Martin Choi, CESGA
The European Union could move a step closer towards consolidating its trio of environmental, social and governance (ESG) reporting frameworks next year, amid growing pressure to reduce the reporting burdens of businesses and increase the competitiveness of the world’s largest trading bloc.
According to a meeting agenda released earlier this month by the EU’s executive arm, the European Commission’s so-called ‘Omnibus Simplification Package’ – a widely touted piece of legislation to streamline existing ESG reporting obligations – could be published as early as February 2025.
At a press conference following an informal meeting of the European Council leadership last month, Ursula von der Leyen, President of the European Commission, outlined plans to address the overlapping reporting requirements across what she called the “triangle” of the EU Taxonomy, CSRD (Corporate Sustainability Reporting Directive) and CSDDD (Corporate Sustainability Due Diligence Directive). She emphasised the need for a comprehensive approach to reduce bureaucratic burden across all fields.
“The content of the laws is good. We want to maintain it and we will maintain it. But the way we get there, the questions we are asking, the data points we are collecting, thousands of them, is too much — often redundant, often overlapping,” von der Leyen said.
“So it’s our task to reduce this bureaucratic burden without changing the correct content of the law that we all want.”
Understanding the EU’s Sustainability Framework Trio
While the three existing frameworks each serve crucial purposes, the proposed consolidation reflects growing recognition that their overlapping requirements create significant challenges in terms of compliance. Companies currently face multiple reporting obligations, often requiring similar information to be presented in varying formats and within different contexts.
The proposed consolidation aims to harmonise these three frameworks which each serve different yet interconnected purposes:
EU Taxonomy
The EU Taxonomy Regulation, which entered into force in July
2020, is a classification system that defines whether economic activities can
be considered as “environmentally sustainable”. It provides companies,
investors, and policymakers with standardised definitions to prevent
greenwashing, and also helps direct investments toward sustainable projects.
The framework focuses on six environmental objectives: climate change
mitigation, climate change adaptation, sustainable use and protection of water and
marine resources, transition to a circular economy, pollution prevention and
control, and the protection and restoration of biodiversity and ecosystems. Reporting
along the climate change mitigation and adaptation objectives has been
mandatory since January 2022.
Corporate
Sustainability Reporting Directive (CSRD)
The CSRD came into effect on January 5, 2023. The directive
expands sustainability reporting requirements for companies operating in the
EU, requiring them to report on their environmental, social, and governance
(ESG) impacts, risks, and opportunities. Companies subject to the CSRD must
follow the European Sustainability Reporting Standards (ESRS),
developed by EU standard-setter EFRAG and adopted by the European Commission in
July 2023. Implementation is already underway for the first
group of large public-interest entities that will need to submit their
reports in 2025.
Corporate
Sustainability Due Diligence Directive (CSDDD)
The CSDDD proposal requires companies to identify and address the
adverse impacts of their activities on human rights and the environment along
their global value chains. This includes obligations to implement due diligence
processes, engage with stakeholders, and provide remediation when negative
impacts occur. This directive was adopted by EU
member states in May 2024, with implementation set to commence in 2027.
Global Implications
The EU’s move to streamline its sustainability reporting requirements comes at a time of broader harmonisation internationally, as regulators and standard-setters worldwide seek to create more consistent and comparable ESG disclosures.
EFRAG – which developed the European sustainability reporting standards for the European Commission – and the International Sustainability Standards Board (ISSB) – the global standard-setter established by the IFRS Foundation – have announced significant alignment between their respective standards.
According to the European Commission’s official adoption of the ESRS, the sustainability reporting standards were developed in consultation with ISSB and the Global Reporting Initiative (GRI) to ensure interoperability between EU and global standards to prevent unnecessary double reporting. This approach aims to support the global convergence of ESG reporting standards while maintaining the specific requirements of the EU.
As the EU makes strides towards streamlining sustainability reporting, the outcome of this consolidation could serve as a blueprint for other jurisdictions facing similar challenges. Companies operating both within and outside the EU will need to stay informed about the development of the Omnibus Simplification Package in order to prepare for a more efficient and globally harmonised ESG reporting landscape in 2025 and beyond.
This article is written by a holder of the EFFAS Certified Environmental, Social, and Governance Analyst (CESGA). CESGA is a globally recognised qualification whose prominence continues to grow worldwide. CESGA has recently achieved a significant milestone as the first programme accredited by European standard setter EFRAG for compliance with the ESRS sustainability disclosure requirements in the EU (mandatory from 2025). For enrolment details, please visit https://bit.ly/40chuOR .
