EFRAG Simplification Announcement: Simplifying sustainability reporting should improve environmental data and prevent greenwashing
The European Financial Reporting Advisory Group (EFRAG) has proposed changes to the Corporate Sustainability Reporting Directive (CSRD) to reduce the reporting burden on firms by 50%. These changes will focus on areas of material environmental impact specific to each business, and large companies will have less responsibility for their suppliers' environmental impact. The European Commission's Omnibus package aims to simplify corporate sustainability requirements to enhance competitiveness, with reporting requirements delayed by two years under a "stop the clock" initiative.
Brendan Kean, ESG Partner at Baker Tilly Ireland, in his recent conversation with the Business Post mentined, he believes these changes will improve the quality of environmental data and prevent greenwashing. He argues that the delay allows companies to produce reliable and consistent information, building a strong foundation over time. Kean also notes that businesses in jurisdictions with less stringent ESG requirements will benefit from this managed approach to strengthening requirements.
Businesses in Ireland and the EU compete with others in jurisdictions with less onerous ESG requirements. We absolutely need to do this—but we need to do it in a managed fashion, where the requirements strengthen over time.
The original CSRD legislation required firms with over 500 workers to report on up to 1,200 data points. The new proposal potentially raises the threshold to 1,000 staff, reducing the number of companies affected and halving the data points. Additionally, the requirements for SMEs to produce sustainability data for larger firms will be reduced, easing the burden on suppliers. This reconsideration is seen as a positive development, reducing pressure on SMEs to provide data up the value chain.
A 50% reduction in the 'datapoints' has to be welcome. A 'less granular approach” to narrative disclosures, removing datapoints deemed irrelevant or redundant.
Mark Lumsdon Taylor, ESG Partner at MHA added, that the response for ensuring transparency with the practical realities faced by businesses is welcome - the key question remains the thresholds at which the rules will apply, and the proportionality (if any) for businesses of different sizes. The secondary question will be what EU Countries do in terms of their 'gold plating' on the final rules. There is no doubt that the anticipated reduction of datapoints (50%+) is not just a data process, it is 'considered' given the level of stakeholder input. The test is going to be in the assurance, regulation and applicability.
In conclusion, the proposed changes to the CSRD are expected to improve the quality of environmental reporting and prevent greenwashing, while making the requirements more manageable for businesses. The delay and simplification will help companies produce better data and strengthen their reporting over time.
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