Following the adoption of the first set of European Sustainability Reporting Standards under the Corporate Sustainability Reporting Directive, the European Commission is now rowing back on aspects of application of the directive.
Member states are in the midst of implementing Corporate Sustainability Reporting Directive ("CSRD") and the market is still waiting for the official publication of the first set of European Sustainability Reporting Standards ("ESRS") in the Official Journal of EU (which is expected in the coming weeks). Yet, this has not kept the European Commission ("Commission") from proposing the first refurbishments to the CSRD/ESRS framework. As part of its 2024 work program (and accompanying annex ("Annex")), the Commission has announced two major changes to ESRS and CSRD, which are intended to streamline requirements and limit the administrative burden on companies:
- The deadline for the Commission to adopt sectoral ESRS and ESRS for reporting of sustainability information on third-country companies will be postponed by two years (ie. from 30 June 2024 to 30 June 2026).
- Approximately one million SMEs will no longer fall within the scope of entities required to disclose sustainability information under the EU Accounting Directive as amended by CSRD ("Accounting Directive"), due to the amendment of the thresholds in Article 3 of the Accounting Directive.
Delay of adoption of further ESRS
A proposal for a decision amending the Accounting Directive was adopted by the Commission on 17 October 2023. This details that:
- the deadline for the Commission to adopt delegated acts setting out the sectoral ESRS containing sector-specific reporting obligations is delayed from 30 June 2024 to 30 June 2026 (by amending Article 29b(1) Accounting Directive); and
- the deadline for the Commission to adopt delegated acts setting out the ESRS for the reporting on third-country companies is delayed from 30 June 2024 to 30 June 2026 (by amending Article 40b Accounting Directive). This reporting will need to be performed by EU subsidiaries or branches of a third-country company whose group generates net turnover above €150 million in the EU if:
- the relevant subsidiary is a large undertaking or an SME undertaking with securities admitted to trading on an EU regulated market; and/or
- the relevant branch has generated net turnover above €40 million.
The EU Parliament and Council will now consider the Commission's proposal within the framework of the ordinary legislative procedure.
Impact of the delay on CSRD and ESRS reporting obligations for companies
The delayed adoption of the sectoral ESRS will also postpone the respective reporting obligations of in-scope companies. The Commission's rationale for the two-year delay to the adoption of the sectoral ESRS is to provide a reduction in the reporting burden for in-scope companies, including SMEs (see proposal 10, section B of the Annex). As outlined in a previous Communication, the Commission intends to reduce the immediate reporting burden on companies and allow them to focus on the implementation of the first set of ESRS.
However, the delay in the adoption of the ESRS for third-country reporting will not affect the respective obligations for in-scope EU subsidiaries or branches. The transposition and application rules set out in Article 5(2) of the CSRD still require EU member states to implement third-country reporting requirements for financial years starting on or after 1 January 2028. This is confirmed by recital (5) of the Commission proposal.
Fewer companies in scope of CSRD
In addition to the above, the Annex also sets out the Commission's intention to reduce the number of in-scope companies required to report under the CSRD/ESRS framework by adjusting current thresholds in the Accounting Directive (see proposal 13, section B of the Annex). The adjustment is intended to reflect inflation and is expected to result in reduced reporting requirements for more than one million companies.
On 17 October 2023, the Commission adopted a draft delegated directive under which the size thresholds for SMEs in Article 3 of the Accounting Directive are increased. The table below sets out the new thresholds and the related increases.
EU member states will be required to apply the new thresholds for financial years starting on or after 1 January , although they may opt to apply these earlier for the 2023 financial year. The draft delegated directive is now subject to the scrutiny of the European Parliament and Council before it is officially published. Implementation by EU member states into national law will follow the publication.
SME threshold in the Accounting Directive, current and adjusted for 25% inflation and rounding up
| Balance sheet | Turnover | ||
| Micro | Current | 350,000 | 700,000 |
| Adjusted | 450,000 | 900,000 | |
| Increase | 28.6% | 28.6% | |
| Small (lower end) | Current | 4,000,000 | 8,000,000 |
| Adjusted | 5,000,000 | 10,000,000 | |
| Increase | 25% | 25% | |
| Small (higher end) | Current | 6,000,000 | 12,000,000 |
| Adjusted | 7,500,000 | 15,000,000 | |
| Increase | 25% | 25% | |
| Medium / Large | Current | 20,000,000 | 40,000,000 |
| Adjusted | 25,000,000 | 50,000,000 | |
| Increase | 25% | 25% | |
*With thanks to Tara Theiss for her substantial contributions to this blog.
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