Stockholm (NordSIP) – On 9 June, the European Commission published the widely anticipated draft delegated regulation supplementing the European Accounting Directive. The draft contains the first set of European Sustainability Reporting Standards (ESRS) required by the Corporate Sustainability Reporting Directive (CSRD).
The four-week-long consultation period started ticking immediately, setting the submission deadline to 7 July. “The Commission would like to hear your views,” urge the officials, promising that feedback would be considered before finalising the initiative. Yet, this time around, soliciting the views of concerned parties might not be that much of a challenge. Although the draft has just been published, its contents were leaked in advance and have already triggered strong reactions from experts in the field.
The original draft ESRS were developed by the European Financial Reporting Advisory Group (EFRAG) in April 2022 and submitted to the EC in the form of technical advice in November last year. The Commission then proceeded to consult various European agencies and other stakeholders ahead of publishing their final draft late last week.
Major changes
The version that the EC presents now introduces several modifications to EFRAG’s technical advice, including the materiality approach, the phasing-in of some requirements, the conversion of specific disclosure requirements into voluntary data points, and the introduction of flexibilities in several of those. The new draft also contains some technical modifications that aim to ensure coherence with the EU’s legal framework and enhance interoperability with global standard-setting initiatives.
One major revision is that while many of the requirements in the original proposal were automatically deemed material for disclosure, according to the new draft, most disclosure requirements will be subject to the outcome of a materiality assessment. This is likely to have a massive impact on the financial sector since some SFDR indicators might now be considered non-material from the ESRS perspective, causing potential data gaps for those preparing to meet mandatory reporting requirements under the SFDR.
The Commission also proposes to change certain data points from mandatory to voluntary. For example, biodiversity transition plans and certain indicators on non-employees can now be disclosed on a voluntary basis.
The new phase-in proposal is primarily aimed at helping smaller companies and newcomers. For instance, specific lighter rules are granted to companies with fewer than 750 employees. For all companies, however, there is now the possibility to report only after the first year on certain topics, such as those related to their own workforce and anticipated financial effects related to non-climate environmental issues (pollution, water, biodiversity, and resource use).
Early feedback
One of the organisations to respond swiftly to the new draft was Eurosif, the European partnership of national Sustainable Investment Fora (SIFs). In a press release issued directly after the ESRS draft was officially released, the forum states that its members are “very concerned with the European Commission’s latest changes to the draft standards, which mark a significant setback in ambition compared to the final recommendations published by EFRAG in November 2022.” Eurosif warns that if adopted, the delegated act risks undermining the CSRD’s effectiveness and the implementation and coherence of the EU sustainable finance framework.
“It is regrettable that this Draft Delegated Act disregards the balanced agreement found within EFRAG structures between a representative panel of expert stakeholders and following a lengthy due process,” comments Aleksandra Palinska, Eurosif’s Executive Director. “In its current shape, this draft neglects in particular the concerns expressed for years by investors and financial institutions, calling for improved availability of comparable and reliable corporate sustainability disclosures.” According to her, “the EU Commission should not prioritise reducing reporting requirements at the expense of the public interest and other stakeholders, including of investors and financial institutions in dire need of sustainability information to comply with their own regulatory requirements.”
Eurosif’s official recommendations include maintaining mandatory key climate disclosure indicators and topics, especially those necessary to comply with the SFDR and other related regulations.
The Alliance For Corporate Transparency, an initiative coordinated by Frank Bold that brings together several leading civil society organisations and experts, also warns that the proposal undermines transparency rules for corporate sustainability reporting. “The Commission’s proposal opens a loophole by allowing companies to leave out important details of their greenhouse gas emissions, biodiversity and workforce data,” says Filip Gregor, Head of Responsible Companies section at Frank Bold and member of the EFRAG SRB. “This defeats the purpose of the legislation to ensure reliable and comparable information and address greenwashing. Such flexibility does not reduce the burden on companies, it merely allows them to be creative. The Commission’s decision to subject disclosure of key data to ‘materiality assessment’ is incomprehensible,” he adds.
Luckily, there is still time to raise any concerns you might have to the European Commission. Go ahead and make your voice heard!
