The European Union’s (EU) executive body has published its final rules for corporate environmental, social, and governance (ESG) disclosures, confirming previous actions to relax the requirements.
European Commission president Ursula von der Leyen had committed to reducing red tape across the EU executive’s work, responding to complaints from companies about the increasing costs of environmental regulations.
The European Sustainability Reporting Standards (ESRS) builds on the bloc’s corporate sustainability reporting directive (CSRD), which will apply to large companies in their annual reports for 2024, with smaller firms following two years later. The commission has relaxed the draft ESRS standards from its EFRAG advisory body on accounting rules.
Although the final rules are subject to a two-month scrutiny period from the European Parliament and EU member states, who can only reject but not amend them, the changes introduce additional phase-in provisions for companies with fewer than 750 employees.
One of the notable adjustments is that all companies will now have more flexibility to determine what information is “material” and should be included in their reports, adopting an approach common in general financial reporting. For certain data, such as Scope 3 carbon emissions from customers and suppliers, companies would have to state that they are not material, rather than omitting the information entirely.
Moreover, some disclosures that were previously mandatory will now be voluntary, including information related to biodiversity transition plans. This relaxation of requirements was initially proposed by the commission in June, based on its draft changes to EFRAG’s recommendations, which were then opened for public consultation.
While this move may facilitate convergence in sustainability reporting globally, it has been met with criticism. HSBC analysts described it as a “step back” in ambition and robustness. Eurosif, an organisation advocating for sustainable finance, expressed disappointment with the shift away from mandatory core disclosures.
The commission defended the broader reliance on materiality, citing discussions with the International Sustainability Standards Board (ISSB), which recently approved its own “baseline” global norms based on materiality.
According to the commission, there is now a “very high level of alignment” with ISSB, aiming to prevent unnecessary double reporting by companies operating on a global scale.
