Navigating the Future of Sustainability Reporting

In a significant development on January 24, 2024, the European Parliament's Committee on Legal Affairs (JURI) agreed to a proposal by the European Commission to postpone the adoption of specific sustainability reporting standards. This adjustment is aimed at sectors and companies outside the EU, extending the timeline by two years. The decision reflects a concerted effort to enhance the quality and implementation of the European Sustainability Reporting Standards (ESRS), which are crucial for disclosing the environmental and social impacts of businesses.

The Commission's proposal seeks to streamline reporting obligations, allowing companies to concentrate on adopting the first set of general ESRS, which were introduced on July 31, 2023. For non-EU entities generating revenue over €150 million, and their EU branches with turnovers exceeding €40 million, the requirement to comply with these standards will now commence in 2028, aligning with the extended deadline for the adoption of general sustainability reporting standards to 2026 for third-country companies.

Despite the delay, Members of the European Parliament (MEPs) underscored the importance of sector-specific standards in enabling investors to make informed comparisons between companies. Acknowledging the value of these standards, MEPs have advocated for the early publication of eight sector-specific reporting standards, as soon as they are finalised before the June 2026 deadline. This approach aims to bolster transparency and flexibility in the reporting process. Furthermore, MEPs have requested annual consultations with the Parliament on the progress, planning, prioritisation, and timelines related to the development of these standards by the European Financial Reporting Advisory Group (EFRAG).

Axel Voss (EPP, DE), the rapporteur following the committee vote, emphasised the rationale behind the delay, stating, “We will delay the deadline for sector-specific standards under the Corporate Sustainability Reporting Directive (CSRD) by two years in order to give EFRAG the time to develop quality standards and give companies the time to put them into practice. Companies have been putting up with too much bureaucracy in years of crisis, from Covid to inflation.”

The draft report on the time limits for sustainability reporting standards for certain sectors and third-country companies received approval from the Legal Affairs Committee with 21 votes in favour, 2 against, and no abstentions. This approval paves the way for the European Parliament to commence negotiations on the final legislation with EU governments, following the plenary approval.

This move is part of a broader strategy outlined in the Commission’s communication on ‘Long-term competitiveness of the EU: looking beyond 2030’, aiming to reduce the administrative burden on companies by 25% while ensuring legislative objectives are met efficiently. The delay in the adoption of sustainability reporting standards represents a balanced approach to regulatory compliance, prioritising the development of high-quality standards that reflect the complex nature of environmental and social governance.