will eventually include sector-specific reporting requirements. Sector-specific standards for the CSRD were originally to be published this year, but were delayed until 2026. Despite the delay, EFRAG published the following two consultation documents aimed at developing the standards:

ESRS SEC 1: Sector Classification

ESRS SEC 2: General Approach to Sector-Specific ESRS

SEC 1 discusses the process by which companies are organized into sectors using their NACE codes (the Union’s current system of classifying economic activity, similar to NAICS or SIC codes) under the pending NACE 2.1 framework. SEC 1 will be incorporated into the ESRS by delegated act, pending the outcome of the consultation. The approach also builds on SASB classification and the EU Taxonomy. SEC 1 describes its purpose as:

“[illustrating] how NACE codes are aggregated to form sectors, providing in this way a central reference for all the undertakings on how to report their sector of activities. This will be the infrastructure for the application of Sector ESRS.”

SEC 2 discusses the general principles behind the development of sector-specific standards. SEC 2 describes both the requirements for preparing sector-specific disclosures and the level of disaggregation of sector-specific information. Unlike SEC 1, SEC 2 will not be immediately incorporated as a delegated act, and will instead have its principles applied in the development of the sector-specific ESRS.

Anyone working with the CSRD can tell you it is a massive and complex piece of legislation. As time passes and the CSRD unfolds in its entirety, it will only get more complex. Even if your company isn’t currently in the scope of the CSRD, it is worth following the legislation because you could be in scope in the future.

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The Editor

Zachary Barlow is a licensed attorney. He earned his JD from the University of Mississippi and has a bachelor’s in Public Policy Leadership. He practiced law at a mid-size firm and handled a wide variety of cases. During this time he assisted in overseeing compliance of a public entity and litigated contract disputes, gaining experience both in and outside of the courtroom. Zachary currently assists the PracticalESG.com editorial team by providing research and creating content on a spectrum of ESG… View Profile

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