Key Points
- EFRAG operates two pillars: financial reporting (IFRS endorsement advice) and sustainability reporting (ESRS development under the CSRD).
- EFRAG's December 2025 simplified ESRS drafts cut mandatory datapoints by 61%, with the European Commission targeting a revised delegated act by mid-2026.
- The CSRD designated EFRAG as the sole technical adviser for drafting European sustainability standards, a mandate formalised in 2022.
- EFRAG's endorsement advice determines whether new IFRS standards become law in the EU through the endorsement mechanism.
What is EFRAG?
EFRAG began as a financial reporting body. When the EU adopted the IAS Regulation in 2002, it needed an independent technical filter between the IASB and the European Commission. EFRAG filled that role: it assesses each new or amended IFRS standard against the endorsement criteria (true and fair view, European public good, technical quality) and issues endorsement advice. The Commission relies on that advice before adopting a standard as binding EU law through delegated regulation. EFRAG submitted its endorsement advice on IFRS 18 (Presentation and Disclosure in Financial Statements) in October 2025, recommending adoption.
The CSRD expanded EFRAG's mandate. Article 49(3b) of the amended Accounting Directive appointed EFRAG as the technical adviser responsible for drafting the ESRS. To deliver on this, EFRAG established a dedicated Sustainability Reporting Board (SRB) and a Sustainability Reporting Technical Expert Group (SR TEG), both operating under a public due process with open consultations. EFRAG delivered the first set of 12 sector-agnostic ESRS to the Commission in November 2022; these were adopted as Delegated Regulation (EU) 2023/2772 in July 2023.
EFRAG's funding comes from both the EU budget (through annual grant agreements) and private-sector member organisations. This dual funding model is designed to preserve independence while keeping the standard-setting process responsive to preparers, auditors, investors, and regulators across EU member states.
Worked example: Rossi Alimentari S.p.A.
Client: Italian food production company, FY2025, revenue EUR 67M, IFRS reporter. Rossi is a large undertaking (680 employees, EUR 67M turnover, EUR 41M total assets) preparing for its first CSRD-compliant sustainability statement under the original Wave 2 timeline.
Step 1 — Identify the applicable ESRS framework
Rossi's reporting team reviews the current ESRS requirements. The 12 sector-agnostic standards adopted in Delegated Regulation (EU) 2023/2772 apply. EFRAG's simplified ESRS drafts (submitted to the Commission in December 2025) are not yet adopted. The team confirms that, for FY2025 voluntary early reporting, the original Set 1 standards govern.
Step 2 — Assess Omnibus I scope implications
The Omnibus I directive (published 26 February 2026) raised CSRD thresholds to 1,000+ employees and EUR 450M+ turnover. Rossi has 680 employees and EUR 67M turnover. Under the revised thresholds, Rossi falls out of mandatory scope.
Step 3 — Evaluate voluntary reporting using EFRAG guidance
Rossi's board decides to prepare a voluntary sustainability statement to satisfy a key customer's supply-chain due diligence requirements. The team applies EFRAG's implementation guidance on the double materiality assessment (EFRAG IG 1) to determine which topical standards are material. Climate change (ESRS E1), own workforce (ESRS S1), and business conduct (ESRS G1) pass the materiality gate.
Step 4 — Monitor EFRAG's ongoing standard-setting output
The team sets a review date for Q3 2026 to assess whether the Commission has adopted the simplified ESRS delegated act. If adopted, Rossi will evaluate whether the reduced datapoint requirements (61% fewer mandatory datapoints) change the cost-benefit calculation for continued voluntary reporting.
Conclusion: Rossi's approach is defensible because the scope assessment under Omnibus I is documented, the ESRS version applied is correctly identified, and the voluntary reporting decision traces to a stated business rationale with a scheduled reassessment point.
Why it matters in practice
Firms preparing for CSRD compliance sometimes rely on EFRAG exposure drafts or consultation documents as though they carry the same authority as adopted delegated regulations. EFRAG's technical advice to the Commission is a recommendation, not law. Until the Commission adopts a delegated act, the existing Delegated Regulation (EU) 2023/2772 governs. Auditors who accept sustainability statements prepared under draft simplified ESRS before adoption risk issuing opinions against a framework that does not yet have legal force.
Teams conflate EFRAG's IFRS endorsement role with its ESRS development role, leading to confusion about which governance body applies. EFRAG's Financial Reporting Board handles endorsement advice on IFRS standards. The Sustainability Reporting Board handles ESRS development. Misrouting a technical question to the wrong pillar delays resolution and can produce incorrect conclusions about applicable requirements.
EFRAG vs. ISSB
| Dimension | EFRAG | ISSB |
|---|---|---|
| Geographic scope | EU-focused; standards become binding EU law through the CSRD | Global; standards (IFRS S1, S2) are voluntary unless adopted by national jurisdictions |
| Materiality approach | Double materiality (impact and financial) per ESRS 1 | Single (financial) materiality per IFRS S1.17 |
| Standards issued | 12 sector-agnostic ESRS (Set 1); sector standards in development | Two standards: IFRS S1 (general), IFRS S2 (climate); additional topics planned |
| Legal authority | Technical adviser only; Commission adopts via delegated act | Standard-setter; adoption depends on jurisdictions |
| Assurance linkage | ESRS disclosures require limited assurance under the CSRD from year one | No assurance mandate in the standards themselves |
The distinction matters because multinational groups may face both frameworks. An auditor providing sustainability assurance over a dual reporter must verify that management has not assumed ISSB compliance satisfies ESRS requirements (or vice versa), since the materiality approaches and disclosure scopes differ.
Related terms
Frequently asked questions
What is the difference between EFRAG and the IASB?
The IASB sets IFRS standards globally. EFRAG advises the European Commission on whether to endorse those standards for use in the EU and develops the ESRS under the CSRD. The IASB has no role in sustainability reporting standards within the EU; that function sits with EFRAG under its CSRD mandate per Directive 2022/2464 Article 49(3b).
Does EFRAG set the ESRS or does the European Commission?
EFRAG drafts the technical content and submits it as advice. The European Commission adopts the standards through delegated acts, which then become binding law. The distinction matters because EFRAG's drafts can change during the Commission's review and consultation process. Delegated Regulation (EU) 2023/2772 is the legally binding version of Set 1.
When will the simplified ESRS become mandatory?
EFRAG submitted its technical advice on simplified ESRS to the Commission on 3 December 2025. The Commission targets adoption of the revised delegated act by mid-2026, with mandatory application for financial years beginning on or after 1 January 2027. Voluntary early application for FY2026 may be permitted, subject to the delegated act's final terms.