EU Financial Regulator Submits Timeline For Reduced Sustainability Reporting Standards
On April 25, the European Financial Reporting Advisory Group submitted a work plan for the rewrite of the European Sustainability Reporting Standards. The request is in response to a letter from Maria Luís Albuquerque, the EU Commissioner for Financial Services and Investments, asking for updated recommendations to comply with the Omnibus Simplification Package's proposed reductions to sustainability reporting requirements. A vote by EFRAG's Sustainability Reporting Board in mid-April failed to garner enough support, giving hope to sustainability advocates. However, the SRB met the Council's requested completion timeline of October 31.
As part of the European Green Deal, the EU proposed a series of regulations aimed at controlling businesses' climate related activities. In 2022, the Corporate Sustainability Reporting Directive was adopted to create requirements for businesses to report greenhouse gas emissions and other environmental, social, and governance actions. The CSRD called for the drafting of European Sustainability Reporting Standards to create the regulatory framework for reporting. That responsibility was delegated to EFRAG.
EFRAG released the first round of ESRS in late 2022. The European Commission officially adopted them in July 2023 and EFRAG was tasked with drafting sector specific and non-EU company ESRS. However, companies struggled with implementing the first round of ESRS. This forced the Commission to delay further development by EFRAG, shifting focus to drafting additional guidance.
By the summer of 2024, the tide had shifted on sustainability and other green initiatives. During the 2024 European Parliament elections, the regulatory burden on businesses became a major theme. During the campaigns, the European Green Deal took the majority of the blame for the EU's faltering economy. The elections resulted in a shift to the right, with environmentally focused parties losing seats.
In February, the European Commission adopted a proposal to drastically reduce sustainability reporting requirements in the European Union, including a rewrite of the ESRS. While the proposal has yet to be adopted by the European Parliament, the Commission is moving forward by requesting EFRAG begin the rewrite, in anticipation of the final passage. The instructions indicate that they expect passage of reforms by the end of 2025.
In the letter sent on March 25, Albuquerque stated, 'as you will be aware, on 26 February the Commission adopted a first 'omnibus' package of proposals to simplify EU rules, boost competitiveness, and unlock additional investment capacity. You will also have seen that, as part of this initiative, we propose to adopt a delegated act to revise and simplify the existing European Sustainability Reporting Standards (ESRS).'
The work plan adopted by EFRAG's SRB states that they will immediately start work to 'establish a vision on actionable levers for substantial simplification.' Initial input is being sought from stakeholders via an online survey open until May 6. Mid-May through July will be focused on 'drafting and approving the Exposure Drafts amending ESRS.' An Exposure Draft, or public draft of the proposal, will be published in August. EFRAG will hold a public consultation in September. The final draft will be submitted to the Commission in October.
While the work from ERGAG is being conducted at the direction of the Commission, the final proposal to reduce CSRD requirements is facing a debate in the European Parliament. However, the tight deadlines and clear direction from the Commission indicate confidence that sustainability reporting requirements will be significantly reduced by the end of the year.
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