The adoption of the Corporate Sustainability Reporting Directive (CSRD) in 2022, and subsequently the European Sustainability Reporting Standards (ESRS) in 2023, marked a historic change in the requirements for companies to report sustainability-related information about their operations.
Updates on the ESRS and the CSRD Directive
Since the adoption of the ESRS, proposals have been made at EU legislative and policy level that companies should consider as they may affect their compliance obligations.
The proposals were, 1) a group of Members of the European Parliament (MEPs) raised an objection against the ESRS on the grounds that their burden was too high for companies. In turn, 2) the Commission has proposed in its 2024 work program to delay from June 2024 to June 2026, the publication of sector-specific European Sustainability Reporting Standards (SS-ESRS) and finally, 3) the Commission has proposed a change to the Accounting Directive thresholds classifying small, medium, and large entities, which will come into effect for fiscal years starting from 2024.
Three key conclusions:
1. Not everything has been delayed
Neither the ESRS rules adopted this year nor the ESRS reporting deadlines set out in the CSRD have been changed. At present, only the additional ESRS-ESRS may be delayed. However, the change in thresholds may “disqualify” some companies from the need to report at all.
2. SSRS remains in limbo
Although the European Parliament may consider postponing the SSRS, there is no guarantee that it will eventually do so. The CSRD proposal was backed by a significant majority in the Parliament’s legislative vote. As parties prepare for the May 2024 elections, it is anticipated that sustainability will be a crucial issue. While some groups may advocate for reducing administrative burdens in difficult times, others may face challenges in relaxing sustainability targets.
3. The range of companies included in the scope of the Accounting Directive may change
The thresholds of the Accounting Directive have not changed since 2013. Given that the changes proposed by the Commission are in line with inflation over the last two years, the proposed change to the thresholds seems proportionate and justified.
What are the steps that companies should take at this stage?
Firms should continue their preparations to comply with the CSRD and ESRS rules, given that the proposed delay only impacts sector specific ESRS, and the objection against ESRS was rejected. It is essential that companies prepare to comply with reporting requirements and other essential obligations, such as conducting a double materiality assessment.
In case changes to the thresholds are implemented, companies should assess their potential impact of such changes.
The EFRAG conference “European Corporate Reporting – Two Pillars for Success” took place on 28 November at the Hotel Brussels with new proposals and views from sustainability and regulatory experts.
During this event, perspectives were shared on the challenges facing the field of sustainability reporting, as well as developments in financial reporting and current trends in linking the two areas. Highlights of the conference included:
1. iXBRL Taxonomy Development for ESRS: Highlighting the significant progress in digital reporting with the finalisation of the draft iXBRL taxonomy for ESRS, a crucial step towards more accessible and efficient electronic reporting.
At the conference, Richard Boessen, Senior Manager Digital Reporting at EFRAG shed more light on the development of iXBRL for ESRS such as the;
- Granular and Expressive Taxonomy: The resulting iXBRL taxonomy is granular and expressive, with a wide range of numerical and textual elements, allowing smaller and separate disclosures to be tagged, enriching unstructured reports with additional semantic meaning.
- Interoperability Maps between GRI, ESRS, TNFD and ISSB: Interoperability maps showing the correspondence between concepts and disclosures in the GRI, ESRS, TNFD and ISSB frameworks are being worked on. The objective is to avoid double reporting and to align ESRS reporting with IFRS standards, especially on climate change issues.
2. Strategic Integration of Financial and Sustainability Reporting: Emphasizing the importance of merging financial and sustainability data to provide a complete view of business performance. This not only meets evolving regulatory requirements, but also provides a holistic view for investors and stakeholders.
3. Improved Transparency and Consistency: Emphasizing the importance of improving transparency and consistency in corporate reporting, especially in relation to climate risks and sustainability metrics, to meet the demand for clear and reliable information.
4. Implementation Challenges: Recognizing the implementation of new reporting standards as a significant challenge, especially adapting internal systems and training staff on new methodologies in an evolving regulatory environment is a crucial task.
These components not only represent the current state of play in business evolution, but also indicate a direction for the future in which transparency, sustainability and efficiency in reporting become inescapable imperatives for long-term corporate success.
Prisicila Scheel | Decarbonization Head