EU urged to rethink ‘hugely problematic’ disclosure rules
Firms weigh up pros and cons of non-compliance with CSRD in light of impracticalities
The European Commission and its advisors are being asked to overhaul the bloc’s new ESG reporting law to make it possible for more companies to comply.
Europe’s largest firms are required to disclose in line with the Corporate Sustainability Reporting Directive by next year, but some are considering whether it is worth the effort, according to research published yesterday.
London-based constancy SB+CO canvassed senior sustainability and corporate reporting specialists at more than 60 companies covered by the new EU law, including in-depth interviews with around 30.
It concluded that “for earlier disclosers, the scale and scope of the exercise, combined with the very short time frame in which they have to prepare for disclosure, is proving almost impossible in terms of the resource, time and knowledge required”.
One unnamed executive told SB+CO that “several businesses” were debating whether the financial penalties of not complying with CSRD outweighed the cost of compliance over the first few years.
The report noted that some practitioners surveyed were “relaxed” about non-compliance, because they didn’t expect supervisors to take punitive actions against entities in the first few years of the law being introduced.
Another respondent said the lack of clarity about how thorough companies should be when reporting under the rules meant “it’s pretty tempting to just do a really bad job the first time round, rather than waste time right across the business”.
This was echoed by another, who argued the lack of clarity meant “our response is therefore to try and do the minimum viable exercise to meet the legal requirement, because going beyond that could just be wasted effort when it’s not clear what we should be aiming for”.
Auditors and law firms to cash in
SB+CO warned that the “real winners” from CSRD were the major accounting, assurance and law firms, who it claimed were exploiting the sense of uncertainty among reporting entities, and creating “unnecessarily complex processes”.
One of the interviewees reported being quoted an assurance fee of £10,000 per CSRD metric by one of the ‘big four’ accounting firms.
“With circa 600 metrics to report against, that’d be nearly double the cost associated with the financial audit for the entire company,” the respondent said. “That just can’t be right.”
The report’s authors called on the European Commission and the body that advises on its sustainability reporting rules, known as EFRAG, to clarify the expectations around assurance.
EFRAG came under fire during the interviews for not representing the views of practitioners, with one respondent saying the group’s members were “regulating on topics they don’t know enough about” while a number of others argued its guidance on how to determine which topics to report on in the first place was too vague to be helpful.
Last week, EFRAG appointed 12 new members to its Sustainability Reporting Technical Expert Group, with a stronger focus on corporate representatives. Now, members include Vanya Rusinova, from Danish energy company Orsted; Giulia Genuardi from Italy’s Enel; and Klaus Hufschlag from Deutsche Post DHL Group in Germany.
SB+CO said the EU should extend the timeline for CSRD implementation, get more input from practitioners, improve EFRAG’s ability to communicate with the market, and provide more clarity on materiality assessments – including developing sector-specific guidance.
New guidance on CSRD
Yesterday, the Global Reporting Initiative, with backing from European Parliament, launched a “definitive guidance” to the CSRD, which can be found here.
The European Commission is expected to publish an official Q&A on the CSRD in the run-up to the July 6th deadline for transposing the Directive into national law.