A "major step" toward European reporting requirements has been made by EFRAG policy.

In a "major step" toward developing a reporting system for the entire continent, the European Financial Reporting Advisory Group (EFRAG) has presented the first set of draft EU Sustainability Reporting Standards (ESRS) to the European Commission.

Prior to adopting the final standards as delegated acts in June 2023, the European Commission will now consult EU institutions and Member States on the draft standards. This will be followed by a review period by the European Parliament and Council.

The reporting requirements will gradually be implemented for various business types.

For reports that are released in 2025, the first companies will have to implement the standards in financial year 2024.

Listed SMEs will have to report starting in 2026, with a voluntary opt-out option remaining open until 2028. They will also be allowed to report in accordance with independent, appropriate requirements that EFRAG will create the following year.

In addition to general requirements and disclosures, the published set also includes 12 standards on topics like climate change, pollution, water and marine resources, biodiversity and ecosystems, and resources and the circular economy.

The social standards are concerned with the workforces, communities, and end users along the value chain, while the governance guidance is concerned with the behavior of businesses.

"Our goal has been to strike the right balance between a game-changing step forward and a pragmatic implementation and to foster global sustainability reporting progress while taking full account of the feedback received through our public consultation and deliberations," said Kerstin Lopatta, a former EFRAG acting SRB Chair.

"We are confident that we will all in due course benefit from this collective effort towards more transparency and accountability," she said.

Aleksandra Palinska, executive director of the European sustainability policy organization Eurosif, hailed the submission as a "major step towards establishing a robust sustainability reporting at European level."

While efforts to reorganize "the structure to better fit the international standards developed by ISSB" will improve interoperability, Palinska said measures to make certain disclosures mandatory, especially those relating to climate, SFDR, and climate benchmarks, should be broadly embraced.

Susanna Di Feliciantonio, head of European policy at the Institute of Chartered Accountants in England and Wales (ICAEW), stated: "Delivered on time despite tight constraints, the finalisation of the first set of ESRS by EFRAG marks a significant moment in the move towards a corporate reporting system that encompasses both financial and sustainability reporting, in line with the ambitions of the Corporate Sustainability Reporting Directive (CSRD)."

"Attention will now start to turn to how to ensure the effective and successful operationalisation of the standards across Europe in the coming years," she continued.

By fLEXI tEAM