On 31/1 the German DRSC submitted five proposals for the European Commission’s #Omnibus initiative on the evolution of CSRD and ESRS.

The Accounting Standards Committee of Germany (DRSC in German) is the national standard setter in the area of group financial reporting in Germany. As such, it’s the equivalent to the French ANC.

Here’s a recap of the key takeaways from the German DRSC proposal.

Introduce graduated requirements for “mid-cap” companies, harmonize the size thresholds with the scope of the CSDDD and postpone their reporting by at least one year.

Approx. 550 German 1st wave CSRD companies are currently in the final phase of the first preparation of ESRS sustainability reports on financial year 2025.

It is to be expected that, despite the lack of a German implementation law, many of these companies will voluntarily report fully or partially in accordance with the ESRS.

Approx. 14,000 German 2nd wave companies are required to report according to ESRS for the first time for on financial year 2025 financial. They have already begun preparations.

The vast majority of these companies have no experience with non-financial or sustainability-related reporting obligations, as there has not been a legal obligation to date.

They need clear and proportionally designed reporting requirements based on the capacities and capabilities of these companies, with special relief for “mid-caps”.

A definition of “mid-caps” could be based on companies with more than 250 and up to 3,000 employees, or on the CSDDD threshold (1,000 employees; EUR 450 million turnover). The EC should carry out “field tests” on the capabilities of these companies, in order to achieve an appropriate definition.

ESRS Set 1 should be simplified building on the LSME standard, and making sure that the necessary information is available to users (SFDR, CRR and CRD for financial institutions).

Sufficient preparation time is required for the implementation or adaptation of (implementation) projects. Therefore, the initial reporting for these companies should also be postponed by at least one year.

Relieve “smaller” large limited liability companies from mandatory reporting.

Allow them to apply the voluntary VSME standard given their limited resources.

Simplify ESRS Set 1 and adopt a “Climate first” approach closer to the climate reporting requirements set by IFRS S2 (ISSB).

ESRS Set 1 represent “disproportionately high report volumes, which is likely to make it more difficult for users to find information relevant to decision-making, due to the sometimes extremely granular requirements and the associated extensive interpretations and explanations”.
The European Commission should give EFRAG a priority audit mandate to analyse the initial reporting practice, as well as subsequent reporting cycles, with a view to possible simplifications and improvements.

The requirements of the ESRS E1 are much more granular than the information required in IFRS S2. This can result in immediate approaches to reducing the requirements in ESRS Set 1

Pause the development of sector standards until we know if they are really needed.

There are general doubts about the need for sector-specific ESRS. A short DRSC survey among the DAX 40 companies in summer 2024 showed that, in addition to the list of topics listed in ESRS 1.AR 16 or according to paragraph 11, hardly any other company-specific reporting topics were identified by application practice. This indicates that additional sector-specific topics and disclosure requirements are not expected to be covered to any significant extent.

Industry associations should be enabled to develop industry guidelines for their member companies as a starting point.
Delay the reporting for the 2nd wave of companies by at least one year to provide ‘planning security’.

Reporting companies need a stable legal framework in order to implement reporting requirements in a legally secure manner. Constant ‘trial and error’ in regulation should be avoided.

Clearly defined legal requirements from the Omnibus initiative are needed quickly, with sufficient lead time for implementation – meaning at least one more year for effective implementation.

Source: https://www.drsc.de/news/drsc-unterbreitet-fuenf-vorschlaege-zur-omnibus-initiative-der-europaeischen-kommission/

You can also read more about the French ANC’s proposal here: https://www.linkedin.com/posts/leilahellgren_omnibus-activity-7285536308968509440-5pko?utm_source=share&utm_medium=member_desktop

Today 29/1, the European Commission presented the Competitiveness Compass, providing a strategic framework to steer the Commission’s work.

Key takeaways on the subject of sustainability reporting 🌿:

⭕ Simplify but stay the course

Europe has set out an ambitious framework to become a decarbonised economy by 2050. It will stay the course, including through the intermediate 2040 target of 90%.

