The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs and the Exposure Draft for the voluntary reporting standard for non-listed SMEs.
Additionally, EFRAG proposed the draft XBRL Taxonomy for Set 1 of the European Sustainability Reporting Standards (ESRS) as well as for Article 8 disclosures under the EU Taxonomy Regulation (Regulation 2020/852); the comment period for these proposed taxonomies ends on April 08, 2024.
The European Commission (EC) had tasked EFRAG to develop the digital taxonomy for the ESRS, which the EC published in the Official Journal of the EU on December 22, 2023. EC adopted ESRS as part of the Corporate Sustainability Reporting Directive (CSRD), with the aim to enhance corporate sustainability and environmental, social, and governance (ESG) factors’ reporting in EU. Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS). These standards were developed by EFRAG and are tailored to the EU policies while contributing to international standardization initiatives. The ESRS align with global standards, ensuring a high degree of interoperability and preventing unnecessary double reporting by companies. The first set of twelve ESRSs has been published and disclosures will be required as early as the 2024 reporting period for the initial wave of companies. To this end, EFRAG is consulting on the draft XBRL taxonomy for Set 1 of ESRS.
The proposed ESRS Set 1 Draft XBRL Taxonomy will enable digital tagging of ESRS statements by providing XBRL elements (or tags) for every datapoint and dimensional disaggregation defined in the ESRS disclosure requirements. EFRAG notes that an XBRL software should be used for processing the XBRL taxonomy. Once finalized, this taxonomy will be the basis for the European Securities and Market Authority (ESMA) to develop draft regulatory technical standards (RTS) for tagging the ESRS sustainability statement. EC will finally adopt the tagging rules by way of a Delegated Act amending the EU Commission Delegated Regulation 2019/815 on the European Single Electronic Format (ESEF Regulation). The accompanying Explanatory Note provides illustrations of the resulting reporting in machine-readable format to support implementation of the ESRS Set 1 and the Article 8 Draft XBRL taxonomies and to obtain more informed feedback during this consultation.
The ESRS standards are sector-agnostic and apply from January 01, 2024. Large EU listed companies, public interest entities, and groups, along with large non-EU issuers and groups (subject to certain conditions and exemptions) will be the first cohort to report under these standards, with the initial reports due in 2025 for the 2024 financial year. However, the CSRD mandates EC to adopt sector-specific ESRS by June 30, 2024. These standards will outline information specific to the sectors in which an entity operates. EC proposed postponing the adoption of these sector-specific standards to June 30, 2026, thus allowing entities to focus on implementing the initial set of sector-agnostic ESRS. The Parliament and the Council have agreed with this proposal, pending formal adoption. They also requested the timely release of sector-specific ESRS by the European Financial Reporting Advisory Group (EFRAG). Nevertheless, the first set of ESRS is already in effect, and companies should prepare for upcoming reporting obligations while anticipating further developments in sector-specific standards.
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