EFRAG: Europe’s Advisor on Sustainable Finance Reporting

In this article, you will learn about the following:

• What is EFRAG?
• EFRAG’s Activities
• What does EFRAG do in Practice?
• EFRAG: Implementing Reporting Standards
• EFRAG Plays a Key Role in Developing New Standards
• EFRAG: Parent of the CSRD
• Interoperability of the EFRAG
• Greenomy as your All-in-One Sustainable Finance Reporting Solution
  

What is EFRAG?

EFRAG is a private association that was established over 20 years ago, in 2001. The group has a unique position in that it provides advice, develops, and advances financial and sustainability reporting within Europe through working closely with the European Commission (EC). By creating a network and bringing together stakeholders from different sectors, European views are ensured in EFRAG’s Reporting Standards. Its Member Organisations include European stakeholders, National Organisations, and Civil Society Organisations and it is publicly accountable through its open and transparent due process, e.g. their meetings are held publicly and it holds public consultations on its positions.

EFRAG’s Activities

EFRAG’s activities are twofold:

1) Sustainability Reporting: Developing draft EU Sustainability Reporting Standards, and related amendments for the European Commission.

2) Financial Reporting: Influencing the development of IFRS (International Financial Reporting Standards) Standards from a European perspective and how they contribute to the efficiency of capital markets, and providing endorsement advice on (amendments to) IFRS Standards to the European Commission.

What does EFRAG do in Practice?

EFRAG seeks input from all stakeholders and obtains evidence about specific European circumstances throughout the standard-setting process, which enables the group to be recognised as the European voice in corporate reporting. 

The European institutions ask EFRAG for technical advice when drafting legislation. In doing so, they delegate the assessment and drafting of the norms to EFRAG, which empowers the group to input the views of all the sectors that they represent.

It is important to highlight that EFRAG does not aim to regulate or act as a regulator, rather, it aims to develop and contribute to the development of the appropriate standards, especially in the European context, with the intent that the European standards will henceforth be internationally adopted.

EFRAG is meticulously setting the different layers of financial reporting that make European reporting requirements what they are today. Over the past 20 years, EFRAG has adapted disclosures to improve the quality of the collected data, and has put mechanisms in place to ensure the data is relevant and communicated effectively.

EFRAG: Implementing Reporting Standards

In 2002, the Official Journal of the European Union published Regulation 11606/2002 establishing the International Accounting Standards Board (IASB) to create the International Financial Reporting Standards (referred to as IFRS). EFRAG’s task was to provide the European Commission with advice on issues relating to the application of the IFRS in the EU.

EFRAG Plays a Key Role in Developing New Standards

Each standard developed and published by EFRAG reinforces the group’s contribution to the European reporting sphere. With each standard, EFRAG’s expert community identifies new challenges. Nevertheless, EFRAG’s development of new standards has unmeasurable advantages that trickle down through stakeholders, namely:

1. It has improved the information quality that has been reported to the institutions to ensure the data is relevant and sector-agnostic comparability,
2. It has taken cohesion a step further by focusing on a comparable approach to international initiatives,
3. It has stated coherent content and timing disclosures,
4. It has created a structure in which the stakeholders are connected through a seamless corporate harmonised reporting method,
5. It fosters and focuses on proportionate implementation.
   

EFRAG: Parent of the CSRD

Most recently, in 2020, the European Commission issued an ad personam mandate to request EFRAG to develop the European non-financial reporting standards under the revision of the Non-Financial Reporting Directive.

A year later, in 2021 the EC adopted the legislative proposal for the Corporate Sustainability Reporting Directive applicable to 50.000 companies in Europe to report on their sustainability performance (find out more in our blog). And invited EFRAG to develop new draft compulsory reporting sustainability standards, referred to as the European Sustainability Reporting Standards (ESRS), in line with the timeline of the proposed CSRD.

Consequently, EFRAG set-up the Project Task Force on European sustainability reporting standards (PTF-ESRS)​ with relevant stakeholders to elaborate standards fit for different sector needs.

EFRAG published the first draft of sector-agnostic ESRS in April 2022, and by November 2022 it published the second version for consultation. 

During 2023 EFRAG drafted, consulted on, and finalised the first set of ESRS, the sector-agnostic or topical standards. The ESRS went through a series of revisions, most notably the version published in June 2023. The version published in June took into account not only the opinions of stakeholders but also the Commission’s plan to reduce the burden of reporting by 25%. By July the standards had been adopted and in December 2023, the Delegated Act was finally published in the Official Journal of the European Union.

In addition to finilising the sector-agnostic ESRS, EFRAG set in motion several new initiatives. Among these initiatives, there are the ESRS implementation Q&A Platform, which follows specific procedures to handle large batches of stakeholder concern; educational videos on the ESRS; the ESRS implementation guidance (IG), which comes in the form of the Materiality assessment IG, Value chain reporting IG, List of ESRS Datapoints IG; among others.

In October 2023 EFRAG published its work programme, setting its priorities for 2024. In 2024 EFRAG will focus on the development of the ESRS for small and medium-sized enterprises (SMEs) both listed and voluntary, starting the development of the XBRL taxonomy for the CSRD, and starting the work on the sector-specific ESRS, starting with the general approach to sector ESRS and the ESRS Sector classification approach which is already ongoing, and two draft ESRS for high-impact sectors oil and gas. 

The Sector-specific standards and the ESRS for non-EU groups were initially set to be released in 2024. However, the EC decided to delay these until 2026, a change that was reflected as well in the EFRAG work programme for 2024.

Interoperability of the EFRAG

The work that EFRAG is doing on the ESRS is praised by the Greenomy community. EFRAG is not only harmonising and advancing disclosure requirements for sustainable corporate information in Europe, but it is also collaborating with other standard-setters internationally to ensure interoperability.

Interoperability with international standards, such as GRI and ISSB, has always been at the center of discussions regarding ESRS development and implementation. In 2023, GRI and ISSB confirmed a high degree of interoperability, despite fundamental differences among the frameworks and the standard-setters. EFRAG maintains interoperability dialogues as a key focus for 2024, to reduce the burden of reporting and to avoid double reporting where possible. 

The ongoing bilateral dialogues between EFRAG, GRI and ISSB are especially forward-looking and an excellent example of international cooperation. As global capital markets and supply chains become more intertwined, a common coherent approach to disclosures is essential. Companies are becoming international faster than ever and the different jurisdiction’s rules lead to confusion, double work and compliance costs.

The universal business challenges added to companies’ sustainability path goals result in a need for harmonisation, efficiency and compliance. It is necessary for corporations to get ahead of the race not only with their compliance, where nonconformity can result in sanctions, but also with their green transition, to ensure customer loyalty and trust. By keeping up with the EFRAG rules and incorporating them into our platform, Greenomy provides an ecosystem for corporates to ensure that they are compliant with the legislation and are adhering to the new sustainability disclosure rules.

Greenomy as your All-in-One Sustainable Finance Reporting Solution

Greenomy advocates with international thought-leaders and standard setters to keep track of critical developments in global sustainable finance, and to contribute our expertise towards ‘greening up' the economy on a worldwide scale.

For more information on the international working groups that we advocate with, check out our vision.