Business in the Community Ireland calls for Ambitious EU Sustainability Reporting Standards (ESRS)
Business In the Community Ireland (BITCI) welcomes the Corporate Sustainability Reporting Directive (CSRD) and other regulatory efforts (IFRS Sustainability Disclosure Standards, the Corporate Sustainability Due Diligence Directive, etc) intended to ensure more transparent, accurate, and consistent non-financial reporting.
We are proud to be a part of the European Union’s leading efforts to improve ESG reporting and accountability. These efforts will support the achievement of the Green Deal and other ambitious plans designed to avert the worst effects of the climate crisis and lead the EU toward a more equitable and inclusive society.
At BITCI we encourage our members, 120 of Ireland’s leading organisations, to go above and beyond compliance and to focus on improving Economic, Environmental and Social impact through good Governance (EESG). The CSRD represents an opportunity for our members, to not just comply with the standard, but to reassess their priorities and to aim to play a more impactful role in local, national, and global economies.
Because of this and the many other benefits a sound ESG strategy provides, we would like to express our concern and disappointment regarding several of the most recent revisions to the European Sustainability Reporting Standards (ESRS) released by EFRAG in June. The version released in November 2022 was a compromise from the original proposal which we believe is now being further eroded. While some of the changes are welcome, we believe that several changes will compromise the original intention of the CSRD.
Materiality
Changes:
Originally all 136 disclosure requirements were mandatory unless otherwise justified (the “rebuttable presumption” method). In the compromise draft (November 2022) the disclosure requirements were reduced from 136 to 82 and the rebuttable presumption method was replaced with a mix of mandatory disclosures and disclosures based on materiality. Where a topic was deemed to be non-material, a brief explanation was required. In this latest compromise, the mandatory disclosures (all but ESRS2 – Cross Cutting) have been eliminated. Additionally, the non-material explanation is no longer required.
Concerns:
- The greater the reliance on materiality, the more variability will be introduced into the reporting process. This leads to potential issues aggregating data, designing systems and structures that support disclosure, and assuring the reports. The aim of the CSRD is to put non-financial reporting on par with financial reporting. This fully “opt in” materiality approach in the most recent version doesn’t mirror financial reporting practices and could potentially create inconsistencies in reports, making it difficult for investors to make effective decisions.
- The compromise of mandatory disclosures in the November 2022 version was targeted at addressing the most urgent issues (climate change, the biodiversity crisis, vulnerable non-employee workers). Removing these mandatory disclosures could hamper progress in these areas.
- This change now introduces confusion where a disclosure is mandatory under say SFDR, but not under CSRD.
- This heavy reliance on materiality increases the burden on the materiality assessment process itself. There is no longer room for error lest a topic be erroneously excluded, which could potentially result in additional compliance costs and an overreliance on professional materiality service providers.
Phase Ins
Changes:
Originally the first disclosures would be required in 2024 based on 2023 data. The compromise draft (November 2022) postponed the deadline by one year and introduced additional flexibility in the structure for the presentation of the sustainability statements. This provided additional time to comply with specific aspects within the presentation of information. In the latest compromise, deadlines have been pushed back (comprehensively) for companies less than 750 employees and partially for companies with more than 750 employees in what is described as a phased approach.
Concern:
Our member companies have been working diligently since the draft standards were released in November to assess and begin to close reporting gaps. Their process has been comprehensive, not piecemeal. Providing deadline relief for certain disclosure requirements will introduce confusion into the process by offering companies not one but potentially three separate waves of deadlines to meet. Additionally, the arbitrary 750 employee threshold is a concern. From 2025 to 2028, 30,000 of the 50,000 companies in scope for CSRD (sixty percent) will be disclosing varying levels of information, some may choose to report to the original deadlines, some may choose to avail of the phase in deadlines. This will introduce unnecessary chaos into the reporting and assurance system for three years. And the crises that these standards were meant to address have not changed if anything they have become more urgent. Delaying deadlines delays progress.
We support like-minded organisations in encouraging the EU Commission to reconsider these changes. We join Eurosif in asking for the reintroduction of the mandatory disclosure requirements, and CSR Europe in asking for “the substitution of a more forward-looking alternative [to the phase-in approach] as represented by the adoption of an initial two years ‘best effort clause’ to the implementation of the ESRS, as similarly included in the SFDR disclosure”. There is a concern among the business community, especially smaller companies, on the proportionality of the requirements. The guidance provided to in-scope companies must be clear and actionable and should incentivise going above and beyond compliance. The CSRD and all disclosure reporting is a means to an end, that being a more responsible and sustainable business.
Respectfully,
Tomás Sercovich, CEO
Business in the Community Ireland (BITCI)
7th July, 2023
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