The European Commission published today the draft Delegated Act introducing the long-awaited European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD). European companies are closer than ever to having a coherent framework for disclosing a series of ESG factors.
- The ESRS are important because they contribute to an overarching disclosure framework for EU businesses.
- However, the legislation takes a serious step back in ambition by removing mandatory reporting for crucial climate-related information, which will result in problematic data availability and comparability issues. This risks compromising the efficiency of the standards and their coherence with existing disclosure regulation.
- Companies with less than 750 employees are also given a longer timeframe to start reporting on Scope 3 emissions, biodiversity and social aspects in their operations, significantly delaying reporting on crucial climate-related information.
Story
The European Commission has just published the Delegated Acts containing the final draft of the European Sustainability Reporting Standards (ESRS). Developed by the European Financial Reporting Advisory Group (EFRAG) and now amended by the Commission, the standards set forward the disclosure framework for all listed EU companies and international businesses with a relevant share of operations in the bloc.
Under the current proposal, the Commission failed to maintain the ambitious work put forward by EFRAG by deleting the ‘always-to-be-disclosed’ clause from all climate disclosure requirements. While some reporting remains mandatory, unfortunately a number of critical datapoints have now become voluntary. This is the case for transition plans, biodiversity, some information on ‘non-employees’, and the need to explain why sustainability topics are not considered material by the company. Companies will now be required to conduct a materiality assessment to decide whether or not to disclose their climate-related information. They will self-assess which information they deem ‘material’, i.e. relevant, for their impact on climate and the environment.
In this context, entities will be allowed to omit reporting on critical information. Companies will be now self-evaluate (under their materiality assessment) which GHG emissions are considered relevant, especially in the case of Scope 3 emissions. This not only increases the likelihood of under-reporting, partial or total omission of crucial information, but also risks leading to fragmented reporting and lower data comparability, even between companies of the same sector.
Additionally, the proposal has significantly pushed back further the timeline for the full disclosure of some reporting requirements for listed companies with less than 750 employees. Delays in reporting will affect information on Scope 3 GHG emissions, biodiversity and social standards. This is not aligned with the primary legislation – Corporate Sustainability Reporting Directive (CSRD), the Level 1 regulation for reporting requirements and will further delay reporting of crucial information for investors.
The draft European standards will now undergo a 4-week public consultation until 7 July, followed by a scrutiny period for the European Parliament and the Council to approve or reject the text.
Quotes
Jurei Yada, Programme Leader, EU Sustainable Finance, E3G said:
“It is disappointing to see the European Commission backtrack on its ambitious and game-changing reporting requirements. Leaving climate reporting to the discretion of companies’ own materiality assessment raises the risk of data inconsistencies, messier reporting process and poor climate transparency.”
Available for comment
Tsvetelina Kuzmanova, Senior Policy Advisor, EU Sustainable Finance
+32 (0) 483 989 651, tsvetelina.kuzmanova@e3g.org
Pietro Cesaro, Researcher, EU Sustainable Finance
+39 3495416186, pietro.cesaro@e3g.org
Notes to Editors
- E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G
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