EU Delays Sector-Specific Sustainability Reporting Standards
The release of sector specific European Sustainability Reporting Standards (ESRS) will be delayed, according to European Financial Reporting Advisory Group (EFRAG), the body responsible for drafting the new standards.
The delay follows the announcement last week by Mairead McGuinness, EU Commissioner for Financial services, financial stability and Capital Markets Union, of a call for EFRAG to prioritize its work on helping companies to implement its first set of ESRS standards, which set out the rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the EU’s upcoming Corporate Sustainable Reporting Directive (CSRD).
The CSRD, on track to begin applying from the beginning of 2024 starting with large companies, is aimed as a major update to the 2014 Non-Financial Reporting Directive (NFRD), the current EU sustainability reporting framework. The new rules will significantly expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, and introduce more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk.
EFRAG, a private association majority financed by the EU, was mandated by the European Commission in June 2020 to prepare for new EU sustainability reporting standards, as part of the revision of the NFRD. In May 2021, EFRAG was requested to develop reporting standards for the CSRD, and in November 2022, EFRAG delivered the first set of draft ESRS covering the sector-agnostic standards, with the first sector-specific standards expected later this year.
In her recent address, McGuinness acknowledged that implementing the standards “will be challenging for companies,” adding:
“And that’s why we’re asking EFRAG, who developed the draft standards, if you like, to focus attention on providing additional guidance for companies to apply the first set of horizontal standards.
“And indeed to free up resources for this very critical task, we have asked EFRAG to prioritise its efforts on that first set of horizontal standards over preparatory work for the sector standards.”
In its statement announcing the EU request, EFRAG said that it will carry on its work on the standards under a “modified timetable.” While not specifying the timing of the delay in its statement, a recent session of a EFRAG Sustainability Reporting Board meeting (March 22) discussing its workplan contained an objective “to discuss the revised workplan after postponement of Sector standards by one year.”
EFRAG added that it is discussing how to put in place an ESRS implementation support function following the EU request, which could include pillars dedicated to providing guidance, creating a user-friendly and comprehensive documentation hub, and facilitating educational initiatives. The organization added that it would increase its staff and allocate extra resources to these tasks.