A picture taken on May 5, 2021 shows a flag of the European Union flying outside the European ... [+]
On April 30, the European Council announced final approval of a delay to the full enactment of the Corporate Sustainability Reporting Directive by two years. The move will delay the adoptions of sector-specific sustainability disclosure standards and reporting obligations for non-EU companies until 2026.
Adopted in November 2022, the CSRD created reporting obligations for both publicly traded and privately held businesses in the EU beginning in 2024. The directive called for the creation of European Sustainability Reporting Standards, the detailed processes used by businesses to report under the CSRD. The drafting of the ESRS was delegated to the European Financial Reporting Advisory Group. The EU adopted the first round of EFRAG’s ESRS standards in July 2023, to go into effect in 2024.
The ESRS, while featuring the term sustainability in the title, are inclusive of the broader environmental, social, and governance reporting requirements. The environmental ESRSs are designed to work alongside and incorporate the International Financial Reporting Standards Foundation’s Sustainability Disclosure Standards adopted in June 2023. The IFRS Sustainability Disclosure Standards will be used in 132 jurisdictions to address greenhouse gas emissions, climate action, and other green initiatives.
Initially, the ESRS will apply only to publicly traded and large privately held companies, but eventually will be expanded to include small and medium-sized businesses. Additionally, the ESRS will apply to non-EU companies that meet certain requirements based on revenue and presence in the EU.
The directive also called for sector-specific standards that subdivided the ESRS by industry, requiring businesses within a sector to report the same information. EFRAG initially attempted to release the sector-specific standards quickly after the general ESRS, however it ran into significant delays as the drafting turned out to be more complicated than originally considered. In late 2023, the EU announced that EFRAG was being instructed to postpone work on sector-specific standards. Instead, it was directed to help create better guidance for the general ESRS.
On January 24, the Legal Affairs Committee of the European Parliament adopted the initial proposal to officially delay implementation. After three months of working through the legislative process of the EU, the proposal had its final stop in the European Council on April 30.
Now officially adopted, the implementation of ESRS for the sector specific standards requirement of the CSRD will be delayed until 2026, two years after the original date. Additionally, the adoption of the general sustainability reporting standards for non-EU companies will be delayed until 2026.
As ESG and sustainable reporting continues to face political backlash and legal challenges from the business sector, I expect there will be further changes to the CSRD, specifically as they impact SMEs. Depending on the results of the 2024 EU elections in June, other sustainability initiatives may be delayed as well.
