Continuing the topic of today’s lead blog, EFRAG’s new ESRS 40-a draft includes a nuanced approach to required impact disclosures. In my blog earlier this month, I noted that EFRAG was weighing two approaches: The global approach and the mixed approach. The draft puts forward the flexibility for companies to use both in certain circumstances. A recent Jones Day memo breaks down the ESRS 40-a Mixed approach:
“Notably, for topics other than climate change, the Exposure Draft proposes to permit firms to use what is referred to as the ‘mixed approach’. This mixed approach proposes allowing reporting to be limited to:
- (a) impacts that arise from products and services that were or can be reasonably assumed to be sold or provided in the EU market, including by third parties (downstream value chain actors such as distributors and traders); and
- (b) impacts of the undertaking’s European Union activities.
However, the mixed approach can only be used when it is possible for firms to distinguish an impact as specifically relating (or not relating) to the EU, as opposed to being an impact that is of general global application.”
For climate and other disclosure topics, impacts that reporters cannot distinguish as specifically related to the EU must use the global approach. The mixed approach allows companies to limit disclosures to how their global operations impact the EU. The global approach, on the other hand, requires companies to explain their impacts on the global level. It seems that the European Commission strong-armed EFRAG into including the mixed approach option. It’s unclear whether the mixed approach exemption will survive the consultation stage.
Our members can learn more about global disclosure standards here.
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