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Yesterday, EU member states reached an agreement on their position on the Corporate Sustainability Reporting Directive (CSRD) proposal. As was to be expected, the position weakens the rules proposed by the European Commission a bit, proposes less stringent timelines and provisions for companies to adhere to(full text here). Once the European Parliament has also agreed on its position on the proposal, all three institutions will enter into negotiations to determine the final text. These negotiations are expected to start in the spring of this year.
Most importantly, EU member states propose to change the timelines and reduce the burden on SMEs. In addition, they are proposing multiple changes to the provisions related to audits of the provided data.
EU member states want to change the deadlines for implementation by undertakings as follows:
· 1 January 2024 for undertakings already subject to the NFRD (reporting in 2025 on 2024 data)
· 1 January 2025 for large undertakings not currently subject to the NFRD (reporting in 2026 on 2025 data)
· 1 January 2026 for listed SMEs, as well as for small and non-complex credit institutions and for captive insurance undertakings (reporting in 2027 on 2026 data)
Also, changes were proposed as to the deadline for the presentation of the new standards. By 31 October 2022, the general sustainability reporting standards shall be adopted. By 31 October 2023, sector-specific standards and standards for SMEs shall be adopted.
EU member states want to strengthen the possibility for SMEs to limit the information to be provided. Namely, EU member states ask the European Commission to provide for sustainability reporting standards proportionate and relevant to the scale and complexity of the activities, and to the capacities and characteristics of small and medium-sized undertakings. The next section(supply-chain data collection) will go into more detail as to what this could mean in practice.
EU member states want that the difficulties particularly SMEs are facing in gathering information from different actors throughout their value chain are to be taken into account when drawing up standards, by specifying proportionate disclosure obligations and taking into account, in particular, undertakings in the value chains which are not subject to obligations under the Directive. In addition, it has been clarified that for a transitional period of three years, undertakings that are unable to provide certain information due to the lack of data from undertakings in their value chains, in particular SMEs, will be afforded flexibility.
EU member states propose that the transition to reasonable assurance of sustainability reporting happens 6 years after the entry into force of the CSRD, which would be in 2029 or 2030, depending on when the final text of the CSRD is agreed upon and adopted. Member states also propose changes to the educational qualifications required for auditors and to the scope of their activities.
Since this is just the position of the member states of the EU, and the final text is yet to be negotiated with the EU Parliament, there are no direct implications so far. Despite the timeline changes and the potentially less ambitious requirements for SMEs, however, EU member states do not propose any significant changes to the nature of the proposal. Therefore, companies will still need to act as soon as possible to prepare themselves for the new regulations.
Together with experts from large, medium-sized and small companies with experience in sustainability reporting, we have developed a software solution that makes it easier for you to implement the new directive.