The European Council has announced a two-year delay to the full enactment of the Corporate Sustainability Reporting Directive (CSRD), pushing back the adoption of sector-specific sustainability disclosure standards and reporting obligations for non-EU companies until 2026. Originally adopted in November 2022, the CSRD created reporting obligations for both publicly traded and privately held businesses in the EU starting in 2024, with the creation of European Sustainability Reporting Standards (ESRS) delegated to the European Financial Reporting Advisory Group (EFRAG). The first round of ESRS standards was adopted by the EU in July 2023.
While the ESRS includes sustainability in its title, it covers broader environmental, social, and governance reporting requirements. These standards will work alongside the International Financial Reporting Standards Foundation’s Sustainability Disclosure Standards to address various issues such as greenhouse gas emissions and climate action in 132 jurisdictions. Initially, the ESRS will apply to publicly traded and large privately held companies, with small and medium-sized businesses and non-EU companies meeting certain requirements to be included in the future.
The directive also called for sector-specific standards to be developed by EFRAG, but significant delays were encountered as this process proved more complex than anticipated. As a result, the EU decided to postpone work on sector-specific standards and instead focus on providing better guidance for the general ESRS. After a three-month process through the legislative bodies of the EU, the delay proposal for implementation was officially adopted on April 30 by the European Council, postponing the sector-specific standards of the CSRD until 2026.
With ongoing political and legal challenges facing ESG and sustainable reporting, further changes to the CSRD are expected, particularly in relation to small and medium-sized enterprises (SMEs). The outcome of the 2024 EU elections in June could also impact other sustainability initiatives and potentially lead to more delays. It remains to be seen how these developments will affect businesses and their reporting obligations in the future as sustainability reporting continues to evolve in the EU and beyond.
