New EU ESG Reporting Laws Should Allow Simplified Reporting for Small to Medium Institutions

New proposed rules that extend the scope of corporate sustainability reporting and make them obligatory should take into account the need for a simplified process of reporting for small and medium-sized credit institutions, the European Banking Federation has urged. 

Proposed new EU rules, the first set of standards for which would be adopted by October 2022, will supplement the existing corporate sustainability company reporting rules that are currently not mandatory. 

The new rules will extend the scope to an estimated 19,000 additional medium and large-sized companies and other public interest entities (PIEs) and make certain reporting mandatory. They are expected to be rolled out, with SMEs for example expected to be required to adopt changes in 2026. 

The EBF believes some companies in high-risk sectors (e.g. mining, chemicals) should be subject to mandatory reporting requirements regardless of their size and listing status. 

Large companies including banks operating in the EU are already required to disclose information on the way they operate and manage social and environmental risks as part of an effort to facilitate transparency and promote responsible investing. These are laid down in the Non-Financial Reporting Directive (NFRD) (Directive 2014/95/EUDirective 2014/95/EU). 

The transposition deadline for member states to incorporate it into domestic law was 6 December 2016 and the rules have been transposed throughout the EU. 

Large public-interest companies with more than 500 employees including publicly listed companies, banks, insurers and other companies designated as having a public-interest component must already publish information on environmental, social matters, the treatment of employees, company board diversity, issues that affect human rights, as also their anti-corruption and bribery measures.

However, such measures are not mandatory and companies may choose to use the European Commission’s guidelines to help companies disclose environmental and social information or international or national guidelines, of which there are many.

The new EU proposals will:

* extend the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises);

* require the audit (assurance) of reported information;

* introduce more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards;

* require companies to digitally “tag” the reported information, so it is machine-readable and feeds into the European single access point envisaged in the Capital Markets Union action plan

The EBF has also raised concerns in a formal submission to the Commission about the complexity linked to the use of the ESEF format, which has posed challenges even to large publicly listed companies. 

The changes will bring an additional 10,000 companies (excluding exempted subsidiaries) and a further estimated 9,000 other public interest entities (PIEs) and large non-PIEs under the mandatory framework, according to the Commission’s earlier Study on the Non-Financial Reporting Directive released in November 2020.