EU confirms watering down of corporate sustainability disclosures

London: The European Union’s executive body on Monday published final rules for corporate environmental, social and governance (ESG) disclosures, confirming earlier moves to water down the requirements.

European Commission president Ursula von der Leyen had pledged to cut red tape across the EU executive’s work this year as companies complain about the mounting cost of environmental rules.

The European Sustainability Reporting Standards (ESRS) flesh out the bloc’s corporate sustainability reporting directive (CSRD) that large companies will have to apply in annual reports for 2024, with smaller peers following two years later.

The commission has eased draft ESRS standards from its EFRAG advisory body on accounting rules.

The final rules, still subject to two-month scrutiny from the European Parliament and EU states who can only reject but not amend them, introduce additional phase-in provisions for companies with fewer than 750 staff.

All companies will have more flexibility to decide what information is “material” and therefore should be reported, an approach common in financial reporting.

For some data such as carbon emissions from customers, known as Scope 3, the company would have to state they are not material rather than not reporting anything at all.

More disclosures would now be voluntary instead of mandatory, such as on biodiversity transition plans.

The easing was flagged by the commission in June, when it put out its draft changes to EFRAG’s recommendations to public consultation.

The easing was described by HSBC analysts at the time as a “step back” in ambition and robustness, but that may facilitate convergence in sustainability reporting globally.

Eurosif, which campaigns for sustainable finance, said on Monday it was disappointed with the move away from mandatory core disclosures.

The commission said a broader reliance on materiality reflected discussions with the International Sustainability Standards Board (ISSB), which has just approved its own “baseline” global norms based on materiality.

There is now a “very high level of alignment” with ISSB to prevent unnecessary double reporting by companies that operate globally, the commission said.