EC bows to pressure and delays sustainability reporting standards

Europe’s corporate risk managers will be relieved to hear that the EC has responded to mounting pressure from European business to cut red tape and reporting requirements, particularly those governing ESG, by delaying the introduction of the second set of standards under the Corporate Sustainability Reporting Directive (CSRD) by two years. The sector-specific European Sustainability Reporting Standards (ESRS) were supposed to be implemented in 2024 but will now not arrive until 2026. The first set of sector-agnostic ESRS rules, which were adopted in July of this year, will still apply in 2024. But the second set of rules outlining sustainability information relating to the industries in which companies operate have been put back. European risk managers will be well advised to refer to their legal and accounting teams to clarify exactly what they will need to report next year and what has been delayed to ensure full compliance. The revised rules still need the green light from the European Parliament and, as reported in Commercial Risk earlier this week, there is mounting support for the CSRD to be watered down as European businesses face up to intense global competition. But the Commission has clearly listened to the mounting calls for less red tape in a difficult global trading environment. As it announced its 2024 Work Programme, the EC said: “The Commission is putting forward concrete proposals to reduce the reporting burden for financial market participants. One of them is to propose a two-year delay of the date of adoption of the sector-specific ESRS, currently required in 2024. This also responds to a demand from the corporate sector.” The Commission said that its strategy on long-term competitiveness sets out a goal of reducing reporting requirements by 25%, “without undermining the policy objectives of the concerned initiatives”. To achieve this goal, it has sought to simplify reporting requirements and the new Work Programme puts forward additional simplification proposals in a range of policy areas. “The envisaged simplifications will streamline reporting requirements that are of limited use, for example by consolidating overlapping obligations, reducing the number of businesses concerned and increasing digitalisation,” said the EC. The Commission said that its change in tack is mainly designed to help smaller companies. “Reporting requirements can… impose disproportionate burdens on stakeholders, particularly affecting SMEs and micro-companies. Companies therefore should be given sufficient time to prepare for any new reporting requirements. The cumulation of reporting requirements over time can result in redundant, duplicating or obsolete obligations, inefficient frequency and timing, or inadequate methods of collection,” it admitted. “Streamlining reporting obligations and reducing administrative burdens is therefore a priority. In this context, the proposal will rationalise reporting obligations by postponing the adoption deadline for sustainability reporting standards for certain sectors and for certain third-country undertakings,” added the EC. The Commission said that postponing the adoption date by two years is relevant for companies that fall under the scope of the CSRD, including listed SMEs, required to carry out sustainability reporting. “This will allow these companies to focus on the implementation of the first set of ESRS adopted on 31 July 2023, and ensure that EFRAG [the accounting body that designs the standards] has time to develop sector-specific ESRS that are efficient, and limit the reporting requirements to the minimum necessary,” it said. Despite its apparent climbdown under pressure from the embattled European business lobby, the EC was keen to stress that the changes would not scupper its overall sustainability reporting aims. “The proposal is part of a first package of measures to rationalise reporting requirements. This is a step in a process looking comprehensively at existing reporting requirements, with a view to assess their continued relevance and to make them more efficient. The rationalisation introduced by this measure will not negatively affect the achievement of the objectives in the area of sustainability reporting. The proposal is also consistent with the SME Relief Package,” said the EC. BusinessEurope, the federation that represents Europe’s employer associations, will presumably be pleased with the latest news from Brussels. Spain currently holds the presidency of the European Council and in mid-September held a conference of European business leaders in Madrid hosted by the Spanish Confederation of Business Organisations (CEOE) and attended by Pedro Sánchez, acting prime minister of Spain. Fredrik Persson, president of BusinessEurope, gave an impassioned speech at the event asking for relief from the “tsunami” of regulations and reporting requirements facing European businesses. “The EU is generating ‘regulatory inflation’ for companies. These regulations come with many obligations, including substantial reporting requirements and sometimes very broad definitions that increase the sense of unpredictability and uncertainty. This is an even bigger problem for SMEs that struggle with resource constraints,” said Persson. “The ongoing work in the European Commission to reduce reporting requirements for companies by 25% is a good step, but we need to go beyond and have a true debate and firm actions to stop this regulatory tsunami and the micro-management of companies that comes with it,” he added. Persson said that regulations should not stifle investment and innovation. Instead they should have a positive impact on the economy and promote public-private partnerships that support the green and digital transformations, he added.

EC bows to pressure and delays sustainability reporting standards

Sector-specific CSRD deadline extended by two years

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