EU Council Approves Delay in Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) Sustainability Reporting Regulations
In a significant development for businesses across Europe, EU member states in the European Council have endorsed the European Commission's directive to delay the implementation of critical sustainability reporting and due diligence regulations. This includes the CSRD and the CSDDD.The approval of the “stop-the-clock” directive marks a pivotal move in the Commission’s Omnibus I package, designed to alleviate the regulatory burdens associated with sustainability reporting, particularly for small and medium-sized enterprises (SMEs). The Omnibus package, released in February, proposes a comprehensive set of changes to several regulations, including the CSRD, CSDDD, Taxonomy Regulation, and Carbon Border Adjustment Mechanism (CBAM).
Key proposals within this package include extending the timeline for companies that have yet to start reporting under the CSRD by two years, and delaying the transposition of the CSDDD by one year. The Commission emphasized the need for rapid implementation of these delays to provide companies with the necessary regulatory certainty, thereby preventing a scenario where businesses are required to initiate reporting only to later be relieved of that obligation.
Among the proposed changes, the CSRD is set to have its scope dramatically narrowed, focusing only on companies with over 1,000 employees and annual revenues exceeding €50 million. This adjustment is expected to exclude around 80% of businesses from the sustainability reporting requirements. Additionally, the European Sustainability Reporting Standards (“ESRS”) will be revised to significantly reduce the number of required data points.
Proposed modifications to the CSDDD include limiting full due diligence obligations to direct business partners, unless there is credible information indicating adverse impacts further down the supply chain. Furthermore, the frequency of monitoring due diligence effectiveness is suggested to shift from an annual basis to every five years.
The directive also seeks to set boundaries on the sustainability-related information that larger companies can request from smaller partners in their supply chains, based on voluntary standards for SMEs recently established by the European Financial Reporting Advisory Group (EFRAG).
As the European Parliament prepares to vote on the “stop-the-clock” proposal on April 1, these developments reflect a significant shift in the regulatory landscape for sustainability reporting in Europe, with a clear focus on enhancing clarity and reducing the compliance burden for businesses.
For more information, please visit https://www.esgtoday.com/eu-council-approves-delay-to-csrd-and-csddd-sustainability-reporting-regulations/.
SEC Withdraws Support for Climate Reporting Regulations
In a notable shift, the U.S. Securities and Exchange Commission (SEC) has announced its decision to cease its legal defense of climate disclosure rules. This effectively means the SEC will no longer advocate for regulations that require companies to disclose climate risks and greenhouse gas emissions, while not formally rescinding the rules themselves.The announcement was made by SEC Acting Chairman Mark Uyeda, who previously opposed the climate reporting rule, describing it as "costly and unnecessarily intrusive." The climate disclosure regulations were initially adopted under former Chair Gary Gensler in March 2024, establishing requirements for public companies to disclose their exposure to climate-related risks, financial impacts of severe weather, and, in some instances, their greenhouse gas emissions.
Almost immediately after the rules were announced, they faced significant legal challenges, including lawsuits from 25 Republican state attorneys general and appeals from the U.S. Chamber of Commerce. These challenges prompted the SEC to pause implementation of the rules while reviewing the legal petitions.
The decision has drawn considerable backlash from sustainability-focused investors, who stress the importance of transparent climate risk information. Steven M. Rothstein from the Ceres Accelerator for Sustainable Capital Markets noted that with $50 trillion in assets under management, investors overwhelmingly support the climate disclosure rule, viewing the SEC's withdrawal as a setback in addressing climate-related financial risks.
As the SEC navigates this complex and evolving landscape, the implications of its decision will likely resonate throughout the investment community, highlighting the ongoing debate over corporate responsibility in climate disclosure.
For more information, please visit https://www.esgtoday.com/sec-drops-its-defense-of-climate-reporting-rules/.
Interoperability: The Key to Advancing Global Sustainability
In an era of increasing uncertainty regarding sustainability regulations, interoperability—the ability of regulatory systems to function seamlessly across different regions—has emerged as a critical priority for asset managers. While many view interoperability primarily in terms of cost savings and reduced administrative burdens, its importance extends far beyond these aspects. It is essential for effectively addressing global challenges such as climate change, biodiversity loss, and human rights issues. A fragmented regulatory landscape diverts resources from meaningful contributions to sustainability, ultimately hindering progress toward shared goals and eroding consumer trust.The journey toward achieving interoperability on a global scale is still in its early stages. While the European Union has established itself as a leader in sustainable finance regulation, its position is now challenged by the Omnibus proposal. Other regions, including Hong Kong, Japan, China, Singapore, Canada, Australia, Switzerland, and the UK, are developing their own sustainability frameworks, each reflecting unique priorities and approaches.
As the EU prepares to finalize its “Omnibus” regulation, the implications for non-EU companies required to report under the CSRD will lead to heightened regulatory expectations. Currently, EU-based subsidiaries that meet specific thresholds must comply with CSRD requirements, while their counterparts in other jurisdictions may face different reporting obligations, such as those set by the International Sustainability Standards Board (ISSB).
In the U.S., the absence of a standardized ESG framework complicates matters further. Companies must navigate their ISSB reporting responsibilities abroad while avoiding the appearance of omitting critical information in SEC filings, creating uncertainty and potential compliance risks. This fragmented regulatory environment poses significant challenges for businesses.
While some progress has been made in aligning investor regulations, significant fragmentation persists. For example, the Sustainable Finance Disclosure Regulation (SFDR) in the EU has established a framework for sustainable investing but differs considerably from the UK’s Sustainable Disclosure Requirements (SDR). There is no direct counterpart in the U.S., where the SEC's proposed ESG fund categorisation rules present yet another variation.
Despite these challenges, there are reasons for cautious optimism. The UK’s SDR development appears to draw lessons from the initial hurdles faced by the SFDR. Additionally, the EU Green Taxonomy offers potential for alignment, though its complexity and regional focus have drawn criticism. The UK’s recent consultations on developing its own taxonomy could lead to either increased alignment with the EU or further fragmentation.
Sustainability reporting is similarly affected by fragmented standards. While the ISSB aims to establish a global reporting standard, local implementations may vary. The ISSB focuses on financial materiality, whereas the CSRD currently emphasizes double materiality, addressing broader social and environmental impacts.
Efforts to bridge these gaps are underway, with regulatory bodies seeking to guide companies in reporting against both ISSB and CSRD standards. However, inconsistent implementation across jurisdictions remains a concern.
The road to interoperability is fraught with challenges, but two developments offer hope: increased harmonization of regulations and technological advancements.
Efforts to align corporate reporting and fund disclosure rules are crucial. Initiatives like the International Platform on Sustainable Finance (IPSF) aim to create a Common Ground Taxonomy among the EU, China, and Singapore, which could serve as a foundation for interoperability in sustainable finance.
Technology also plays a transformative role. Advances in AI and machine learning are revolutionising sustainability reporting, enabling companies to streamline data collection and compliance across multiple frameworks. Some firms have reported reducing the workload associated with SFDR compliance by up to 80%, significantly easing operational burdens.
To conclude, Interoperability is vital for achieving sustainable progress on a global scale. As the world confronts urgent issues like climate change and social inequality, enhanced interoperability in sustainability regulations will facilitate meaningful transitions. While regulatory fragmentation may persist, access to transparent and robust data about sustainability performance is essential for navigating this complex landscape.
For more information, please visit https://www.esgtoday.com/guest-post-interoperability-the-missing-link-in-global-sustainability-efforts/.