The European Union’s decision to postpone the implementation of sector-specific standards under its Corporate Sustainability Reporting Directive (CSRD) has been met with contrasting viewpoints from sustainability advisers.
While some see the decision as balancing the need for robust reporting with practicalities, others argue that the hold-up will delay real progress in sustainability reporting.
Alexandra Mihailescu Cichon from Zurich-based ESG data science specialist RepRisk said: “I think we can say sometimes that pragmatism has to take precedence over perfectionism. Businesses were struggling with the complexity of the regulation, and I think it’s good that this offers a relief.”
She explained that the delay will allow businesses to set up processes for governance, risk management and due diligence in sustainability-related areas.
Co-legislators agreement
Earlier this month, EU co-legislators agreed to postpone the deadline for applying the sectoral European Sustainability Reporting Standards (ESRS) until June 2026 – two years later than planned. However, the European Commission could still adopt the changes earlier if preparations are completed ahead of schedule.
Vincent Van Peteghem, Belgian deputy prime minister and minister of finance, said the delay would give companies “time to implement the ESRS and prepare for the [sectoral standards]”.
This ambition was, he explained, aligned with the Belgian presidency’s push to “reduce the administrative burden on companies”.
Future work priorities
The agreement also emphasises the importance of developing and adopting standards within the next two years for the first eight sectors identified as high-risk in terms of their impact on sustainability.
In January, the European Parliament voted to delay the application of sector-specific standards ahead of an agreement with co-legislators.
However, Susanna Arus from pan-European law firm Frank Bold told IPE that the delay will reduce clarity for companies and hinder meaningful progress.
“Instead of relieving companies, unduly delaying sectoral standards will only reduce clarity for companies to deliver on their reporting,” she said.
“This is particularly true for companies that have never performed a materiality assessment or that will start reporting sustainability information for the first time,” she continued.
Arus said sector-specific standards are crucial for simplifying sustainability reporting and ensuring that information is reliable and comparable for investors and financial institutions.
Implementation challenges ahead
But despite the differing perspectives, there is broad agreement that companies should leverage this extended implementation period wisely.
RepRisk’s Cichon urged companies to have the right internal processes in place to hit the ground running when they finally apply the new reporting rules. She said preparers must focus on establishing processes for identifying, assessing, escalating and mitigating risks.
And she also warned this was “easier said than done” but that data would have a big role to play in the process.
Additionally, Arus, while endorsing the importance of robust internal processes, advised companies to:
- familiarise themselves with the ESRSs and accompanying guidance; and
- understand the concept of double materiality so that they can adequately address both their impact on the environment and society, as well as how sustainability issues affect their business.
New processes, thinking
Both advisers agreed that it was important for companies to break down organisational silos and engage in board-level discussions about their sustainability strategies.
They also pointed to the complexity of gathering reliable sustainability data. In particular, Arus noted, while the ESRSs provide a framework, they do not prescribe any metrics to measure impacts in the value chain.
Companies, she said, will be motivated by the ESRSs to better understand their value chain to be able to better determine what are their material impacts and risks.
Shifting focus in ESG reporting
The CSRD delay comes amid a revolution in sustainability reporting that involves a shift from merely disclosing policies to providing evidence of how those policies translate into practice.
Amid this shift, investor respondents to the International Sustainability Standards Board’s agenda consultation have urged the standard setter to prioritise support for implementing the board’s first two sustainability standards over developing new ones.
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