A whirlwind fortnight for the EU's sustainability reporting rules
There are officially 1,178 data points in the European Sustainability Reporting Standards (ESRS).
That’s according to an Excel document published this week by EFRAG, the group advising the European Commission on the standards.
The breakdown explains what’s covered under each ESRS requirement, and is meant to help companies identify gaps in their existing reporting. It identifies three types of data point: numerical, narrative and non-numerical but still comparable.
EFRAG also launched a ‘Q&A Platform’ this week, where entities can ask its members technical questions about implementing the ESRS, and they can respond with “non-authoritative” answers.
The platform and the Excel document are among a flurry of developments that have taken place around Europe’s sustainability reporting rules in the past fortnight, and there is more to come: over the next couple of weeks, EFRAG is expected to launch a brief consultation on draft guidance for dealing with materiality assessments, SMEs and value chains under ESRS. The documents were published this week.
But in other areas, things are slowing down. Last week, the European Commission confirmed it will delay the introduction of 10 sector-level standards under ESRS by two years.
Originally scheduled for June 2024, the Commission initially said in September it planned to push the deadline for the sector standards back, meaning EFRAG will consult at the end of 2024, or early 2025, and the Commission will introduce a proposal in June 2026.
The reason, it said, is to give companies in scope of the Corporate Sustainability Reporting Directive (CSRD) more time to work with the first set of sector-agnostic standards, released over the summer, and to reduce their reporting obligations.
On the latter, the Commission launched a call for evidence on plans to “ease burdensome reporting requirements for businesses (particularly SMEs)”.
Filip Gregor, Head of the Responsible Companies Section at Brussels-based law firm Frank Bold, acknowledges “very real concerns about the reporting burden for companies”.
But, he adds: “The sector-specific standards are not meant to make life more difficult for companies. On the contrary, they're supposed to make reporting easier - especially when it comes to the materiality assessments that are now so central to ESRS.”
Most of the costs associated with reporting under CSRD come from building the necessary internal systems and teams, and paying for audits, he continues, but “that will all have to happen anyway, so the sector specific standards shouldn't make it notably more difficult or expensive for companies".
While some people see the delay as a sign of dwindling ambition by the Commission, however, Gregor notes that “the political mood in Brussels right now is such that it's better to take a little bit of time to prepare the sector standards well".
Attempts to weaken CSRD
That political mood has been playing out in the European Parliament, too, where last week there was a last-ditch attempt to veto the ESRS delegated act.
Led by centre-right politicians, the proposal didn’t get through (and the scrutiny window closed on Saturday, so the ESRS is now safely through the legislative process), but it reflects growing national and EU-level rhetoric around protecting people and business from sustainability-related policies.
At EU level, most of that unrest is coming from France and Germany, and last week’s interventions didn’t stop with Parliament.
“The German representatives in the Council came up with a proposal for a new definition of medium-sized companies,” explains Richard Howitt, former MEP and corporate reporting specialist, referring to a request for an additional category to be created for ‘small mid-caps’. This would essentially mean that firms with under 500 employees and €150m turnover would be exempt from full CSRD reporting.
The Commission has made it clear it won’t pick the proposal up this side of next year’s European elections, but it’s possible it could be revived under the next Commission.
As a result, Howitt says, “there will be no practical application for at least the next two years, with considerable uncertainty even then”. But if it was implemented, he predicts it could remove some 20,000 entities from the 49,000 currently covered by CSRD.
Frank Bold’s Gregor estimates that the move "could carve out a third of companies under CSRD".
The Commission has already made concessions for smaller companies, introducing carve-outs into the ESRS over the summer.
It’s also planning to reduce the number of companies in scope of CSRD by nearly 7,000. This has nothing to do with sustainability reporting: it’s because the Commission wants to raise the thresholds for firms under the Accounting Directive, to account for inflation. But it is expected to cut 6,800 ‘groups’ and 11,000 entities (including subsidiaries etc) out of the reporting rules - although the number will still be higher than when CSRD was first proposed.