Reflecting on feedback received from the consultation on its ESRS, EFRAG sustainability reporting board (SRB) looked for alternatives to the hotly debated 'rebuttable presumptions' at its latest meeting on 2 September.
Under the proposed standards the approach to materiality has been termed 'explicit' and will require all companies to report on every disclosure unless they provide evidence that a particular topic is not material. This approach to materiality is referred to as 'rebuttable presumptions' and has been opposed by stakeholders at outreach events and in comment letters.
Some board members share stakeholders' concerns over this approach, like Wim Bartels, chair of the sustainability policy group of Accountancy Europe, who told the SRB: "We know from the feedback that many are not in favour of the rebuttable presumptions and I personally see a lot of issues with explaining why something is not material. I think that creates real issues for all of us."
Board members discussed how to develop a 'light explicit' approach to materiality which would require entities to disclose the items assessed as not-material but would not require them to include a justification for those items being omitted from the report.
Bartels strongly supported this 'light' approach, which he referred to as an "in-between approach".
Grégoire de Montchalin, SRB member for insurance, was also supportive of the idea but argued that EFRAG would need to give more guidance to companies on how it would work.
However, Stefan Scnell, SRB member for general business and Begona Giner, SRB member for civil society and academics, both said that they would favour an implicit approach to materiality over 'light explicit'.
This would allow companies to do a materiality assessment and only report on what they decide is material, which Scnell and Giner argued would reduce the complexity and reporting burden for companies.
A key argument against the implicit approach is that it would give companies too much leeway to omit key disclosures without justification.
But Scnell said there would be checks and balances through the audit. "[Companies] will still need to justify what they do to the auditor so that will be a very clear boundary," he said.
Patrick de Cambourg, chair of EFRAG's Project Task Force on ESRS, agreed that auditors will help create a "really good environment for proper accountability by entities", but added that auditing standards will need to be further developed to help auditors with materiality assessments.
However, others were more wary of a fully implicit approach. Annina Tanhuanpää, SRB member for banking, argued that it could mean that some reports ignore the needs of wider stakeholders. She said: "I would somehow try to find a compromise where we take into account the views from the external needs and then combine it to the company's own materiality assessment."