The EU political trialogue on the Corporate Sustainability Reporting Directive (CSRD) which was meant to be held on 30 May was cancelled, due to tensions around the negotiation table, Corporate Disclosures has learnt.
A technical trialogue is meant to be held today (8 June) and a political one – which is supposed to be the last one – is scheduled for next week.
"There have been a few 'last political trialogues for CSRD' lately, and some have been cancelled, so I wouldn't hold my breath," a stakeholder has said.
Corporate Disclosures understands that the French government, which is holding the presidency of the Council of the European Union until the end of June, would like to see the negotiations concluded under its watch, and is pressuring for a swift conclusion, but a number of issues are still unresolved and there is little indication that opposing parties would back down at this stage.
So, we've reached a 'flip the coin' moment, where the directive could be a political stalemate or reach the finish line pretty swiftly.
The main areas of discord are well known: assurance and scope.
Some MEP have long wanted to break the Big Four firms' monopoly of the audit market, and would like to cut them out of the sustainability assurance market by prohibiting the statutory auditor to perform the sustainability assurance under CSRD. The Commission and the Council would prefer to give companies an open choice as to whom they choose for their sustainability assurance, giving the statutory auditor a competitive chance.
On the issue of scope, there are number of disagreements around how, or whether, to capture non-EU companies under the directive, and how to apply the CSRD requirements to SMEs – through a lighter version of the rules or by the full requirements, and whether they would benefit from a phased out implementation timeline.
These are age-old topics of dispute in Brussels, but recently a new issue has crept into the conversation, adding some spice to the CSRD trialogue: the reporting standards.
While EFRAG has been mandated by the Commission to draft a set of European Sustainability Reporting Standards (ESRS), a number of stakeholders have bemoaned the lack of complementarity between EFRAG's work and the IFRS Foundation's International Sustainability Standards Board (ISSB) set of standards.
The European Securities and Markets Authority said, back in February, that the EU should not distance itself from the ISSB. And as EFRAG released its standards for consultation, businesses have been critical of the lack of common language between the ESRS and the ISSB standards, as well as the all-encompassing 'search for perfection' approach of EFRAG, without prioritizing the most pressing issues.
So much so, that in the corridors of Brussels it is whispered that some would lobby for the ISSB to be the reporting benchmark for the EU.
For all the stick it gets, EFRAG does also receive some praise. It underwent an enormous governance restructure and drafted 13 detailed ESRS, in record speed, and with very few resources. Most of the work was done by volunteers.
"The IFRS Foundation, on the other hand, has ample financial resources," a stakeholder said. "While the EU was a leading force in this space, the international standard setter is catching up fast, and leadership could easily flip at this stage."
