European Union sustainability disclosure rules are set to give companies more room to decide what should be reported, though safeguards should ensure this makes little difference in practice, a senior EU agency official has said.
The EU is rolling out its corporate sustainability reporting directive (CSRD) to force 50,000 listed companies to make environmental, social and governance (ESG) disclosures in annual reports for 2024 onwards.
Detailed rules have been drafted by the European Financial Reporting Advisory Group (EFRAG), an EU body, but the European Commission is due to ease them amid pushback from some EU lawmakers worried about mounting red tape from the bloc's "green deal" reforms.
"I think that the exercise that the Commission is performing is going in the right direction, it's opening more space for judgement without creating leeway," Patrick de Cambourg, chair of EFRAG's Sustainability Reporting Board, told Reuters.
"I think also that they will consider phasing-in options for smaller entities. You have also the possibility to introduce a little more voluntary disclosures as compared to the required ones," de Cambourg said.
Most of the draft standards proposed by EFRAG are already based on "materiality", meaning the company decides if an ESG factor is substantial enough to warrant reporting, though disclosures on carbon emissions would be mandatory.
But the Commission is expected to increase the number of disclosures based on materiality.
De Cambourg said companies would still have to report anything that is material, with market pressure and external auditors providing safeguards against incomplete reporting.
"Either under a materiality assessment or under a mandatory disclosure, I think that at the end of the day the outcome would be very, very close," de Cambourg said.
The Commission is expected to put a revised version of EFRAG's proposals to public consultation imminently.
"We are considering changes to lessen the reporting burden, helping companies to adjust to this new regime," EU financial services commissioner Mairead McGuinness told a banking conference on Thursday.
Commission president Ursula von der Leyen has said reporting requirements for companies in general should be reduced by a quarter this year, adding pressure on McGuinness.
