EFRAG publishes paper on connectivity and reporting boundaries

The European Financial Reporting Advisory Group (EFRAG) has published a paper “Connectivity Considerations and Boundaries of Different Annual Report Sections” as part of its proactive research project on aligning financial and sustainability reporting. The paper introduces the concept of “connectivity”, which aims to link sustainability and financial reporting more effectively. It looks at how reporting in different sections of the annual report can be harmonized to reduce duplication and improve coherence.

Key benefits include enhancing the complementarity of sustainability and financial information, filling information gaps, improving the predictive value of sustainability disclosures, and supporting strategic communication within reports. The paper also highlights grey areas such as climate-related obligations, unrecognized intangible assets and synergies from M&A transactions, and recommends solutions such as the use of XBRL technology and the development of a sustainability reporting framework.

Next steps:

EFRAG plans to publish a discussion paper with illustrations of the linkages. Companies should prepare to adapt their reporting processes in line with EFRAG’s guidance and ensure that their financial and sustainability reporting practices are consistent and aligned with ESRS and ISSB standards.

Recommendation:

Companies should review the paper to better understand the principles of connectivity and apply these concepts to improve their annual reports. By addressing reporting gaps and overlaps, companies can improve transparency and comply with evolving EU and international sustainability reporting requirements.

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