CSRD: Carbone 4 Takes a Stand on the Revision of the ESRS

The CSRD Directive^[1], whose goal is to standardize corporate sustainability reports by proposing ESRS sustainability standards^[2], has been called into question this yearthrough the proposed "Omnibus" European directive, even as the first sustainability reports from so-called “first-wave” companies were being released (For more information on the initial implementation schedule, see our previous article). With the aim of reducing the administrative burden associated with social and environmental requirements for European companies, the Omnibus proposals on the CSRD primarily concerned changes to the applicability thresholds, the implementation timeline, and the simplification of the ESRS standards specifying disclosure requirements.

At this point, only the “Stop the Clock” directive has been adopted in April, postponing the first CSRD reporting deadline by two years for the second and third waves of companies subject to the directive. In a challenging economic climate, a direct consequence of this measure could be a reduction in the sustainability goals and budgets allocated by these companies in the short and medium term.

In July, EFRAG^[3], an advisory body to the European Commission, has published its recommendations for amendments to the ESRS standards. These revised versions were open for public comment through September 29. Carbone 4 responded to this consultation and provided its an opinion on EFRAG's proposals. Here we summarize our position.

Carbone 4's Position

Carbone 4 highlights the high-quality work carried out by EFRAG in a short period of time. This simplification effort is a real balancing act; reconciling simplification with maintaining a level of ambition commensurate with today’s challenges was no small feat, and the effort was carried out very well.

In terms of format, the standards are generally more consistent and easier to read. The overall structure of the standards has been improved (application requirements are now distributed throughout the text, and mandatory and optional data points have been separated with the creation of the new non-mandatory Implementation Guide, known as “NMIG”^[4],) and Redundancies between the ESRSs have been removed. A work ofimproved interoperability A comparison with other frameworks, such as IFRS and the SFDR, has been conducted, which is useful for optimizing companies’ efforts and ensuring regulatory convergence.

In terms of content, the main data points (“ data points ") have been preserved. For example, the decarbonization pathway continues to be based on a 1.5°C scenario. Many gray areas have been clarified, particularly regarding the dual materiality analysis (definition of material information, the possibility of adopting an approach top-down or bottom-up To conduct the analysis, consider the IROs^[5] gross rather than net, etc.).

Beyond these necessary and useful changes, Carbone 4, however, raises several points that would be worth clarifying or adjusting.

General Standards – ESRS 1 & ESRS 2

The proposed amendments in Annex C of ESRS 1 (Appendix C: Assessing Actual and Potential Negative Impacts for Materiality)complicate the double materiality analysis, a process that is not intended to be conducted annually. EFRAG introduces the concepts of current and potential impacts, as well as the analysis of impacts before and after the implementation of actions. We believe it is more practical to conduct the double materiality analysis on gross IROs (i.e., without taking into account the actions implemented to address them) and then to reassess only the net IROs annually (i.e., taking into account the actions implemented and their results).

The definition of “disproportionate cost or effort” for the company leaves too much room for interpretation and opens the door to the possibility of drastically reducing the efforts made by companies on sustainability. It would be necessary to clarify this definition and require companies to explain precisely and systematically why a specific cost or effort related to a material issue was deemed excessive. Why not put this into perspective by comparing it to the resources allocated to financial reporting?

Environmental Standards – ESRS E1, E2, E3, E4, E5

Although clearly defined, the interactions among ESRS environmental standards still lack operational recommendations to help businesses address issues that fall under the purview of multiple ESRS. For example, if I use pesticides, which undoubtedly have an impact on biodiversity—which is, incidentally, essential to my business—can I address pollution as a biodiversity issue, or must I necessarily treat pollution as a separate issue in its own right? And in which section of my sustainability report should I address this topic to avoid redundancy?

With regard to water, biodiversity, and resources, we suggest explicitly mentioning the assessment of “DIROs,” not just “IROs.”. Beyond the impacts (I), the analysis of the dependencies (D) companies' attitudes toward nature are essential for identifying and analyzing the risks (R) and opportunities (O) to which they are exposed.

Beyond climate change, it is essential that issues related to water, biodiversity, and resources be analyzed in terms of their anticipated financial impacts. Simplifying the general requirements in this area is essential (particularly the option to adopt a quantitative or qualitative approach), but we believe that the lack of financial analysis for issues related to water, biodiversity, and resourcesis problematic. These analyses are, in fact, very useful for making informed strategic decisions and transforming a company’s business model. This also supports the convergence of financial and non-financial reporting.

In general, the removal of a large number of data points from non-climate-related environmental ESRS seems too drastic. It would be preferable to reinstate certain data points that are essential for a proper understanding of a company’s environmental performance, such as the list of sites located in water-stressed areas, or policies regarding the integration of biodiversity into the design of products and services.

The next steps in this review

By the end of November, EFRAG willwill submit an official proposal to the European Commission to revise the ESRS. Once the revised ESRS standards are adopted by the European Commission, the European Parliament and the Council will have two months to object. The new standards could thus take effect in early 2026.

A Final Word

The work carried out by EFRAG appears to meet companies’ expectations for a more practical and less restrictive framework.

However, while the CSRD is a crucial tool for guiding companies, this transformation cannot take place without their commitment and effort. The changes required are significant, but necessary to balance profitability with organizational resilience.

Companies cite the difficulties they face in acting on their own without risking the loss of their competitive advantages, and are turning to public authorities to set the rules for the transition; this text lays the groundwork for an economy that is more environmentally and socially just. Ambitious non-financial reporting is essential for a A Sovereign and Sustainable Europe.

For now, let’s keep in mind that competitiveness and sustainability are two sides of a functional European economy. Reporting is not an end in itself, but a means of kickstarting the transition among economic actors.

For more information on the revised ESRS standards, visit the EFRAG website: Click here

Carbone 4 helps its clients understand and align with the CSRD: Check out our CSRD offers on our website.