News of potential delays to key deadlines under the Corporate Sustainability Reporting Directive (CSRD) will be met with relief in some quarters but leaves important issues to be resolved. Meanwhile, following their formal adoption in recent days, the first reporting standards under CSRD are now integrated into the EU corporate sustainability framework.
Recent developments in summary:
- Commission proposes postponement of deadlines for adopting sector-specific standards and reporting standards for non-EU companies
- Public consultation launched in relation to Commission's proposals
- Launch of new Q&A platform for technical implementation queries on CSRD standards.
Background
The CSRD introduces, on a phased basis, a wide-ranging sustainability reporting regime for tens of thousands of companies across the EU and beyond (see Matheson's CSRD At a Glance Guide).
The CSRD is underpinned by the European Sustainability Reporting Standards (ESRS) which contain the detail of the reporting requirements under the new system. EFRAG, as technical adviser to the European Commission (Commission) under the CSRD, is tasked with the development of the ESRS.
Sector-agnostic Standards
Under the first phase of its mandate, EFRAG issued sector-agnostic ESRS meaning that they apply to all companies under the scope of the CSRD, regardless of the sector(s) in which the company operates. These ESRS contain, among other things:
- general requirements (including an explanation of the double materiality concept, the value chain and how to prepare and present sustainability information);
- general disclosures (including on governance, strategy, and impact, risk and opportunity management, and on metrics and targets);
- a set of reporting standards on environmental disclosures, related to climate change, pollution, water and marine resources, biodiversity and ecosystems, and resources and the circular economy;
- a set of reporting standards on social disclosures, relating to an organisation’s own workforce, workers in the value chain, affected communities and customers and end-users; and
- a reporting standard on governance, relating to business conduct.
Despite an unsuccessful attempt in the European Parliament to vote down the delegated legislation adopting them, the ESRS were deemed to have been adopted by the EU co-legislators on 21 October 2023 and are now integrated in the European corporate sustainability framework.
The timeline remains unchanged for sector-agnostic ESRS and we advise companies to stay on track with their current preparations in this regard (see our Guide to Preparing for CSRD Compliance).
Sector-specific Standards
The CSRD also envisages reporting standards specific to the following sectors:
- oil and gas;
- coal, quarries and mining;
- road transport;
- agriculture, farming and fisheries;
- motor vehicles;
- energy production and utilities;
- food and beverages; and
- textiles, accessories, footwear and jewellery.
EFRAG’s current focus is on the implementation of the sector-agnostic ESRS but work continues on these sector-specific standards. EFRAG's recent announcement that it was reactivating its "sector-specific" communities (ie, stakeholder groups) and was inviting industry specialists to participate, signalled a renewed focus in this area.
Potential Changes Ahead
Proposed Delay to Sector-specific ESRS
Under its recently published 2024 Work Programme, the Commission proposes to defer the deadline for adopting the sector-specific standards from 30 June 2024 to 30 June 2026.
The Commission advocates this two-year delay in the context of its stated commitment to reducing reporting requirements by 25% in line with the EU's strategy to boost its long-term competitiveness. The extra time is designed to provide stakeholders with an opportunity to adapt to the new reporting requirements and to give EFRAG scope to develop efficient and proportionate sector-specific ESRS.
According to Susanne McMenamin, partner in Matheson's ESG Advisory Group: "this delay undoubtedly gives welcome breathing space for companies in the sectors concerned. The situation is complicated, however, by the fact that the sector-agnostic ESRS will themselves require reporting companies to make material entity-specific and sector-specific disclosures. This may necessitate supplemental disclosures but they would have to be framed without the benefit of the sector-specific standards and guidance that would otherwise have been available."
Proposed Delay to ESRS for Non-EU Companies
In its current form, the CSRD requires the Commission to adopt, by 30 June 2024, disclosure standards for non-EU incorporated companies with EU-incorporated subsidiaries or EU branches exceeding certain turnover thresholds in the EU (see CSRD: EU Sustainability Reporting with a Global Reach). These reporting requirements will begin to apply in relation to the financial year 2028.
The Commission now proposes delaying the deadline for adopting this set of standards until 30 June 2026. According to the Commission, this delay will allow more resources to be deployed in the development of effective and proportionate sector-specific ESRS while still giving relevant companies time to prepare for the new reporting rules.
The proposal, however, does not affect the deadline by which those companies must start reporting. Susanne McMenamin notes that: "this delay narrows the window in which non-EU parent companies can prepare for their new reporting requirements and creates an element of uncertainty before their specific reporting obligations are published. For non-EU companies planning to report early across the entire group, this may be an unwelcome development."
What Next?
The Commission proposal to push back the relevant deadlines must now be considered by the European Parliament and Council but is not expected to be resisted in either forum. The Commission has opened a public consultation on the proposal. The consultation closes on 19 December 2023 and the feedback received will feed into the legislative decision-making process in the European Parliament and Council. No member state transposition of the measures would be needed for the measures to become effective.
In recent days, EFRAG announced the launch of its ESRS Q&A Platform to collect and answer technical questions on the implementation of the ESRS. EFRAG will provide non-authoritative responses to the questions asked through the platform.
Despite the scaling back of some of the ESRS as initially proposed and the proposed adjustment of the thresholds in the existing Accounting Directive taking many companies outside the scope of the new regime, most aspects of this ground-breaking legislative initiative are progressing as planned.
How Matheson Can Help
Our ESG Advisory Group continues to monitor developments in relation to the CSRD and is working with clients to help them in the transition to the new corporate sustainability reporting regime. If you would like more information on this or other ESG matters, please get in touch with the ESG Advisory Group or with your usual Matheson contact.