Proposed requirement for Paris-aligned transition plans is welcomed.
NGOs from the Alliance for Corporate Transparency have expressed concern following the European Parliament’s decision to both delay and scale down the scope of the much-anticipated Corporate Sustainability Reporting Directive (CSRD).
Replacing the Non-Financial Reporting Directive (NFRD), the CSRD will require large firms to provide a non-financial statement on a series of ESG-related factors, in alignment with the taxonomy.
The European Parliament has now finalised its position through a cross-party majority vote in the Legal Affairs Committee (JURI), introducing a number of changes to the proposed legislation.
As part of these changes, listed small- and medium-sized enterprises (SMEs) have been taken out of the scope of mandatory reporting.
They were initially included via a simplified framework with a three-year application delay compared to the timeline for large companies. EU supervisors, including the European Central Bank and European Securities and Markets Authority, supported this simplified mandatory standard for SMEs.
The European Parliament has instead proposed a review clause asking the EU Commission to assess the “possible extension” of the scope to listed SMEs.
“This creates a clear risk of a funding gap at a critical time for the EU economy. Investors, banks and asset managers have repeatedly called for sustainability information from SMEs to carry out risk assessments and fulfil their own reporting and due diligence obligations,” said a statement from the Alliance, a civil society platform representing sustainability focused NGOs, which recently sent coordinated a letter to MEPs, calling for the scope of the CSRD to be broadened.
“We deeply regret to see the European Parliament is less ambitious scope-wise than the Commission and the Council, leaving out SMEs from the scope of the directive (99.8% of the economy),” said Julia Linares Sabater, Senior Sustainable Finance Policy Officer at the World Wide Fund for Nature’s (WWF) European Policy Office.
The implementation of CSRD will also be delayed by one year, despite a multi-stakeholder collective recently calling on the Parliament and Council to maintain momentum. The delay means that all in-scope companies will be required to disclose in line with the new rules as of 2024, publishing their reports in 2025.
This follows other delays to parts of the EU’s sustainability legislation, including the corporate sustainability due diligence directive and the Sustainable Finance Disclosure Regulation (SFDR).
Nonetheless, the NGOs welcomed Parliament’s further specifications on disclosures of sustainability targets and transition plans in line with the Paris Agreement, as well the prioritisation of developing sector-specific standards for high-risk industries.
Mirjam Wolfrum, Director of Policy Engagement, Europe, at CDP said the sustainability disclosure platform was supportive of the “introduction of requirements for time-bound and measurable science-based targets in the reporting for a companies’ strategy”. Wolfrum urged policymakers to ensure that future transition planning requirements are also in line with “the latest science”.
Trilogue negotiations between the European Commission, Parliament and Council will start on 28 March, with the proposal finalised over the course of the next few months.
“An ambitious agreement needs to be reached before summer between co-legislators to avoid further delays,” said Susanna Arus, EU Public Affairs Officer at Frank Bold.
“The final CSRD text should incorporate changes proposed by the Parliament that aim to strengthen the quality and relevance of corporate transparency on sustainability matters and dismiss counterproductive proposals that reduce the scope of companies or delay the implementation of a reform key to the transition and resilience of the EU economy.”