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European Commission Adopts Delegated Act on ESRS

On 31 July 2023 the European Commission (EC) announced its adoption of the Delegated Act (DA) on the first set of European Sustainability Reporting Standards (ESRS) (press announcement, Q&As webpage and implementing and delegated acts – CSRD webpage) Simultaneously the Commission together with EFRAG and the International Sustainability Standards Board (ISSB)  confirmed the high degree of climate-disclosure alignment. EFRAG welcomed the news and said it “is committed to the success of ESRS and is working toward the next steps: implementation guidance, ESRS for SMEs and sectors.” Read the EFRAG press release here. Jean-Paul Servais, Chair of IOSCO, also welcomed the EC's adoption of ESRS that are closely aligned with ISSB standards.

The final DA appears almost identical to the draft DA. This Corporate Disclosures article examines the act, noting that it modifies the definition of financial materiality to align with ISSB and introduces provisions for climate change reporting and disclosures related to other EU regulations. Most of the proposals in the draft DA were retained, including the simplifications from the draft ESRS received from EFRAG. The final DA does, however, reintroduce some requirements, most notably perhaps the requirement to provide a detailed explanation of the conclusions of the materiality assessment if that assessment deems climate change not to be material.

The DA will be transmitted to the European Parliament and Council during the second half of August for their scrutiny. The scrutiny period runs for two months, extendable by a further two months. The European Parliament or the Council may reject the delegated act, but they cannot amend it. If there are no objections, the act will enter force from 1 January 2024.

Corporate Disclosures highlight the importance of the mapping table of climate disclosures across ESRS and ISSB standards and the draft joint statement from EFRAG and GRI reiterating the alignment of their standards and outlining future areas of collaboration. The EFRAG SRB will vote to approve these on 23 August 2023.