EY responds to EFRAG’s proposal to simplify ESRS

EY welcomes the simplification of EFRAG’s revised ESRS and emphasizes the importance of addressing implementation needs.

EY welcomes the opportunity to provide feedback on the Revised European Sustainability Reporting Standards (ESRS) Exposure Drafts, issued for public consultation by the European Financial Reporting Advisory Group (EFRAG). EY commends EFRAG’s efforts to develop a comprehensive proposal to simplify ESRS under an extremely tight timeframe. While we agree with the direction of the proposals, we have raised some points for EFRAG’s consideration and make suggestions for improvement in our response to the survey.

Structure:

We welcome the revised architecture of ESRS, with a more streamlined principles-based approach making the standards easier to navigate.

Reduced datapoints:

We welcome the substantial reduction in the number of required disclosures while covering the same reporting areas. However, the reduction is not expected to translate into a proportional decrease in the reporting workload.

Non-mandatory implementation guidance (NMIG):

We support the illustrative content in NMIG, and agree with its non-binding status. We suggest EFRAG continues to address emerging interpretation and application questions to support ESRS implementation.

Materiality:

We support materiality of information as a general filter but highlight the need for further clarity and consistency on the use of the key concepts of “users” and “general purpose sustainability statement”. We commend EFRAG’s effort to provide guidance on how to consider remediation, mitigation and prevention actions in assessing materiality of negative impacts (“Gross versus net”), but request clarification on the underlying principle.

Fair presentation:

We support the principle of “fair presentation”, but see some challenges related to the lack of defined boundaries for users and lesser maturity of sustainability reporting. We, therefore, suggest EFRAG makes further clarifications.

Reliefs:

We welcome the inclusion of the “undue cost or effort” relief but see the need for further clarification on how and when it could be applied to ensure consistent application, as well as a clearer articulation with the other proposed reliefs.

Connectivity:

We are concerned that the removal of mandatory reconciliation bears negative implications for users on overall connectivity, consistency and readability. With respect to disclosures on anticipated financial effects, we support a modified “Option 1” with reliefs fully aligned with ISSB standards to preserve quantitative information while addressing the challenges raised by such disclosures.

Boundaries:

We do not support the proposal to request a financial control approach on greenhouse gas (GHG) emissions with additional reporting based on operational control when needed for fair presentation. We suggest EFRAG leaves the choice open based on the consolidation approaches of the GHG protocol, in alignment with IFRS S2.

Interoperability:

Interoperability is essential for users and critical to reduce the reporting burden of reporting entities. We commend EFRAG’s efforts to improve interoperability and we strongly recommend that EFRAG works with the International Sustainability Standards Board (ISSB) when finalising ESRS to further improve interoperability.