The ESRS (European Sustainability Reporting Standards) will come into force gradually from January 1, 2024, creating a new legally binding reporting standard for EU companies. The reporting requirements are intended to improve the quality of sustainability reporting. Yet, the current draft of the ESRS features an option to get around the general disclosure requirement. Does the so-called rebuttable presumption provide a counterproductive incentive with regard to this goal?
Update 28.10.2022: The rebuttable presumption is removed from the updated version of the ESRS draft.
The ED ESRS have been under revision by EFRAG's Sustainability Reporting Technical Expert Group (SR TEG) since the end of the public consultation on 08/08/2022 based on the comments received. The now-published draft distinguishes between disclosures that are reportable regardless of the materiality analysis and those that can be excluded from the reporting requirement due to materiality criteria. If a requirement is excluded completely, companies are required to provide a justification. In the case of exclusion of individual reporting requirements ("disclosure requirements") or data points, these must be stated. Discussions are currently ongoing on the scope of the exclusion options and the requirement to provide justification.
To learn more about the ESRS, click here.
According to the ESRS draft, all mandatory disclosure requirements will be considered material. However, the draft provides a way to circumvent this general disclosure obligation: the rebuttable presumption. It allows certain disclosures to be classified as “not material for the undertaking”. However, this exception applies only if "reasonable and supportable evidence" is presented to prove that the reporting requirement is, in fact, not material.
The EFRAG (European Financial Reporting Advisory Group) argues that the rebuttable presumption is “necessary and appropriate to manage the number of mandatory disclosure requirements under ESRS”. EFRAG states that the rebuttable presumption promotes higher comparability between companies and makes reports clearer by leaving aside immaterial information. The disclosure assessment as "not material to the entity" would thus constitute significant information.
The rebuttable presumption could make the reporting burden that companies face with the introduction of the ESRS more manageable. However, this could jeopardize the high demands on the quality of reporting under the ESRS, as ESMA, for example, has expressed concern.
It remains to be seen whether and how the rebuttable presumption will be implemented in the final draft of the ESRS.
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