Context
Sustainable finance facilitates re-orientating investment towards sustainable economic activities. It is an essential part of the European Green Deal. Part of this reorientation exercise involves providing increased transparency about companies’ ESG (Environmental, Social & Governance) impacts, risks and opportunities, and this can be achieved via sustainability reporting. In this respect, two key elements are the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation.
The CSRD introduces a mandatory set of European Sustainability Reporting Standards (ESRS) which companies shall use to carry out their sustainability reporting obligations, covering the environmental, social and governance areas. At the same time, the EU Taxonomy provides a science-based classification system for the identification of sustainable economic activities that is applied within the CSRD. The sustainability reporting requirements and the corresponding standards represent new terrain for a large range of companies which are now in the CSRD’s scope, but which previously did not have to report sustainability information on a mandatory basis. Companies’ reporting is, on the other hand, essential for other financial sector actors (banks, insurance companies, etc) being able to fulfil their own reporting obligations and adequately price their services and products[1]. Moreover, the companies subject to the CSRD will be also required to report Key Performance Indicators (KPIs) under Article 8 of the Taxonomy Regulation (which defines how companies shall disclose information to the public on how and to what extent their activities are associated with environmentally sustainable economic activities). Besides, non-listed SMEs, which formally do not fall under the CSRD, face increasing information requests for sustainability information from their financial and value chain partners, often in a non- standardised format.
The first set of ESRS that apply to larger companies was published on 22 December 2023. A simplified standard for listed SMEs is currently under development by the European Financial Reporting Advisory Group (EFRAG)[2] and sector specific standards will most likely follow in 2026[3]. Non-listed SMEs will be able to use a voluntary reporting standard[4] also under development by the EFRAG. This will reduce the burden on them and facilitate their access to sustainable finance. While the sustainability framework is now relatively stable, there is a need to focus on usability. It is crucial that support is provided to companies, including SMEs, to alleviate potential financial and administrative burdens on them and raise awareness of the benefits from sustainability reporting, such as increased transparency, strengthened competitiveness, and access to green finance.
The proposed flagship initiative would provide implementation support and capacity building to allow public authorities to assist all companies, in particular SMEs, with sustainability reporting. By supporting SMEs, the initiative would be consistent with the Commission priority aiming to reduce the reporting burden for SMEs, as envisaged in 2023 SOTEU and the SMEs Relief Package launched on 12 September 2023[5].
[1] In line with CSRD, the largest companies (currently subject to the Non-Financial Reporting Directive, NFRD) will report according to the ESRS as of financial year 2024. From financial year 2025, the new reporting obligations will apply to other large companies (currently not subject to the Non-Financial Reporting Directive), and as of financial year 2026 will apply to listed SMEs, with the possibility of an additional two-year opt-out after that.
[2] According to the EFRAG 2024 Work programme for 2024, the so-called LSME ESRS should be presented to the Commission by November 2024.
[3] In its 2024 Work programme, the European Commission proposed a 2-year delay of the date of adoption of the sector-specific ESRS, currently required by 2024.
[4] According to the EFRAG 2024 Work programme, the so called VSME ESRS should be presented to the Commission by November 2024.
[5] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - SME Relief Package.
Objectives
To this end, the proposed flagship will support Member States to enhance companies’ capacity to implement the existing and forthcoming EU sustainability reporting framework, stemming from the CSRD and the EU Taxonomy. The support, to be provided via the Member State authorities, will target all companies in the scope of the CSRD. The support will be particularly relevant for (i) companies that have not had to report sustainability information before, including listed SMEs and (ii) non-listed SMEs that will be able to opt into voluntary reporting under the CSRD since they are asked to provide certain sustainability information from banks and large companies in their value chains. The flagship initiative will offer implementation support measures and capacity-building actions, to be selected by each beneficiary Member State based on national priorities.
Indicative Support Measures
EU Member States may apply for technical support from the following [non-exhaustive] list of measures:
Diagnosis measures such as:
- Mapping of national good practices, developing comparative analyses/stock-taking exercises.
- Mapping available data and providing gap analysis.
Implementation measures such as:
- Support for the improvement of data availability to match disclosure and reporting requirements.
- Drafting guidance for the design and implementation of systems and arrangements necessary to meet disclosure and reporting requirements and to identify ESG impacts, risks and opportunities, including the development of reporting templates, in particular for SMEs.
- Mapping, advice, and support on the development of analytical tools for companies aimed at automating disclosure and reporting obligations.
- Designing of public data hubs as single access points for ESG information.
Capacity building and awareness raising actions such as:
- Organisation of cross-sectoral capacity building exchanges among national competent authorities, including workshops, study visits and personnel exchanges, to promote broad understanding of sustainability disclosure and reporting practices covering the CSRD and the EU Taxonomy.
- Organisation of conferences/public events to raise awareness of various stakeholders about the CSRD and the EU Taxonomy.
- Development of communication campaigns, including targeted educational and training initiatives for companies subject to disclosure and reporting requirements, and for public stakeholders that advise companies on the CSRD and the EU Taxonomy.
- Development of free online training packages and advice on the development of helpdesk support (on-line self-service portal) to help companies using the EU Taxonomy for the transition of their activities, and for ease of implementation of the disclosure and reporting requirements.
