The Platform on Sustainable Finance (PSF), an expert group mandated by the European Commission to advise it on the development of sustainable finance policies, announced the publication of its response to the European Commission’s consultation on the revised European Sustainability Reporting Standards (ESRS).

While broadly supporting the revisions, which it said “contribute to a more proportionate, user-friendly, and globally interoperable sustainability reporting framework,” the PSF also warned in its response that some of the changes risk placing the ESRS below the baseline of other global sustainability reporting standards, in areas such as scenario analysis requirements, financed emissions disclosures for financial institutions, and reporting reliefs.

The response said that the revised ESRS’ shift to optional scenario analysis from mandatory was “especially concerning, as it could significantly weaken climate resilience assessments.”

In a post announcing the release of the consultation response, the PSF said:

“The ESRS requirements must meet – and where appropriate exceed – international ambition. ESRS standards should not below the global baseline.”

The publication follows the release in early December by EFRAG (the European Financial Reporting Advisory Group) of its finalized proposed revision of the ESRS, aimed at significantly simplifying and reducing sustainability reporting requirements for companies under the EU’s CSRD regulation. The simplification of the ESRS formed a key part of the European Commission’s Omnibus I initiative aimed at significantly reducing the sustainability reporting and regulatory burden on companies.

The revised ESRS introduced a series of significant changes to the standards, including reducing mandatory datapoints by 61%, and eliminating all voluntary disclosures, increasing flexibility for companies to use estimates and reducing pressure for direct data collection from suppliers, as well as providing expanded reliefs and phase-in flexibilities for companies.

Following the publication by EFRAG, the European Commission consulted the PSF on the proposed revised ESRS, with the PSF carrying out an assessment of the usability of the updated standard and its integration within the wider EU sustainable finance framework.

The PSF’s response broadly welcomed the revisions, which it said “made meaningful progress in improving the structure and usability” of the ESRS, but noted that “despite these advances, further simplification depends on strengthening the integration of the ESRS within the wider EU sustainable finance framework, notably with the EU Taxonomy.”

The consultation response included a series of recommendations, including the undertaking of a mapping exercise by the PSF and EFRAG to improve the consistency and connectivity between ESRS and the Taxonomy Regulation, which the PSF advised would add to the simplification objective by reducing reporting duplication by allowing overlapping data points to be used for both frameworks.

Additional recommendations included developing a voluntary standardized transition plan template for non‑financial companies as part of ESRS reporting, allowing for a stronger integration of EU taxonomy‑related information into ESRS climate transition plan disclosures, and improving consistency in terms of definitions, scope, and underlying methodologies between the ESRS and the SFDR and Benchmark Regulation.

The PSF document also includes a series of recommendations for the Commission to allow for voluntary ESRS-aligned sustainability reporting, noting that the Omnibus process resulted in the removal of most companies (estimated between 85% – 93%) from the scope of the CSRD by lifting the threshold of the regulation to companies with at least 1,000 employees and more than €450 million revenues.

While noting that the Commission intends to adopt a Voluntary Standard (VS) for SMEs and companies with up to 1,000 employees that will effectively replace the current voluntary standard for SMEs (VSME), the PSF said that “some large, listed companies may wish to continue reporting against the ESRS, or to report selectively on certain indicators or datapoints – for instance, to enhance eligibility for sustainable or transition-focused financial products.”

Recommendations included ensuring that the new VS does not prevent large companies from voluntarily reporting under the ESRS, while including provisions that “prevent selective or alternative disclosures that diverge from ESRS definitions and methodologies” in order to avoid greenwashing risk, while also “not discouraging partial voluntary reporting where such information remains useful to investors.”

Click here to access the Platform’s consultation response.