Proposed revisions simplifying European sustainability reporting standards have triggered calls from the impact investing sector to row back on some of the changes.
The impact investment sector is calling for the EU to ensure impact reporting remains a major focus in its corporate sustainability reporting framework, as an industry consultation on proposed revisions to the regime reached its close.
The two-month consultation period on revisions to the European Sustainability Reporting Standards (ESRS) by EFRAG closed on 29 September. EFRAG said it would continue to gather feedback ahead of its final technical advice to the European Commission (EC), due by 30 November.
The ESRS, adopted by the EC in 2023, provide a blueprint for how companies should meet reporting obligations under the EU’s Corporate Sustainability Reporting Directive (CSRD). They cover a wide range of environmental, social, and governance issues, including climate change, biodiversity, working conditions and human rights across value chains, and are intended to provide information for investors to understand the sustainability impact of the companies in which they invest.
The current round of proposed changes to the ESRS aim to simplify reporting requirements, which many companies had complained were unwieldy, time-consuming and difficult to implement. They are part of a wider drive by the EU to ease the administrative burden and operational restrictions imposed on companies by its various reporting directives over recent years through simplifying or delaying implementation of regulations.
Under the new ESRS proposals, mandatory datapoints that companies would be required to report would be reduced by more than half, along with wider editorial and structural revisions.
“These revisions aim to deliver what Europe needs at this moment: a more focused, more usable sustainability reporting system that remains ambitious but does not overburden companies,” Patrick de Cambourg, chair of the EFRAG Sustainability Reporting Board, said on launching the consultation in July.
Watering down impact reporting
But the amendments have sparked concerns that, in simplifying the standards, EFRAG risks jettisoning aspects of the framework that ensured companies took sufficient account of impact and sustainability issues.
Another concern voiced is the danger that the revised standards would not align with other reporting standards being adopted around the world, such as those drawn up by the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI), which would complicate accurate impact comparison.
Santiago Sueiro, head of thematics at GSG Impact told Impact Investor the ESRS simplification process should not come at the expense of integrity.
“Sustainability rules like CSRD/ESRS and CSDDD are foundations for growth, resilience, and investment in solutions that create long-term value for people and planet. They are not red tape, and improving implementation should be the focus, not weakening ambition,” he said.
The EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which runs alongside the CSRD, is intended to govern responsible behaviour by companies on social and environmental considerations.
GSG Impact has been advocating for the EC to preserve double materiality reporting, which Sueiro said is the only way to capture both how sustainability affects business and how business impacts society and the environment.
The organisation has also been pressing to maintain ESRS alignment with global standards and its systematic approach to governance, strategy, impact management, and performance.
That point was amplified by the Amsterdam-based GRI in its response to the consultation.
GRI said that changes could be made to the standards that would allow high quality reporting, while still delivering simplified rules. But it claimed that the weakening of impact disclosures outlined in the current draft went against EFRAG’s mandate to achieve interoperability with globally adopted standards, such as those set by GRI, and maintain double materiality reporting.
The organisation said misalignment with globally adopted standards would create unnecessary costs for companies, and leave investors, civil society and other stakeholders without information that could be compared, ultimately hindering business competitiveness. GRI proposed aligning the definition of impact materiality with its own standards and enhancing interoperability with global standards.
GRI also called on EFRAG to reconsider the application of a so-called “net-based” approach to impact assessment. It said this new proposal risked undermining impact reporting, as companies could obscure potential harm “simply by pointing to mitigation efforts”.
Robin Hodess, GRI’s CEO said simplification should benefit from globally-adopted best practice and that strengthening alignment with GRI Standards would allow EFRAG to meet its mandate and reduce unnecessary costs and complexity for EU companies.
“Under a revised ESRS, it remains important that EU sustainability reporting acknowledges global reporting norms, enhances accountability and creates decision-useful information for companies and their stakeholders,” she said.
The UN-backed Principles of Responsible Investment (PRI) has also raised concerns over the draft standards in its response in the consultation.
The PRI said it welcomed EFRAG’s work to simplify and clarify reporting requirements, which would help improve and standardise implementation by companies.
But it said some simplifications risked “undermining investors’ access to relevant, high-quality and comparable data across a broad range of material issues, which they need to make investment decisions, conduct stewardship effectively and meet their own reporting requirements”.
