EU extends key elements of the Corporate Sustainable Reporting Directive

In a significant move, the European Parliament has given its official nod to extend key elements of the Corporate Sustainable Reporting Directive (CSRD) by a substantial two-year period. This decision was the result of a deliberation by Members of the European Parliament (MEPs) serving on the Legal Affairs Committee, culminating in a resounding vote of 21-2 in favor of the extension. 

The proposal to postpone specific components of the CSRD, including the implementation of sector-specific sustainability reporting standards and requirements for sustainability reporting by companies headquartered outside the European Union (EU), was initially tabled by the EU Commission in October. This move was in alignment with the 2024 Commission Work Programme’s overarching priorities, which included the imperative to reduce the reporting burdens placed on businesses. Notably, among the key actions outlined was the deferment of the deadline for the adoption of sector-specific European Sustainability Reporting Standards (ESRS). 

The ESRS framework lays down the groundwork, encompassing regulations and criteria, within which companies are mandated to report on sustainability-related impacts, opportunities, and risks. It is integral to the EU’s CSRD, which came into effect at the outset of 2024. 

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The initial tranche of ESRS regulations, endorsed by the Commission in July 2023, marked a significant milestone by establishing sector-agnostic sustainability reporting guidelines. Subsequently, the CSRD ushered in a mandate for the formulation of sector-specific ESRS by the culmination of June 2024. This set the stage for the articulation of sustainability reporting requirements tailored to the specific industry domains within which companies operate. 

Beyond this, the CSRD also introduced a groundbreaking stipulation. It mandated large non-EU corporations conducting business within the EU to furnish sustainability reports. The adoption of ESRS rules for these entities was initially scheduled to unfold by the end of June 2024, with the onset of reporting obligations slated for 2028. 

Under the revised proposal, the Commission has underscored the importance of extending the adoption of these standards by an additional two years. This deliberate extension is designed to bestow companies with a more conducive timeframe to effectively focus on the rollout of the initial set of ESRS. Simultaneously, it aims to alleviate the pressing reporting requirements, thereby providing the European Financial Reporting Advisory Group (EFRAG) with an extended runway for the meticulous development of these novel sustainability standards. 

While MEPs enthusiastically endorsed these revised proposals, they also articulated a significant caveat. They insisted on the swift publication of the standards as soon as they reach the stage of readiness, well in advance of the new extended deadline. Additionally, they underscored the necessity for the Commission to maintain an active and robust consultation process with the Parliament. This process would function as a vital mechanism to continually monitor and evaluate the progress in the development of these sustainability reporting standards. 

Following this vote, the proposal proceeds to the Parliament plenary for its comprehensive evaluation and ultimate approval. The decision reached here will ultimately shape the negotiation position adopted during interactions with the EU Council.