Over 40 Members of the European Parliament (MEPs) are advocating for a simpler set of sustainability disclosure regulations to replace the recently established ESRS (Environmental and Social Reporting Standard) for companies.
The ESRS, ratified by the European Commission in July 2023, is designed to provide directives and requirements for companies to report on sustainability-related impacts, potentialities, and risks in line with the upcoming European Union Corporate Sustainable Reporting Directive (CSRD), set to be implemented from 2024. The CSRD is an evolution of the 2014 Non-Financial Reporting Directive (NFRD) and will significantly expand the number of companies required to provide sustainability disclosures, from around 12,000 to over 50,000. It will also mandate comprehensive reporting on companies’ environmental impact, human rights, societal norms, and sustainability-related risks.
However, once ratified by the Commission, the ESRS cannot be modified, although the EU Council and Parliament have the authority to reject it.
The MEPs’ motion argues that the ESRS places a heavy administrative burden on companies due to its complexity, particularly affecting smaller businesses. The resolution also points out the lack of practical Key Performance Indicators (KPIs), suggesting that they will not establish tangible and consistent standards across companies.
To address these concerns, the MEPs are advocating for a new set of regulations to replace the ESRS, with simpler and fewer sustainability reporting standards. They also call for an extended implementation timeline for these new regulations, optional standards for smaller enterprises, and a reconsideration of the employee-based criteria used to determine the company size category for applying these standards.
The motion by the MEPs states that the ESRS “introduces a high administrative burden for companies due to the high complexity of sustainability reporting standards” and notes that the standards “fall short of usable Key Performance Indicators (KPIs),” leading to a lack of “measurable and comparable standards across companies.”
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