Update on the Corporate Sustainability Reporting Directive

We have written extensively on the Corporate Sustainability Reporting Directive (EU) 2022/2464 (the Reporting Directive), most recently here. The Reporting Directive was published in the Official Journal of the European Union (OJEU) on 16 December 2022 and entered into force on 5 January 2023. The Reporting Directive is required to be transposed into EU Member States' national law by 6 July 2024.

European Sustainability Reporting Standards

As we have noted previously, a key feature of the Reporting Directive is the introduction of mandatory European Sustainability Reporting Standards (ESRS) against which in-scope entities are required to make public reports. The introduction of the ESRS is a key part of the EU’s strategy to ensure that sustainability reporting is against objective standards which is intended to allow stakeholders to compare sustainability data between disclosing entities.

The European Financial Reporting Advisory Group (EFRAG) was tasked with assisting the European Commission with preparing the ESRS. The ESRS are divided into sector-agnostic standards applicable to all reporting entities, sector-specific standards which will apply to entities operating in specific sectors only, and proportionate standards for listed SMEs (excluding micro-enterprises) and for non-EU entities, as well as standards for voluntary disclosure for entities that are not strictly subject to the Reporting Directive (such as non-listed SMEs). The sector-agnostic ESRS were adopted by means of a delegated act by the European Commission which was published in the OJEU on 22 December 2023.

Sector-specific standards

The Reporting Directive initially envisaged that sector-specific standards should be adopted in 2024. However, as part of a proposal for its 2024 Work Programme, the Commission sought authority from the European Parliament to delay key aspects of the Reporting Directive, including the adoption of sector-specific ESRS. On 24 January, the European Parliament’s Legal Affairs Committee announced a two-year delay to the adoption of the sector-specific ESRS until no later than 2026 with the proviso that “they want them published when ready”. Sectors to be covered will include oil and gas, mining, road transport, food, agriculture, energy production and textiles, and the sector-specific ESRS will “clarify what exactly and to what detail [relevant] companies in [these] particular sectors [are required to] disclose about their impact on people and the planet”.

Non-EU entities

The announcement also confirms that the delay extends to standards which will apply to non-EU entities with significant operations in the EU which are required by the Reporting Directive to prepare sustainability reports from 2028.

Looking ahead

On 22 January, EFRAG issued public consultation documents on exposure drafts of the ESRS to be applied to listed SMEs (excluding micro-enterprises) and voluntary reporting standards for non-listed SMEs. These consultations will remain open until 21 May 2024. Experience on the adoption of the sector-agnostic standards indicates that responses to consultations will be carefully considered by EFRAG as it works on the drafts.

EFRAG has also issued implementation documents on guidance with respect to materiality assessments and value chain under the ESRS. EFRAG is expected to focus on drafting standards for the oil and gas and financial sectors during 2024. Consultation on standards for non-EU group reporting is not expected to commence until Q4 of 2024.

Closer to home, it is expected that Ireland will meet the deadline of 6 July 2024 for the transposition of the Reporting Directive into domestic law. Drafts of the transposing legislation are not currently expected to be made available before it is enacted.

For more information in relation to this topic, please contact Liam Murphy, Senior Knowledge Lawyer or any member of ALG’s Corporate and M&A team.

Date published: 30 January 2024