Last week, I wrote that “After a year of uncertainty, the dust has finally settled around the Omnibus reforms.” It appears I jumped the gun. As I noted in that blog, the last outstanding piece of reform to the Corporate Sustainability Reporting Directive (CSRD) is the simplified European Sustainability Reporting Standards (ESRS). Rumors are swirling that the new drafts may alter the ESRS in unexpected ways. Responsible Investor reports:
“Sources have told Responsible Investor that the Commission is weighing stricter separation between factors that are considered financially material and those that have impact materiality in sustainability reports filed by companies in scope of the Corporate Sustainability Reporting Directive (CSRD).”
It seems that the proposal under consideration would bifurcate CSRD reports with financially material reporting, getting dedicated space aside from impact material reporting. This appears to be a concession on the side of the EU, which has long supported its position on double materiality, arguing that impact and financial materiality are inextricably linked. The good news for reporting companies is that this version of the ESRS would fully align with the ISSB, meaning that a CSRD-compliant report would automatically be ISSB-compliant.
However, not everyone is convinced. By separating out investor-focused financial information and impact information meant for other stakeholders, some believe the EU is setting up a two-tiered reporting system. Others are concerned that such a shakeup will undo progress CSRD reporters have already made. Changing the format of the reports will necessitate additional guidance on double materiality assessments, and companies will need to learn how to draw clear delineations between financially material and impact material information. The next draft ESRS are due out any day and are expected to be very close to final. Stakeholders will only have four weeks to submit comments.
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