Sustainability reporting updates – February 2024

In the last month, there have been a number of updates of relevance to those companies that fall within scope of the sustainability reporting obligations under the Corporate Sustainability Reporting Directive (CSRD). We have set out a brief overview of each of these updates below.

Accounting Directive financial thresholds increase

The Commission Delegated Directive^[1], increasing the financial thresholds^[2] for the four categories of undertakings set out in the Accounting Directive^[3] – micro, small, medium and large, was published on 21 December 2023.

While EU member states have until 24 December 2024 to enact implementing legislation, the revised thresholds will apply for financial years beginning on or after 1 January 2024. Member states may allow companies to apply the provisions for financial years beginning on or after 1 January 2023.

These threshold increases to account for inflation mean that the analysis as to whether companies are large undertakings for the purposes of sustainability reporting under the CSRD^[4] will need to be re-examined. 

For details of the changes to the financial thresholds, see the table set out in our October 2023 update when the legislation was at proposal stage.

EU lawmakers approve delay to adoption of sustainability reporting standards for non-EU companies and specific sectors

On 25 January 2024, the European Parliament’s Legal Affairs Committee announced a 2-year delay for the adoption of the sector specific European Sustainability Reporting Standards (ESRS) as well as those for in-scope non-EU companies under CSRD.

The delay of the sector specific and non-EU companies ESRS was initially sought by the European Commission in October 2023, as covered in our October 2023 update. The proposal is now being considered by the European Parliament and if approved will mean that both sets of ESRS will not need to be adopted until 30 June 2026.

The purpose of the delay is to reduce the burden on companies by allowing them more time to focus on implementing the first set of general ESRS. The delay is also intended to provide the European Financial Reporting Advisory Group (EFRAG) who are tasked with the developing the ESRS more time to develop quality standards.

While agreeing to adopt the proposals, MEPs also called on the Commission to publish the sector specific standards as soon as they are ready before the new deadline. The proposal will now move for plenary approval, with the Parliament then set to move on to the negotiation stage with the EU Council.

EFRAG launches workshops on its draft sector classification

On 24 January 2024, EFRAG announced it will hold a series of online workshops in February 2024 to collect feedback on the current version of the sector specific draft ESRS. 

In order to prepare sector specific draft ESRS, EFRAG will be required to distinguish between different economic activities that fall into specific ESRS sectors. Accordingly, EFRAG is developing its Sector Classification in a dedicated draft ESRS (ESRS SEC 1), which will be consulted on in 2024.

The draft ESRS SEC 1 builds on the existing NACE Rev. 2-1 classification system, categorising the NACE business activities by ESRS sectors based on common characteristics of sustainability impacts, risks and opportunities.

The purpose of the workshops is to allow participants to provide comments on the following:

• the overall adequacy of the proposed classification
• the existing sector descriptions and definition
• the proposed divisions into groups and ESRS sectors

In order to join the workshops, interested parties will need to subscribe to EFRAG's sector-specific communities and select their respective sector(s) of interest using this link.

The table below sets out the timetable for the workshops.

EFRAG’S public consultation on two exposure drafts on sustainability reporting standards for SMEs

On 22 January 2024, EFRAG launched a public consultation on the Exposure Draft ESRS for listed SMEs (ESRS LSME ED) and the Exposure Draft for the voluntary reporting standard for non-listed SMEs (VSME ED). On the same day, EFRAG also reminded preparers and users about the field test of the proposed standards which will be run in parallel to the public consultation.

EFRAG’s 2024 Work programme, which we covered in our October update, noted its intention to publish for consultation the ESRS LSME ED and the VSME ED in Q1 2024. 

ESRS LSME ED and VSME ED consultation package 

The public consultations are open until 21 May 2024 and respondents have been asked to provide their responses by using the online questionnaires, one questionnaire for the ESRS LSME ED questionnaire  and another  for the VSME ED questionnaire.

The public consultations are designed to receive feedback from constituents on key aspects of the EDs, including:

• the proposed architecture
• the implementation of the CSRD requirements (for ESRS LSME ED), including the role of the LSME ED in setting the value chain cap for information to be reported by large undertakings
• the relevance of the proposed disclosures
• the simplifications achieve
• the market acceptance (for the VSME ED)

ESRS LSME ED and VSME ED field test

The field test focuses on feasibility, costs, challenges, benefits and usefulness of the individual disclosures and suggested improvements to the EDs. For preparers, the field test consists of preparing by 21 April 2024 (part of) the disclosures contained in the ED and, on that basis, answering the VSME Field Test Questionnaire and the LSME Field Test Questionnaire. 

After providing feedback on the field test questionnaire respondents will be invited to dedicated workshops during the last month of the consultation period.

For more information in relation to these updates, please contact Jill Shaw, ESG & Sustainability Lead or visit our ESG & Sustainability hub.

Date published: 1 February 2024