Eurochambres, the association of European chambers of commerce and industry, has praised the EU's reporting relief package but called for further reduction measures to ease the administrative strain on smaller European businesses.
Earlier this month, the EU institutions agreed to delay the adoption and effective date of the sector specific ESRS by two years, in order to give companies more time to adapt to reporting under the sector-agnostic ESRS.
Ben Butters, Eurochambres CEO, told Corporate Disclosures that the change is entirely necessary due to the existing reporting pressures on corporates in the EU, which he believes to be excessive.
"European businesses are reaching regulatory saturation point," he said. "Disclosure requirements continue to be extremely far-reaching, detailed and complex. This negatively affects not only the capacity of companies to implement and comply with the standards but also the quality, clarity, and comprehensibility of the information and reports."
Concerns over the burdens and costs of reporting requirements have been echoed by other stakeholders. The European Federation for Accountants and Auditors for SMEs (EFAA for SMEs), for example, has warned that the ESRS could negatively impact smaller companies by increasing the administrative costs of reporting.
"We do not think the present burden is excessive but fear it might be with the imminent introduction of mandatory sustainability reporting for larger companies.
Those larger companies will, if they have not already, start chasing non-listed SMEs in their value chain for sustainability information," EFAA for SMEs director Paul Thompson said.
He added: "Our initial view is that reducing sustainability reporting requirements for non-listed SMEs, at least in the early years, is necessary if we are to onboard SMEs. Many will need time and technical support."
Therefore, the delay to the sector standards has been seen as a positive development for many. EFAA for SMEs has welcomed it on the basis that it will allow EFRAG to prioritise the development of the voluntary ESRS for SMEs standards, which are intended to simplify sustainability reporting for smaller entities.
While Butters said it "may have a relieving effect" for EU companies, he also argued that the revision didn't go far enough.
He said: "To maintain the competitiveness of EU companies, the disclosure requirements should be further simplified and reduced to the absolute minimum necessary for understanding and comprehensibility of companies' sustainability efforts."
Butters argued that stripping down the granularity of disclosures for larger enterprises to the bare minimum was essential to reduce the "pressure and additional bureaucratic burdens" placed on SMEs by large companies and banks, who will require detailed information on a range of topics from all companies in their supply chains to report under the standards.
Corporate Disclosures has asked which disclosures should be simplified and how, but did not receive a response.
Eurochambres has called for a "legislative freeze" when the standards come into force to prevent any short-term changes and also advocated for a "transitional period for implementation" until 2030, where reporting is voluntary to give companies time to adapt to the regulation and build up their internal capacities.
As well as delaying the sector standards, the European Commission has also adopted an amendment to the Accounting Directive which will raise the thresholds that separates SMEs from large undertakings to account for inflation.
The new thresholds define large companies as those with over €25m in total in their balance sheets (up from €20m) and over €50m in net turnover (up from €40m) and will have to be applied by the member states from 1 January 2024. These changes will make less companies subject to the direct reporting requirements of the ESRS in the coming years.
This alteration was described as "reasonable" by Butters, whilst Thompson and EFAA for SMEs president Salvador Marin have called for the EU to release a report summarising the pros, cons and overall impact of the change in thresholds.
The two measures form part of Commission President Ursula von der Leyen's stated policy objective of simplifying and reducing EU reporting requirements by a quarter, to lower the costs and burdens imposed on SMEs.
https://www.corporatedisclosures.org/content/top-stories/breaking-news-european-commission-presses-pause-on-esrs-sector-specific-standards.html
However, Thompson said: "Our first impression is that the Commission will struggle to achieve a meaningful reduction in requirements. Perhaps on paper 25% is achievable but this may be offset by value chain reporting."
He explained that trickle-down reporting, whereby large companies request sustainability information from SMEs in their value chains to fulfil their own reporting requirements, could effectively require these smaller companies to provide more information than what is required in the ESRS, meaning reductions to the standards won't necessarily reduce burdens on smaller companies.
"To help them comply with requirements, SMEs will benefit from free or low-cost reporting tools and templates, perhaps approved by the Commission, and, of course, incentives such as fiscal ones," he added.
Butters said the reduction goal was "ambitious" and added that reducing reporting obligations should be an ongoing project and a top priority for the next Commission mandate.
In light of the ESRS and other regulations, such as the Corporate Sustainability Due Diligence Directive, Eurochambres has called for the EU to reduce existing reporting requirements whenever new disclosure obligations are introduced.
While supported by EFAA for SMEs and, more strongly, by Eurochambres, other European stakeholders have expressed alarm at the sector-specific ESRS delay and the Commission's wider reporting reduction policy, and warned that it could water down the ambition of the European Green Deal.
"Rather than streamlining reporting obligations, such a drastic initiative risks ending up in a wide, open-ended deregulation exercise, as a consequence undermining regulations that are instrumental to key EU policy objectives and core values. Reporting procedures are often at the core of regulations, especially for their implementation and enforcement," the European Trade Union Confederation (ETUC) said in a statement.
The ETUC has asked for further clarifications on the wider package and urged the EU to ensure that reporting reductions are narrow in scope.
Similarly, public interest law firm, Frank Bold, has called for the Commission not to "disregard" the 2022 CSRD political agreement and not to make any large companies exempt from reporting sustainability information.
Butters, on the other hand, strongly disagreed that reducing reporting would undermine the EU's ambition on the environment.
"Policymakers should fully take into account the contribution of European businesses to the economy and limit reporting requirements. This would strengthen rather than undermine EU policy objectives, as it would allow businesses to dedicate more resources to investing financial and human resources to implementing sustainable practices," he argued.
