The Corporate Sustainability Reporting Directive (CSRD), an evolution of the NFRD (Directive 214/95/EU), aims to reduce the ambiguity of ESG terminology and their education and comparability in the market. One of the objectives is to extend the sustainability reporting requirement to a wider slice of companies, including SMEs. We had explored the EU directives related to Sustainability in this article. To date, the obligation for listed SMEs is expected to start from 1 January 2026, while for unlisted SMEs from the financial year 2028 (reporting in 2029), and will not be subject to the audit obligation. For non-listed SMEs, on 8 November 2023, EFRAG sustainability reporting published the draft of the sustainability reporting standard “Voluntary ESRS” for micro enterprises such as startups and unlisted SMEs. An excellent tool to get closer to a future obligation, such as listing or the possibility of falling under two of the three criteria imposed by the CSRD: €20 million in total assets, €40 million in net revenues, and an average annual employee of 250. While on 31 July 2023 the Commission had adopted the first standards (ESRS – European Sustainability Reporting Standard) and cross-cutting rules for all sustainability topics in order to facilitate such reporting, it had not yet adopted the sectoral benchmarks and those relating to large non-EU companies. Until now, the date of adoption of these standards had been scheduled for 30 June 2024, but was postponed, thanks to the agreement between the co-legislators, to 30 June 2026. On the other hand, the date of application for third-country companies remains set at the 2028 financial year, as already set out in the CSRD. The provisional agreement between the European Parliament and the European Council last week, on a proposal from the Commission last year, has been accepted by the European Commission. The political agreement supports the objectives, but changes the legal nature of the text (from a Commission decision to a directive) in order to respect the legal basis of the proposal, and suggests that the Commission publish eight sectoral reporting standards as soon as they are ready before the new deadline of 30 June 2026. This provisional agreement reached with the European Parliament will have to be approved and formally adopted by both institutions.
More time for adjustment
Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union, said: “This decision shows that we are listening to the concerns of businesses and responding to them. Sustainability reporting by companies is crucial for the green transition and transparency towards investors. In the medium and long term, standardised reporting obligations mean fewer burdens for companies, not more. But we understand that the pace of change can be a challenge for many businesses. That is why I am pleased that the Council and Parliament have agreed with our proposal to allow more time to adopt sector-specific reporting standards. This is fully consistent with our goal of reducing overall reporting requirements.” This agreement will allow companies to focus on the implementation of the first set of ESRSs. A longer period of time will also be allowed for the development of sectoral sustainability principles and principles for specific companies from third countries. Specifically, the extension for adaptation concerns sectors with hard-to-abate and non-EU emissions, such as: oil and gas, mining, road transport, food, automobiles, agriculture, power generation and textiles. (Photo by Gonzalo Leon Jasin on Unsplash)
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