Brussels, 7 February 2024
The Council and the European Parliament today reached a provisional deal on a directive on the time limits for the adoption of sustainability reporting standards for certain sectors and for certain third-country undertakings amending the Corporate Sustainability Reporting Directive (CSRD). Today’s agreement will give more time for companies to prepare for the sectorial European Sustainability Reporting Standards (ESRS) and for specific standards for large non-EU companies, which will be adopted in June 2026, two years later than the originally scheduled date.
Boosting European competitiveness is a core pillar of the Belgian Presidency, and one way to achieve this objective is to reduce the administrative burden on companies. Today’s agreement limits reporting requirements to the minimum and gives companies time to implement the ESRS and prepare for the sectorial European Sustainability Reporting Standards.
Vincent Van Peteghem, Belgian Deputy Prime Minister and Minister of Finance
Commission proposal
EU law requires that listed companies should disclose information about the risks and opportunities arising from social and environmental issues to help investors, civil society, consumers and other stakeholders to evaluate the green and social sustainability of their activities. On 31 July 2023, the Commission adopted the first cross-cutting standards and standards for all sustainability topics to facilitate this reporting. These must be followed by sector-specific standards, standards for SMEs and standards for third country companies with a €150 million turnover in the EU and which have at least one subsidiary or branch in the EU. All these new standards were scheduled for 30 June 2024.
The directive agreed today by the co-legislators postpones the adoption of the new standards to 30 June 2026. This will allow companies to focus on the implementation of the first set of ESRS. It will also allow more time to develop sector-specific sustainability standards as well as standards for specific third-country companies. The date of application for third-country companies will remain the financial year 2028, as set out in the CSRD.
Main elements of the agreement
The provisional agreement supports the objectives of the Commission’s proposal but modifies the legal nature of the text (from a Commission decision to a directive) to respect the legal basis of the proposal. It also suggests that the Commission publishes eight sector-specific reporting standards as soon as they are ready before the new deadline on 30 June 2026. Member states will not need to transpose this directive, since the targeted amendments concern the empowerment to adopt delegated acts granted to the Commission.
Next steps
The provisional agreement reached with the European Parliament now needs to be endorsed and formally adopted by both institutions.
Background
In its communication ‘Long-term competitiveness of the EU: looking beyond 2030’, the Commission identified reporting as one of the main burdens for companies in general and for SMEs in particular. It therefore proposed reducing reporting obligations by 25% without undermining related policy objectives.
On 17 October 2023, the Commission tabled its proposal for a two-year postponement of adoption deadlines for sector-specific ESRS and ESRS for certain non-EU companies to allow more time to apply the first batch of standards and prepare for the next ones.
The proposal is part of a first package of measures to rationalise reporting requirements and is consistent with the SME Relief Package.
EU Parliament on deal on delayed reporting standards for some companies
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Sector-specific standards and general standards for non-EU companies to be adopted two years later, in 2026
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No changes to reporting timeline, just to content of reporting
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MEPs want the Commission to publish standards in eight areas before the deadline
Parliament and Council negotiators agreed on delayed adoption of sector-specific sustainability reporting standards and those for the non-EU companies.
Negotiators of the Legal Affairs Committee agreed with EU governments on the proposed delay in adoption of sector-specific sustainability reporting standards and general sustainability reporting standards for non-EU companies by two years until 30 June 2026. The new rules do not affect the reporting timelines as agreed under Corporate Sustainability Reporting Directive, but they affect the extent of reporting for EU companies, as the sector-specific part will only be required from 2026 on.
Although the negotiators agree with the delay, as the companies would still have to report on time against general sustainability reporting standards adopted by the Commission in July 2023, MEPs consider sector-specific reporting by companies key for enabling comparisons and thus to be a valuable source of information for investors, especially when it comes to companies in high-risk sectors such as oil, gas and mining.
That is why the MEPs ensured that the Commission will strive to publish sector-specific sustainability reporting standards in eight areas as soon as they are ready before the deadline. While the negotiators do not specify which eight areas should be addressed first, they want to be regularly consulted at least once yearly on the plans in the development of the sustainability reporting standards by the responsible institution – European Financial Reporting Advisory Group (EFRAG) and receive detailed information on prioritisation and timeline adopted.
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Following the negotiations, rapporteur Axel Voss (EPP, DE) said: “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.”
Next steps
The text now needs to be formally approved by the Council and the Parliament before entering into force.
Background
The Commission proposed to delay adoption of sector-specific sustainability reporting standards and general sustainability reporting standards for non-EU companies by two years in October 2023. The aim is to rationalise reporting obligations for companies and reduce related administrative burden while providing more time to EFRAG for the reporting standards development. Sector-specific European sustainability reporting standards (ESRS) should clarify what exactly and to what detail should companies in particular sectors disclose about their impact on people and the planet, including on decarbonisation, biodiversity or human rights. Since general reporting obligations for non-EU companies with turnover above 150 million euro and their branches in the EU with turnover above 40 million euro will only start to apply in 2028, adoption of reporting obligations in 2026 will still provide them with sufficient time to prepare.