The Time Is Now: Seeking To Reduce The EU ESG Burden

For those involved in corporate governance, securities law disclosures, or sustainability regulation, you are likely familiar with the European Sustainability Reporting Standards (the "ESRS") and their 1,100+ data points, at the heart of the EU Corporate Sustainability Reporting Directive ("CSRD") reporting requirements. Over the past two years, practitioners have become intimately familiar with the seemingly innocuous new language of "impacts, risks and opportunities," "indirect business partners," and "impact materiality," and at times blindsided by what is in fact an extremely complex, rigorously quantitative, and onerously rigid disclosure regime.

Under the supervision of the European Commission, the European Financial Reporting Advisory Group ("EFRAG") first delivered multiple sets of "E," "S," and "G" reporting standards back in 2022, which after a period of public consultation (responses included a comment by the American Chamber of Commerce in the EU to which we contributed) were adopted as a Delegated Act. The ESRS require EU companies and subgroups (and, potentially, their ultimate U.S. or other non-EU parents) to conduct and publish a deep dive on a number of business practices that were previously confidential or simply not considered material enough to be included in companies' public disclosures.

Last week, the European Parliament approved the "stop the clock" portion of the EU Omnibus reform package, which will delay certain EU companies' CSRD reports by two years (but does not affect current reporting companies and worldwide-level reports due in 2029). Now, attention is turning to more substantive revisions of the CSRD, including the promised simplification of the ESRS. To this end, the European Commission requested that EFRAG deliver a new work plan by April 15, 2025, and the updated ESRS by October 31, 2025. The European Commission will then have to adopt a new Delegated Act within six months of the substantive Omnibus adoption, which could be as early as 2026 or as late as 2028 – not providing tremendous certainty to potentially reporting companies.

Thankfully, these regulatory bodies are providing an opportunity for practitioners, industry and other stakeholders to make their voice heard. EFRAG has opened the ESRS revision process up for public comment until May 6, 2025 including a handy online questionnaire. We hope that this process produces a more manageable body of disclosure rules.

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