Regulatory burden has become a brake on Europe’s competitiveness. The Commission will therefore aim to achieve the agreed policy objectives in the simplest, most targeted, most effective and least burdensome way.

⭕ Reduce the cost of administrative burdens

The set burden reduction targets refer to the costs of all administrative burdens, and not only reporting requirements.

The targets are to reduce recurrent costs by at least 25% for all companies, and at least 35% for SMEs through dedicated measures for SMEs.

This will start next month with the first of a series of Simplification Omnibus packages.

The first Omnibus will, among others, cover a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy.

The sustainable finance framework is aimed at mobilizing investment in the clean transition. The Commission will ensure better alignment of the requirements with the needs of investors, but also

✔️ proportionate timelines,
✔️ financial metrics that do not discourage investments in smaller companies in transition, and
✔️ obligations proportionate to the scale of activities of different companies.

⭕ Address trickle-down effects

The trickle-down effect will be addressed to prevent smaller companies along the supply chains from being subjected in practice to excessive reporting requests that were never intended by the legislators.

⭕ Define a new category of company size: small mid-caps

To ensure proportionate regulation adapted to companies’ size, a new definition of small mid-caps will soon be proposed. By creating such a new category of company, bigger than SMEs but smaller than large companies, thousands of companies in the EU will benefit from tailored regulatory simplification in the same spirit as SMEs.

The Commission is also preparing a simplification of the Carbon Border Adjustment mechanism for smaller market players.

⭕ Digitize reporting

Digitalisation will go hand in hand with simplification to reduce the reporting burden.

Wherever possible, reporting must move to digital formats based on standardised data.

Companies and public authorities must be better accompanied when it comes to implementing EU legislation through stepped up support, capacity building and technical assistance.

The French Authority of Accounting Standards (ANC) has published a document contributing to the debate on the evolution of the CSRD and the ESRSs in the perspective of the Omnibus currently in preparation.

ANC advances proposals aimed at alleviating the burden resulting from the CSRD, while strengthening its effectiveness in managing the transition.

In the this table we have summarized and compared two proposals, from the French ANC and the German government >>>

France was the first EU member state to transpose CSRD in Dec 2023 and the ANC has done a remarkable job of providing guidance to French companies on the ESRS.

ANC encourages us to “not lose sight of what’s essential: establishing robust standards applying to the communication of economic players means having the common language needed to understand each other and thus be able to make the right decisions”.

ANC proposes 4 measures. The first 2 can be summarized as follows:

⭕ Introduce more proportionality into the reporting requirements

➡️ Increase the size threshold, to take into account the specificities of “intermediate-sized” companies.

The European definition of a “large company” covers a large number of mid-sized companies, and the notion of “intermediate-sized”, does not exist in European law.

Adopting thresholds consistent with that of the CS3D (1,000 employees and €450m turnover) would therefore be a reasonable solution.

➡️ Reduce the scope by adapting and extending the LSME standards to these “intermediate-sized” companies (except if they are PIE companies with >500 and turnover >€50m).

Compared to the current ESRS, the LSME draft standards for listed SMEs simplify reporting by reducing the number of potential disclosures.

Given the broader scope of the companies concerned, they should then be subject to a new review and to a consultation.

➡️ Postpone the application by 2 years, to FY 2027 (publication 2028), for these “intermediate-sized” companies, (except if they are PIE companies with >500 and turnover >€50m).

However, such a revision should be finalized very quickly, so as not to put at odds the many member States that have faithfully transposed the CSRD.

⭕ Advance the review of the relevance of ESRS Set 1 for very large companies

The review is currently programmed for 2029 as stipulated in CSRD.

It should be advanced, but needs to be based on the lessons learned from the first sustainability statements that will have been produced and audited.

Taking into account the need for public consultation, in practice, this means 3 financial years with the current standards: 2024, 2025 and 2026.

To alleviate constraints, however, it is possible to extend the current transitional arrangements provided for in the ESRS by an additional year so that they do not end prematurely.

Source : ANC on LinkedIn >>

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Stay tuned for more CSRD and ESRS insights.

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