EFRAG announces major simplifications levers for sustainability reporting

1. A 50% reduction in the 'datapoints' has to be welcome. A 'less granular approach” to narrative disclosures, removing datapoints deemed irrelevant or redundant. Other information (not necessary legally) may be moved to non-binding guidance documents, rather than required disclosures. After being in wave 1 of assurance reporting - concise and focused data means business will spend more time underpinning the metrics than simply trying to comply with the 'storm' of disclosure.  
    

2. The simplification drive will be led through six strategic levers. Key is streamlining of the double materiality assessment (DMA) process. Talk of a 'manageable' approach chimes with our response in February of a 'proportionate' and 'transitional' process for business. 
    

3. Reducing the scale of required disclosures and clarifying language within the standard should also enhance the interoperability of the ESRS with other global frameworks (IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB)). Something that MHA & Baker Tilly have been clear on that companies will engage better when they see both a value proposition and a true benefit to their stakeholders, both internal and external.  
    

4. The spectre of the political position cannot be underestimated. The formal response from EFRAG has signalled that any modification to the October deadline would require the Commission’s approval. Clearly there is value in allowing more time for comprehensive stakeholder engagement and technical refinement for business, whether they fall into the potential revised reporting or not. A customer of one business will be the supplier of another.  
    

5. The response for ensuring transparency with the practical realities faced by businesses is welcome - the key question remains the thresholds at which the rules will apply, and the proportionality (if any) for businesses of different sizes. The secondary question will be what EU Countries do in terms of their 'gold plating' on the final rules. There is no doubt that the anticipated reduction of datapoints (50%+) is not just a data process, it is 'considered' given the level of stakeholder input. The test is going to be in the assurance, regulation and applicability. 

Proposed simplification levers by EFRAG 

Lever 1: Simplification of the Double Materiality Assessment (DMA) 

Lever 2: Better readability/conciseness of the sustainability statements and better inclusion in corporate reporting as a whole 

Lever 3: Critical modification of the relationship between Minimum Disclosure Requirements (MDR) and topical specifications 

Lever 4: Improved understandability, clarity and accessibility of the standards 

Lever 5: Introduction of other suggested burden-reduced reliefs 

Lever 6: Enhanced interoperability 

Where assurance cannot be obtained and a qualified conclusion is insufficient, the practitioner must disclaim a conclusion or withdraw from the engagement (where permitted by law or regulation). 

In exceptional circumstances, departures from a requirement must be documented, with alternative procedures performed to achieve the aim of that requirement. 

The full details of the proposed ISSA (UK) 5000 may be found on the Financial Reporting Council website at: https://media.frc.org.uk/documents/Proposed_ISSA_UK_5000.pdf 

Audited financial statements 

ISSA (UK) does not address sustainability information included in financial statements under the applicable reporting framework. The auditor of financial statements must apply International Standards on Auditing. 
Sustainability information may appear alongside audited financial statements (e.g., in an annual report) or in separate documents. Audited financial statements are considered “other information” for ISSA (UK) purposes.
 

Entities in scope 

Bearing in mind ISSA (UK) 5000 is intended for voluntary use on assurance engagements relating to sustainability information for all entities, regardless of size or complexity.