EU to lower ESG reporting metrics to boost competitiveness and reduce compliance costs
The European Commission aims to lower its ESG reporting requirements, recognizing the compliance costs it may imposed on firms and consumers.
In a discussion over its Omnibus package in Brussels yesterday, the European Commission announced amendments to the Corporate Sustainability Reporting Directive, aiming to reduce the scope of firms forced to comply with the law, and further delaying the reporting requirement by up to two years.
The previous version of the CSRD required companies in scope to submit detailed reports on Environmental, Social, and Governance (ESG) metrics in line with obligations of the Paris Climate Accords and the European Green Deal. It was previously estimated that roughly 50,000 individual firms with some presence on the continent would be subject to the directive.
The directive applies to firms with presence in the EU, but also requires ESG reporting on all global activities.
In the amendments, which must still be approved by the EU Parliament and Council, eligibility for ESG reporting has been raised from 500 to 1,000 employees, as well as any firm with with revenues over €50 million or €20 million in assets, previously at €40 million in revenue.
What's more, the EU Commission stated it will grant "derogation" (exemption) to any firm with less than €450 million in revenue by making the declarations voluntary.
The commission states it is "recalibrating" the reporting rules in order to avoid "excessive sustainability information requests". It notes the amendments would save firms about €6.3 billion per year in administrative and compliance work.
Who could still be affected?
This is a quick turnaround from the European Commission, as amendments to large regulatory packages like the CSRD are rather rare, and not without protracted debate.
The impetus to relax the rules likely stems from the recommendations of the Draghi report on competitiveness, which highlighted this sustainability reporting as a "major source of regulatory burden".
Draghi also notes the overlapping obligations of the CSRD with other regulations, especially the Corporate Sustainability Due Diligence Directive, and how those increase costs especially for small and medium-sized companies that fall into the scope of the regulations.
Though the scope has been narrowed, it would still include tech firms like Swedish streaming giant Spotify, Dutch semiconductor firm ASML, German software firm SAP, as well as US tech firms like Amazon, Microsoft, Google, and Meta, along with hundreds of others.
