EU: Parliament clarifies obligations for companies' sustainability reporting but leaves all SMEs out of the mandatory framework
15 March 2022
The European Parliament’s JURI committee has approved its position on the EU Corporate Sustainability Reporting Directive (CSRD) with a wide and cross-party majority. Following this vote, the CSRD proposal will move to the final stage of the legislative process and enter trilogue negotiations between the EU Commission, European Parliament and the Council (the latter adopted its initial position in February).
While it is positive to see that the legislation is overwhelmingly supported by Members of the European Parliament, their position on scope takes an alarming step backwards:
- Listed SMEs are taken out of the scope of mandatory reporting. Initially included in the proposal via a simplified framework with an application delay of 3 years (compared to large companies), the European Parliament has only proposed a new review clause (Article 5a) including a request for the EU Commission to assess the “possible extension” of the scope to listed SMEs.
- Additionally, a new Article (7a) requests the EU Commission to identify and develop a list of high-risk sectors. However, the inclusion of SMEs in such high-risk sectors (whether listed or not) remains tied to the review clause (and subject to an assessment to be delivered before the end of 2026)...
On a positive note, the European Parliament has included notable improvements, specifically:
- Further specification of the disclosure of sustainability targets and transition plans in line with the Paris climate agreement, additional guidance for the development of mandatory EU standards on climate matters, as well as the alignment of due diligence related disclosures with the recent proposal for the EU Corporate Sustainability Due Diligence Directive and the prioritisation of specific high-risk industries for the development of sector-specific standards...
- Removal of the exemption for large companies that are subsidiaries of groups to report sustainability data...
Last but not least, the European Parliament is proposing a one year delay compared to the original proposal, therefore asking all large companies to disclose according to the new rules and standards as of 2024 (reports published in 2025). Multiple stakeholders, including leading investors, asset managers and civil society organisations published a statement earlier this year warning against any further delays and outlining the urgent need for all users of sustainability data to get this information. Russia’s military attack on Ukraine has accentuated the issue of energy security for the EU as well as the urgent need to become independent from fossil fuels (see REPowerEU: Joint European action for more affordable, secure and sustainable energy communication). The CSRD and the accompanying EU standards are one of the main tools to ensure the successful implementation of the EU Green Deal and Sustainable Finance agenda - the roadmap that needs to be accelerated to transition away from the production and import of fossil energy resources.