European Csrd battle: less obligations and more flexibility

The only certainty is the postponement of the deadlines by two years. Under the banner of simplification and an increasingly narrower scope of application while waiting for the final details. In the EU institutions and in the capitals of the Twenty-Seven, the battle of the CSRD, the directive on sustainability reporting already transposed at national level that now, with the EU Commission's February Omnibus Package, is the subject of a profound revision with the aim of reducing burdens and costs for companies.

In April, the EU institutions agreed to stop the hands of the clock (the so-called stop the clock) on the application of the measure by two years: 2028 (on the 2027 budget) for large companies that have not yet started sustainability reporting and 2029 for listed SMEs (on the 2028 financial year). In the meantime, at the end of June the EU Council defined its negotiating position by proposing a further simplification: in addition to the 1,000-employee threshold already proposed by the Commission (there were 250 in the first version of the directive that came into force), the ministers raised the annual turnover limit to EUR 450 million (from the 50 proposed by the Omnibus package).

The ball is now in the court of the Legal Affairs Committee of the European Parliament. The starting point is the report by rapporteur Joergen Warnborn (EPP), which proposes a further raising of the application threshold to companies with more than 3,000 employees (and 450 million in turnover), as well as climate transition plans - which anticipate and mitigate climate-related financial risks - that are no longer mandatory but voluntary. On 14 and 15 July the amendments are scheduled to be debated ahead of the vote on 13 October, while in the second half of the month the Europarliament will give its verdict in plenary. Then the trilogue, the negotiation with the EU executive and the Council, can begin.

'The simplification effort undertaken by the EU Commission,' stresses Benedetta Testino, associate director at Bcg, 'is a necessary and overdue step. In the first year of implementation (2024) many companies came up against an excessively detailed regulatory framework, with requirements that were in some cases redundant or difficult to interpret. This led to written reports with a mere compliance approach, to meet the requirement, without opening up to business information". In the meantime, on 20 June the Efrag (European financial reporting advisory group) published the draft revision of standards (Esrs) for the drafting of the new sustainability report with six guidelines for simplification. "The objective," Testino explains, "is to move towards a less prescriptive model, capable of reducing by 50% the number of mandatory data points and substantially lightening the burden of reporting and formalisation: a more pragmatic approach to the exercise of double materiality, a reduction in duplication, a distinction between binding obligations and non-binding guidelines, and - in general - less information required. A further desirable step forward, he adds, 'concerns the development of sector-specific operational guidelines, in particular for financial intermediaries'.

Fewer obligations do not, however, mean an invitation to lower one's guard on sustainability: 'Reporting and in particular double materiality,' he concludes, 'must be seen not as a formal exercise, but as a lever of strategy to identify the few, well-chosen areas where the company can really make a difference.