01.06.2022 | DNK-News

Interview with Prof. Dr. Alexander Bassen on the European Sustainability Reporting Standards (ESRS) and his role as a member of EFRAG.

As part of the Draft Corporate Sustainability Reporting Directive (CSRD), the EU Commission tasked the European Financial Reporting Advisory Group (EFRAG) with developing a set of standards on sustainability reporting. The exposure drafts of the European Sustainability Reporting Standards (ESRS) were published at the end of April and have now been released for public consultation. Comments can be submitted via an online questionnaire or an uploadable document until 8 August 2022. As a member of the EFRAG project task force, Prof. Dr. Alexander Bassen (member of the German Council for Sustainable Development) was involved in developing the EU standards.

As a member of EFRAG, what part did you play in the development of the standards?

It was the job of the EFRAG project task force to develop concrete standards for the implementation of the CSRD. A number of themed clusters were set up within the task force: while some of them worked on topic-related standards, such as resource utilisation, biodiversity or human rights, in my cluster we were working on overarching standards that span all the other aspects. So, for example, we came up with standards on corporate governance issues, double materiality or the general description of strategies and goals.

What is your personal opinion on the now published drafts and the process of developing the standards? Where do you see potential for improvement?

When you consider that the standards were developed within ten months, I’d say that’s a major achievement. All aspects of sustainability are covered in a high degree of detail. Another plus is that our colleagues from the Global Reporting Initiative (GRI) played a central role in developing the standards, which meant that a basic coherence between the GRI and the European standards could be incorporated from the outset.
I can see improvement potential in terms of the high granularity of the standards. Compared with the previous working papers, the published exposure drafts already constitute a simplified, less detailed and therefore more user-friendly version. That said, the standards are still very extensive – something that needs improving so that ultimately they are practical enough for companies to use. In particular, it needs to be clarified whether all standards really apply to all sectors or whether it wouldn’t make more sense to adjust them on a sector-specific basis. We also need to clarify where the boundary is with the other standards of the IFRS Foundation and the US stock market oversight agency SEC.

What opportunities are opened up with the new European Sustainability Reporting Standards?

With the new ESRS, clear standards have been defined for the first time at the EU level, specifying precisely which information on sustainability aspects has to be reported and how. They represent a clear framework of rules and regulations for reporting on sustainability aspects and can help redirect funds into sustainable investments and set priorities in political action. This creates greater transparency and certainty for companies, investors, customers and other stakeholders.

How will the comments submitted on the draft standards be considered in the development process?

The ESRS drafts were released for the consultation stage on 29 April – so all stakeholders are warmly invited to have their say in the relevant online survey by 8 August. All contributions to this public consultation will ultimately be looked at, evaluated, and taken into account in the final ESRS draft.
How does the process continue after the consultation deadline on 8 August?

Once the consultation period is finished, the EFRAG Sustainability Reporting Board (SRB) and the EFRAG Sustainability Reporting Technical Expert Group (SR TEG) will prepare a final draft of the ESRS. This is to be presented to the EU Commission by November 2022, so that the standards can finally be enacted as a corresponding delegated legal act. With regard to the CSRD itself, the EU Commission, the European Council and the EU Parliament are still in talks on the specific form of the directive. The aim is to pass it by the end of the year. The European Council has proposed that the Member States should have a total of 18 months from the adoption of the CSRD to transfer the directive into their national law. Finally, the first companies will have to report based on the new sustainability standards beginning in 2025, with the number of companies obliged to report then gradually being expanded in 2026 and 2027. The EU Commission, on the other hand, is arguing for a tighter timetable, whereby the first companies would already have to report based on the CSRD as of 2024.