Members of the European Parliament this week rejected a motion aimed at scrapping the new European Sustainability Reporting Standards (ESRS), which will apply to more than 50,000 companies from 2024.
The motion, which was tabled by a group of MEPs from the European People’s Party (EPP), had sought to scrap the ESRS due to the “high administrative burden” it would place on businesses as a result of the complexity of sustainability reporting standards. Instead, it looked to replace the rules with a simpler alternative that would streamline corporate disclosures.
The group had also argued that the reporting of Scope 3 (indirect) emissions, the most significant of a businesses emissions, should be voluntary rather than mandatory. Furthermore, it suggested that companies should have more flexibility to decide which topics are and are not material to their operations and value chain.
But, the motion has been rejected by a vote of 359 to 261. As such, the ESRS will now be formally adopted and published in the Official Journal of the European Union before the end of the year and take effect in 2024 and beyond.
“Today’s vote confirms Europe’s commitment to corporate transparency and informed decision-making for the transition to a just and sustainable economy,” said Jurei Yada, Programme Lead for Sustainable Finance at think-tank E3G. “The last-minute calls to reject and water down the sustainability standards were an attempt to instrumentalise businesses and SMEs to justify inaction. Businesses and SMEs need support and guidance to seize the opportunities of this transition.”
The Corporate Sustainability Reporting Directive (CSRD) and ultimately the ESRS standards that underpin it are part of the European Green Deal, which sets a framework of policies and initiatives for reaching the EU’s climate objectives. The rules require EU companies and financial institutions to self-assess the sustainability of their operations and disclose relevant information for investors and financial market participants.
Next steps
Large businesses will need to embed environmental disclosures, made in line with the ESRS guidance, in their annual report from 2024. The mandate will then extend to smaller businesses in phases through to 2026.
More than 50,000 businesses are expected to be directly impacted by the requirement to gather and report data. However, a significant number of smaller suppliers across supply chains will also be affected indirectly, as they will be required to gather and report data to their larger customers.
For directly impacted businesses, many existing standards, such as the GRI now have a high level of interoperability between the ESRS and its own widely used GRI Standards, reducing the reporting burden required by companies.
