EFRAG'S annual conference 2023: Key insights and future outlook

4ESG Consulting had the privilege of attending EFRAG's Annual Conference in Brussels, where sustainability professionals, advisors, policy officers, stakeholders (including ISSB, EFRAG, TCFD, and GRI), and representatives from the European Commission and Parliament converged. The conference, held on 28 November 2023, marked a significant milestone with the completion of the European Reporting Standards (ESRS). Notably, Alexa Arbaugh, representing 4ESG Consulting, was among the attendees at this seminar. Her active participation and insights from 4ESG Consulting contributed to constructive dialogues and knowledge sharing with members of the conference. This article highlights the key takeaways from the conference and sheds light on the challenges and opportunities presented by the Corporate Sustainability Reporting Directive (CSRD).

Challenges of CSRD Implementation 

The CSRD represents a historical move, as it is the first legal framework that intertwines financial and sustainability impacts within the European Union. While this integration is vital, it also comes with its set of challenges. One such challenge is the need to assess future impacts, risks, and opportunities including looking beyond a 10-year horizon, all while considering the retrospective nature of financial reporting. As organizations adapt to the CSRD, they will likely face the daunting task of managing substantial amounts of data throughout their value chains. 

Interoperability of Reporting Standards 

A notable revelation from the conference is the strong alignment between the Global Reporting Initiative (GRI) and ESRS. This interoperability allows companies reporting under ESRS to also reference GRI's standards. For example, the materiality and due diligence concepts used in GRI are comparable to ESRS, helping streamline the reporting processes. Moreover, ESRS aligns significantly with the International Sustainability Standards Board (ISSB) and the Taskforce on Climate-related Financial Disclosures (TCFD), making it easier for companies to comply with ESRS while following internationally recognized frameworks. The GRI and ESRS have also published a mapping exercise of their respective disclosures, this interoperability became publicly available on November 30, 2023. 

Support and Guidelines for Implementation 

In addition to international frameworks, the European Financial Reporting Advisory Group (EFRAG) and the Commission are committed to providing guidance and support for CSRD implementation. Three crucial implementation guidelines - value chain, materiality assessment, and implementation guidance - are currently in draft versions and under review. These guidelines are expected to be published by January 2024. While there has been a two-year delay in sector-specific standards, EFRAG is actively working on their development and considering the feedback from conference members who wish to have these standards available sooner. 

Specific Standards for SMEs 

SMEs will also have dedicated standards under CSRD. Drafts of the Legal Small and Medium Enterprise standard (LSME) and Voluntary Small and Medium Enterprise standard (VSME) are available and expected to become legally applicable by the end of 2024. These draft standards will assist parent companies and other CSRD reporting entities in understanding the information requirements within their value chains. While currently voluntary, LSME and VSME standards can help SMEs prepare for future compliance. 

Development of the ESRS Taxonomy 

EFRAG is diligently developing an ESRS Taxonomy, expected to be released in the first half of 2024. This electronic format will align with the European Single Access Point (ESAP), simplifying access to financial and sustainability information. The taxonomy will enter consultation in January 2024, and once finalized will provide entities in the scope of the CSRD with a structured approach to reporting data points. This increases the consistency and comparability of sustainability reporting, and facilitates the transition to ESAP, set to be applicable in 2027. The adoption of XBRL format also lays the foundation for future automation, easing long-term reporting burdens. 

Concluding Remarks and Future Actions 

In conclusion, EFRAG's agenda is filled with upcoming publications and legal standards over the next few years. While the CSRD may present extensive challenges, understanding and leveraging the financial and sustainable impacts, risks, and opportunities can strategically enhance business resilience. As organizations embark on this transformative journey, they must stay informed and engaged with evolving standards and guidelines to navigate the changing landscape successfully.