Position paper on an EU Sustainable Reporting Framework for a Sustainable European Economy

KEY MESSAGES

• Consistency and coherence with existing EU acquis and thedevelopment of the EU Sustainable Finance framework must be ensured, including 1) the review of the Renewable Energy Directive RED II(I), 2) the EU Taxonomy framework, in particular the reporting requirements (Art. 8 Delegated Act), 3) the EU Strategy for financing the transition to a sustainable economy. Also, coherence with the work carried out by the European Financial Reporting Advisory Group (EFRAG) must be ensured.

• The implementation timeline for the CSRD reporting requirements should consider, and be calibrated with, other regulatory initiatives.

• We encourage applying a phase-in approach together with a comply-or-explain procedure for data where it can be justified not to follow setup in full. 

• Content-wise, reporting requirements should not lead to disproportionate obligations for companies, particularly if the requested level of detail does not create added value for data users.

• The CSRD should strive for a level playing field regarding reporting requirements. Such requirements should apply to listed and non-listed companies identically. Specific considerations for SMEs could be considered, but it should not become the general rule. We welcome clarification on the principle of materiality in the Commission’s CSRD proposal. Nevertheless, some challenges could arise during implementation due to the increase in EU sustainable finance obligations. Particularly regarding adaption to climate risks, it is important to avoid using a disproportionate level of scenarios for assessment and mitigation process. 

• Regarding the proposed regulations on carrying out the assurance of sustainability reporting, we support the proposed third-party assurance to ensure a level playing field for companies and improve the quality and disclosure of information. We also support reasonable assurance. However, it has taken time and resources to develop the necessary internal controls and data quality for financial data. Mature handling of ESG data will also take time to develop. Thus, a phasing-in period is required to allow new requirements for reporting and assurance practices for sustainability information to reach a higher degree of maturity. This means establishing a step-by-step focusing on the essential requirements and, in future, expanding it. Moreover, the assurance level should be reviewed after one or two reporting cycles based on global or EU standards. 

• Information on intangibles is a particularly sensitive issue. Although intangibles play an increasingly significant role in modern business, they are difficult to identify and measure. Thus, at this stage, regulating the issue of intangibles is premature. At best, regulation of intangibles should be considered in the coming years to allow time to explore the topic.

• In terms of publication, in the long term, we support the idea of including sustainable information in the management report and it should be mandatory to publish financial and non-financial documents jointly and with the same digital method (as prescribed by the new Art. 30 of the Accounting Directive). However, as for now, we encourage a phase-in approach such that undertakings can benefit from some flexibility in implementing the new reporting rules. A similar phase-in approach should apply to assurance procedures. More information on this below.

• We support a new single electronic reporting format (Art. 19d). Nevertheless, Eurelectric recommends considering:
  • An exemption regime for the consolidated financial reporting requirements (Art. 23) of the Accounting Directive. This simplifies the reporting process at parent company level for subsidiaries;
  • The implementation of a single reporting platform should only occur after the full establishment of the necessary prerequisites and still offer some flexibility in the choice and timing of publication as it allows companies to better reflect their path towards a sustainable agenda.  

• An ‘equivalence principle’ should apply when assessing non-EU activities reported according to EU publication requirements. An EU company must be able to report non-EU activity (e.g. a US wind park) to be considered sustainable. Vice versa, third-country companies can report EU activities according to their national reporting standards, but this will only be considered sustainable by the EU if the activity is subject to equivalent rules. For this to work, it takes proper alignment and reciprocity rules concerning taxonomy regulations between the EU and third countries. 

• It is important to ensure international convergence. The CSRD proposal states that the EU should take account of any sustainability reporting standards developed under the auspices of International Financial Reporting Standards Foundation (IFRS). However, IFRS has started restricting their activities to climate change while CSRD has a broader sense beyond climate issues. In this case, ensuring consistency of sustainability reporting (the same level of requirements) across the EU and globally should be a priority.

• Overall, we support the development of EU Reporting Standards. Nevertheless, the following elements should be considered:
  • The development and implementation of a standard should be pragmatic and realistic. The timeline should fit other ongoing EU (sustainable finance) legislative activity and process, ensuring that relevant stakeholders’ perspectives are considered.
  • Enough timebetween the adoption and the implementation should be given.
  • It is crucial to consider alignment and coherence with existing global standards largely used by companies. 

• It is crucial to keep in mind the ongoing development of the EU Taxonomy framework and the interlinkages between such framework and the CSRD.

Electronic reporting format should be implemented subsequently to the definition of the content requirements. It is key to outline the content first and then set up a standardised format and provide enough time to adapt to this new reporting standards.

• We welcome a mandatory but simplified reporting standard for SMEs defined in Art. 19d of the Accounting Directive. As such, implementation and compliance processes should also be facilitated for SMEs. It shall generally be recommended to consider any simplified and less burdensome requirement to be the general rule, i.e. not only for SMEs.