Over 40 MEPs have advocated for the replacement of the newly established ESRS with a more simplified set of sustainability disclosure regulations for companies.
The ESRS was ratified by the European Commission in July 2023. Its primary function is to lay out directives and requisites for firms to present reports on sustainability-driven impacts, potentialities, and hazards as per the EU’s imminent Corporate Sustainable Reporting Directive (CSRD).
Scheduled to be implemented from 2024, the CSRD is essentially an enhancement of the 2014 Non-Financial Reporting Directive (NFRD). The novel regulations will substantially augment the quantity of businesses obligated to offer sustainability disclosures – jumping from approximately 12,000 to over 50,000. Furthermore, it will demand a comprehensive report on companies’ impacts on the environment, human rights, societal norms, and sustainability-associated risks.
However, post-ratification by the Commission, modifications to the ESRS delegated act are forbidden. But the EU Council and Parliament retain the right to reject it.
The motion initiated by the MEPs suggests that the ESRS poses a profound administrative strain on companies due to its intricate nature. Especially smaller businesses will face an undue burden. The resolution also highlights the standards’ lack of functional Key Performance Indicators (KPIs), suggesting they won’t provide tangible and consistent standards amongst firms.
As a remedy, the MEPs are pushing for a new act to supersede the ESRS, advocating for less intricate and fewer sustainability reporting standards. Additionally, they’re requesting an extended enactment timeframe for these new regulations, discretionary standards for smaller enterprises, and a revision of the employee-based criteria that determines the company size category for the application of these standards.
The motion by the MEPs stated, “introduces a high administrative burden for companies due to the high complexity of sustainability reporting standards,” and additionally commented that the standards “fall short of usable Key Performance Indicators (KPIs),” which will result in a lack of “measurable and comparable standards across companies.”
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