Lessons Learned: making reporting easier to support business competitiveness

Public hearing on Reporting Obligations by the Committee on Legal Affairs, European Parliament

Filip Gregor, Head of Responsible Companies Section at Frank Bold Member of the Sustainability Reporting Board at EFRAG

13 May 2025

Mr. Chair, esteemed members of the Committee on Legal Affairs,

Thank you for inviting me to this hearing.

I have been professionally engaged in corporate sustainability reporting since 2006. 

As the Head of the Responsible Companies department at Frank Bold, I have led large scale research projects in this area, including an analysis of the disclosures of the EU’s 1000 largest companies according to the original Non-Financial Reporting Directive. In addition, I serve on the EFRAG Sustainability Reporting Board, nominated by civil society. I also work directly with companies on practical implementation of sustainability reporting, including complex multinational groups, as well as small mid-caps.

Over the course of my career, I have been consulted by the European Commission and the members of the European Parliament at various pivotal moments of the development of the European framework for sustainability reporting. 

This development started with the Communications on Corporate Social Responsibility (CSR) in 2002 and 2006, which tried to define what CSR is and encourage the increase of voluntary sustainability reporting. Following the 2008 Global Financial Crisis, the European Commission recognised in its 2011 “Renewed EU Strategy for CSR” the need to improve company disclosures, and the EU eventually adopted the EU Non-Financial Reporting Directive (NFRD) in 2014.

There has been a growing recognition that climate and other sustainability-related risks will have a major impact on the European economy, as well as the global economy at large, but these risks are not recognised in reporting, risk management or in the financial markets.

Mark Carney - during his time as governor of the Bank of England - explained this problem and suggested ways forward in his 2015 speech “Breaking the tragedy of the horizon - climate change and financial stability”. Private initiatives have tried to address this issue by developing new reporting frameworks - such as the Task Force on Climate-Related Financial Disclosures - and by bringing existing voluntary reporting standards and standard-setters together, including the Global Reporting Initiative, Climate Disclosure Project, Sustainability Accounting Standards Board, and International Accounting Standards Board (which develops the IFRS).

These initiatives helped to set the strategic course for sustainability reporting. But they also resulted in a complex web of different reporting expectations, frameworks and even core principles.

Sustainability reporting before the CSRD

In this context, we examined the NFRD statements of 1000 large and influential EU companies in 2020. 

Our results showed that: 

• Companies reported on a wide range of sustainability topics - from climate change to human rights and supply chains - even though the NFRD did not provide standards that would require them to do so
• We therefore analysed over 500 datapoints to adequately assess the quality of corporate sustainability disclosures
• The research confirmed major problems with the comparability, completeness, and relevance of the sustainability information presented.

Besides that, these reports tended to be very long and often focused on information which is not very relevant - such as static policies and commitments. In other words, some of the problems reported from ESRS implementation originate from previous practice, rather than being necessarily caused by the standards.

In 2024, we carried out a focused research on the last batch of “NFRD” statements before the CSRD entered into effect. 

• 15% of companies briefly explained what specific material impacts they have. The remaining 85% only indicated generic sustainability topics and did not explain how they relate to their impacts and risks, or did not indicate their material matters at all.
• About half of companies provided information on their “Scope 3” GHG emissions in line with the principles of the GHG Protocol. 33% provided Scope 3 GHG emissions that did not cover their expected significant categories of emissions. Such data are not relevant and comparable at best, but they can also be considered grossly misleading.

We are currently analysing the first batch of CSRD reports. What we can already see is that the structure, understandability and quality of the information is significantly improved.

Implications for the Omnibus

The lessons from the past two decades show that legislation such as the CSRD, supported by clear standards, is indispensable in ensuring high quality ESG data. Furthermore, the scope of the companies covered was clearly not sufficient to have the intended effect on the market, as well as on transparency.

