Sustainability update

• Polish Council Presidency: key sustainability priorities
• EFRAG delivers voluntary sustainability reporting standards for SMEs
• Mapping EMAS against ESRS to streamline sustainability reporting

European Commission unveils compass to regain EU competitiveness

The European Commission (EC) unveiled the Competitiveness Compass identifying the key elements to boost EU competitiveness. It identifies five horizontal enablers to deliver on three core areas of action: innovation, decarbonisation, and security. Simplification is the first enabler consisting of:

• regulatory and administrative burden reduction
• introducing a new category of small mid-caps that will benefit from tailored regulatory simplification
• cutting reporting obligations by 25% for companies and 35% for SMEs
• proposal of an omnibus simplification package to streamline sustainability reporting obligations, due diligence, and the EU taxonomy (so called ’omnibus proposal’)
• simplifying the Carbon Border Adjustment Mechanism (CBAM) for smaller market players

The EC is also expected to issue an ‘omnibus proposal’ on 26 February 2025 to enhance Europe’s competitiveness and reduce administrative and reporting burdens. This proposal aims to cut down administrative requirements for companies across multiple EU policy areas in one sweep.

See Accountancy Europe first specific recommendations for administrative burden reduction.

Polish Council Presidency: key sustainability priorities

On 1 January 2025, Poland took over the presidency of the Council of the European Union (EU). The Polish Presidency will  primarily focus on strengthening EU defence and security in response to the Russian threat, tackling irregular migration, and combating international organised crime.

On sustainability-related matters, the Polish presidency will concentrate on:

• making energy-climate policy more flexible to reduce bureaucratic burdens and restore European competitiveness
• reducing reporting obligations and simplifying EU legislation
• developing tools to combat disinformation on EU environmental and climate policies
• substantiating green claims and advancing negotiations on the Green Claims Directive to combat greenwashing

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Sweden must align with CSRD, says European Commission

The EC sent a reasoned opinion to Sweden for failing to align its legislation with the Corporate Sustainability Reporting Directive (CSRD). In Sweden, companies are required to start reporting after 1 July 2024. This does not comply with the CSRD, as Sweden is delaying the application of the reporting requirements by six months, potentially creating an unlevel playing field for EU companies across Member States (MS). Sweden has two months to respond and address the shortcomings raised by the EC.

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EFRAG delivers voluntary sustainability reporting standards for SMEs

EFRAG provided its technical advice to the EC on the Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME). This standard targets undertakings outside the CSRD’s scope that wish to report sustainability information.

To promote the adoption and implementation of the VSME, EFRAG has announced a series of initiatives for 2025,  including:

• publishing support guides and educational material
• conducting outreach activities
• organising awareness raising events and
• monitoring of emerging tools and platforms.

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Mapping EMAS against ESRS to streamline sustainability reporting

The EFRAG Secretariat published a paper outlining the synergies and differences between the ESRS and the voluntary Eco-Management and Audit Scheme (EMAS) mapping. The report highlights key areas of alignment, including:

• both ESRS and EMAS require the preparation of a report on the same basis
• the scope of reporting differs as EMAS uses the site, while the ESRS considers the reporting entity. However, the EFRAG Secretariat concludes that for EMAS purposes, the entity can cross-reference ESRS information
• stakeholder engagement is a requirement in both frameworks
• the impact assessment under EMAS aligns closely with that of ESRS
• EMAS environmental policy could be used for ESRS reporting of the policies
• both frameworks demand external verification and assurance.

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PSF recommendations on EU Taxonomy and transition plans

The EU Platform on Sustainable Finance (PSF) issued a draft report on the EU Taxonomy, recommending:

• a review of technical screening criteria and analysis for the Climate Delegated Act
• new activities mandated by the EC, and
• further recommendations for climate change adaptation.

Stakeholders can submit their feedback on the draft report until 5 February 2025.

Additionally, the PSF issued a report providing recommendations to the EC on developing and evaluating corporate transition plans aligned with the EU’s environmental objectives and social commitment in line with the Paris Agreement. The report identifies four core elements aligned with the CSRD and the Corporate Sustainability Due Diligence Directive (CS3D):

• science-based and time-bound targets
• key levers and actions to achieve these targets
• financial planning
• governance and oversight of the plan and its implementation.

EBA consults on guidelines for ESG scenario analysis

The European Banking Authority (EBA) launched a public consultation on its draft guidelines for ESG scenario analysis.

The guidelines outline expectations for credit institutions when adopting forward-looking approaches and incorporating the use of scenario analysis as part of their management framework. The goal is to test financial and business models’ resilience against adverse ESG factors.

The draft guidelines complement EBA’s guidelines on ESG risk management, released on 9 January. The consultation is open until 16 April 2025.

CS3D datahub shows fewer than 3,400 EU-based corporate groups covered by law

The EU’s CS3D is expected to apply to only 3,400 EU companies, according to an analysis by the Centre for Research on Multinational Corporations (SOMO). This accounts for less than 0.1% of EU companies.

The SOMO database, which identifies companies that fall within the CS3D scope, lists 7,000 eligible companies, including 5,000 within the EU, many of which are subsidiaries of larger corporate groups. In practice, this means that 4,280 corporate groups, including 3,400 based in the EU, will be responsible for complying with the directive’s requirements.

IOSCO’s network for ISSB standards

IOSCO launched a dedicated network to promote the adoption and use of IFRS Sustainability Disclosure Standards (ISSB Standards) with the support of the International Sustainability Standards Board (ISSB). Starting with 31 jurisdictions, the network will support members in implementing roadmaps, building awareness, and advancing sustainability-related corporate reporting globally.

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Canadian sustainability disclosure standards

The Canadian Sustainability Standards Board (CSSB) finalised its sustainability standards. These standards preserve the ISSB’s ‘global substantive baseline by ensuring all provisions come into effect following the expiration of the provided transition relief’. Canadian standards only introduce additional transitional provisions while retaining all the disclosure requirements of the ISSB standards.

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UK TAC issued final recommendations

The Financial Reporting Council (FRC), as the secretariat to the UK Sustainability Disclosure Technical Advisory Committee (TAC), concluded that the UK Sustainability Reporting Standards creation would support long-term public good in the UK. The recommendation includes minor amendments to IFRS S1 and IFRS S2, which do not touch the disclosure requirements but focus on transitional provisions:

• extending the ‘climate first’ reporting relief from one to two years
• suggesting that the UK Sustainability Disclosure Policy and Implementation Committee develop guidance on implementing IFRS S1 to clarify how entities can align this standard with existing sustainability-related disclosure requirements under the current UK legal framework

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