EFRAG's Sustainability Reporting Board (SRB) discussed a range of materiality approaches to replace the unpopular rebuttable presumptions from the European Sustainability Reporting Standards (ESRS) at a meeting on Tuesday (September 13), with the issue of mandatory disclosures dividing opinion on the board.
After the criticisms that EFRAG received in the ESRS consultation on the rebuttable presumptions, the SRB decided last week to change to an 'explicit light approach' which was sent to the Technical Expert Group (TEG) who discussed how it would work in practice.
After these discussions, the SRB met to debate the approach to materiality for the finalised standards. The secretariat sent a list of five options for materiality, ranging from only having mandatory disclosures decided by the regulator (option 1) to giving companies the freedom to conduct their own materiality assessments (option 5).
In between those two, there is option 2 which is a list of mandatory disclosures and all other disclosures are voluntary. Option 3 is a list of mandatory disclosures and a list of other disclosures which require a materiality assessment using 'rebuttable presumptions'. Option 4 is changing to adopting an implicit approach to materiality while strengthening the concept of rebuttable presumptions.
Chiara Del Prete told the SRB that the TEG proposed a combination of approaches 3 and 4. This combination would make a number of disclosure requirements mandatory and allow companies not to justify omissions for the remaining disclosures. However, when an entire topic is omitted, companies would then have to justify the omission.
Patrick De Cambourg, President of the Autorité des normes comptables (ANC), said: "I want to express general support for the proposal because it is not easy, it is a compromise and it is reasonable." He added that his support was subject to seeing the list of mandatory disclosures but that the approach would "enable comparability and consistency", and to simplify reporting for SMEs.
The TEG proposal for mandatory disclosure requirements was supported by Wim Bartels, SRB member for Accountancy Europe, who said that it would enable full comparability between reports.
Tegwen Le Berthe, head of quantitative ESG at Amundi, also said that some disclosures should remain mandatory to prevent companies "picking and choosing" and preventing users from seeing important information on environmental and social issues but also that the list of mandatory disclosures should be reduced.
Alessandro d'Eri, senior policy officer at the European Securities and Markets Authority (ESMA), disagreed with having any mandatory disclosures in the standards as he argued that issues deemed to be the most important will likely change over time.
He also warned that list of mandatory disclosures in the TEG proposal would "reintroduce the presumption through the back door", as it would require companies to provide evidence for every mandatory disclosure they haven't reported which would present many of the same problems as the original approach of the rebuttable presumptions.
Marcelo Bianchi, deputy director general at Assonime, argued that materiality assessments should be the "driving criterium of the standards". He, d'Eri and David Vermijs, SRB member for NGOs, all supported option 5 and suggested that EFRAG invest in strong guidance for materiality assessments instead of making disclosure requirements mandatory.
