EFRAG Sustainability Reporting Technical Expert Group (SR TEG) has proposed clarifying transition plan disclosures in ESRS E1 on climate by asking companies to report on how their transition targets align with the goals of the Paris Agreement, but some EFRAG Sustainability Reporting Board (SRB) members questioned the robustness of such a disclosure.
One part of the proposed amendment to the climate standard would require entities to provide an explanation of how its targets align with limiting the rise in global temperature by 1.5°C.
The 2015 Paris Agreement's long-term temperature goal is to keep the rise in mean global temperature to well below 2°C above pre-industrial levels, and preferably limit the increase to 1.5°C.
Stefan Schnell, SRB member for general business, said that he wasn't sure the standards would have the legal or formal backing to enforce this target as individual organisations and jurisdictions have their own emission reduction targets.
Tom Dodd, head of sustainability reporting at the European Commission, said that he could not provide an answer on the EU's mandate to enforce a specific temperature reduction target and would have to discuss the matter with the Directorate-General for Climate Action.
EFRAG TEG member, Eric Duvaud, who presented the proposals to the SRB said that he agreed with this concern but said it wasn't "a reason for not moving forward" with the proposal.
Simon Braaksma, SRB member for the Netherlands, questioned how companies' climate pledges can be verified as the Science Based Target Initiative, which he described as the gold standard for verifying climate pledges, would take too long to process the 49,000 companies in the scope of the ESRS.
Duvaud responded: "It will be the responsibility of the auditor to make sure that the way the target has been set is embedded into the financial planning."
Other proposed changes to the standard's exposure draft include: Allowing for flexibility on target timelines until 2030 and then have five-year rolling periods, simplifying decarbonisation levers by merging targets and actions into one table and merging Scope 1, 2, 3 and total greenhouse gas emission into one disclosure requirement.
The proposals were questioned by TEG member, Luca Bonaccorsi, who said that whilst ESRS E1 required more data points than the other environmental standards, they were easy to comply with and already required in law and therefore didn't need to be reduced.
"We are not adding almost anything to what is already in European law and certainly nothing that is best practice," he said.
Schnell expressed concern that the proposal would only merge the disclosure requirements and would not significantly reduce the number of data points.
The SRB acting chair, Kerstin Lopatta, responded to Schnell that Duvaud will provide the specific datapoints that will be removed later in the week to provide details on what has been reduced.
The board will make a decision on the proposals after Duvaud presents the proposed final data points in the standard and when every board member is present.
