ESG reporting CSRD postponement for certain sectors and large non-EU companies
16 February 2024
On 7 February 2024, the Council of the European Union and the European Parliament announced they had reached a provisional deal on a directive amending the Corporate Sustainability Reporting Directive (CSRD). The new directive means that the sector-based European Sustainability Reporting Standards (ESRS) and specific standards for large non-EU companies will have an adoption deadline of 30 June 2026 rather than 30 June 2024.
Rationale
The rationale given for the two year postponement is that this would allow businesses time to implement the standards, lowering the administrative burden on businesses and raising the EU's competitiveness. In addition, this allows more time for the development of sector-specific sustainability standards and standards for large non-EU companies.
In relation to ESRS to be used by large non-EU companies, the reporting requirements are expected to apply from financial year 2028. In alignment with the adoption of the sector-specific ESRS, the adoption deadline for such standards is also being postponed by two years. Large non-EU companies in this context means third country companies with an EU turnover of at least EUR 150 million which have at least one EU subsidiary – which is either a large undertaking or a small / medium-sized undertaking with EU-admitted securities – or EU branch with a turnover of at least EUR 40 million.
For the first half of 2024, Belgium holds the presidency of the Council. Taking centre stage in the postponement announcement is a quote that "boosting European competitiveness is a core pillar of the Belgian Presidency". The six priorities of the Belgian Presidency include 'strengthening our competitiveness' and 'pursuing a green and just transition'. On this occasion, it seems the former has won out.
Background
This two year postponement was tabled as a proposal by the European Commission in October 2023. A European Commission communication titled 'Long-term competitiveness of the EU: looking beyond 2030' from March 2023 had noted that reporting obligations came with costs, particularly for small and medium-sized enterprises. The communication signalled that the European Commission would "make a fresh push to rationalize and simplify reporting requirements".
The postponement also allows in-scope businesses to concentrate on implementing the first set of ESRS which are sector-agnostic.
Sector-specific ESRS, a work-in-progress
The sector-specific ESRS, which the EFRAG (formerly known as the European Financial Reporting Advisory Group) is currently developing, are expected to cover 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.
Next steps
It is expected that both the Council of the EU and the European Parliament will endorse and formally adopt the new directive.
In-scope businesses must report using the sector-agnostic ESRS. The sector-agnostic ESRS apply from 1 January 2024 for financial years beginning on or after that date.
This is a first wave in the EU's effort to rationalise reporting requirements – further developments may continue to lighten businesses' regulatory workload.