 Taking a broader perspective on competitiveness:

•  European companies reporting through CDP identified €3.47 trillion in climate opportunities – far outweighing the €620 billion in costs to realise them. Competitiveness means spotting and capitalising upon opportunities early, and you can’t do that without robust data on sustainable business practices.
• Implementation of the CSRD requires effort by companies, but the costs still remain small in the context of the companies’ overall turnover, profits and the shareholder value they generate. 
• It is important to take into account that this was in large part because companies had to change their practice, as the overall quality of the sustainability information was not good - this burden will subside in the coming years. 

The question, of course, is how the Omnibus can make it easier for companies to implement sustainability reporting. 

First, let me say clearly that I agree with the objectives stated in the Omnibus to make implementation as easy as possible for companies, whilst not undermining the objectives of the sustainability legislation.

There are sensible and effective ways to achieve this goal. But there are also changes that would not lead to the desired outcome.

To this end I would like to offer four main recommendations to the Committee:

1. ESRS can be significantly adapted and streamlined based on the companies’ experience. This is the most effective way to reduce the burden, because it builds on the direct input from companies. There is a consensual vision quickly forming in this regard.

1. The examples of best practice of ESRS implementation include large companies in the Nordics which were able to produce sustainability statements of 50 pages. 
2. The biggest problems in practice were caused by implementation of flexible requirements (in particular on materiality assessment and management of impacts and risks). These requirements ask companies to exercise judgement, which has been misunderstood by many preparers and auditors as requiring overly complex processes, evidence, and meaningless disclosures. 
3. The volume of the standards can and should be significantly reduced, in order to make it easier for preparers and auditors to understand them. As demonstrated by the “listed SME” standard developed by EFRAG, the ESRS themselves can be radically simplified, without losing their core value and coherence. 
4. However, there is not a simple linear relationship between the reporting burden and the number of datapoints. For some disclosures, datapoints provide clarity and ease the reporting burden. Other - complicated and complex - disclosures, such as on GHG emissions or materiality assessment process, are regulated only by a handful of datapoints. For each area, it is key to consider what is driving the reporting burden. It is not always a matter which can be easily determined in Level 1 legislation.‍

2. Sector guidance is urgently needed to help practitioners determine material matters, and to ensure relevant information for users. 

1. In the first wave, companies from the same sector with the same business model often reported very different sets of material topics. 
2. Furthermore, some of the challenges identified by the first wave of companies implementing the CSRD can only be addressed at sector level. 
3. Focusing on guidance, rather than the immediate adoption of sector standards would provide clarity whilst avoiding the pitfalls of regulation and overburdening less mature companies.

‍3. Mid-cap companies need to report information beyond the voluntary SME standard (VSME). 

1. The VSME does not provide any guidance on how mid-caps should report on risks and severe impacts, which they often find to be a necessity. Mid-caps that have tried to apply the VSME find themselves needing to check for Set 1 ESRS, and other standards to get adequate guidance on identification of material risks and impacts in their operations and value chains.
2. The VSME was designed to identify basic ESG data, which banks and investors need even from micro undertakings for calculating their own aggregated KPIs. 
3. This in effect, would also worsen the ability of companies under the scope of the CSDDD to effectively map impacts without directly engaging with suppliers and asking them questions - which is the very outcome that the value chain cap tries to prevent. 

4. The value chain cap - as proposed- would not deliver the intended outcome, but would create a very chaotic legal system and lead to arbitrary requests. There is an effective solution to managing the excessive information requests, which involves the following:

1. The Corporate Sustainability Due Diligence Directive should clarify that companies should follow a risk-based approach in their mapping exercise, and that they may rely on secondary information rather than primary data. Currently, a large part of the information requests is driven by the German supply chain act, which instead causes companies to focus on Tier 1 and the compliance approach, at the expense of prioritisation and the risk approach.
2. In the CSRD, it would be helpful to clarify that the value chain information is required only for severe impacts, common sustainability matters in the sector, and for data necessary to calculate GHG emissions.
3. In the ESRS, the requirements for materiality assessment and value chain reporting should better reflect the principles I’ve just covered.

Thank you for your attention.

[Please note that minor modification may have taken place during the speech to fit the allocated time during the hearing.]