On January 24, the European Union announced an update to the implementation timeline for specific elements of its sustainability regulation – European Sustainability Reporting Standards (ESRS).

The primary reporting requirements for the current year for large EU companies are still intact while the EU has extended the timeline for sector-specific standards and large non-EU companies (with €150 million turnover in EU and at least one subsidiary/branch in EU) by two years .

The EU’s commitment towards sustainable development remains steadfast, but the practicalities of global business operations have been acknowledged. Each entity faces unique challenges to align their reporting practices with the new standards.

Impact on businesses within the EU

For companies operating withing the European Union, the delay impacts only the sector-specific standards. This delay gives the businesses time to focus on implementing the broader CSRD requirements and be well-aligned with the new reporting practices, ensuring smoother implementation of sector-specific standards from 2026.

Impact on companies headquartered outside the EU

As per the new update, the large non-EU companies now have another 2 years for the adoption of the ESRS reporting standards. The non-EU companies will now have time till 2026 to comply with CSRD. The Commission in their statement, mentioned that they recognize the “extra burden” on the companies and have taken this decision to reduce this burden to a certain extent.

The delay would give the European Financial Reporting Advisory Group (EFRAG) ample time to reflect and improve before finalizing the standards comprehensively and aligning with existing frameworks. It allows for elaborate stakeholder consultation to enhance the effectiveness and relevance of the standards. This period of introspection would help in developing robust frameworks that covers all the environmental and social impacts of different industries.

In conclusion, the delay in implementation of sectoral and large non-EU companies ESRS standards should be viewed as a practical solution. This extended period offers room to refine strategies, enhance collaboration and strengthen the processes to develop a robust and coherent framework.