The European Commission has presented the Net-Zero Industry Act for the competitiveness and decarbonisation of the EU, as well as the Omnibus legislative package. The aim is to support the decarbonisation and electrification of energy-intensive industries, clean technologies, with circularity also being a central element. The goal is to support renewable resources and vulnerable sectors, while maintaining existing climate targets. What impact will this plan have on companies’ non-financial sustainability reporting?
The European Commission proposes to exempt companies with up to 1,000 employees from mandatory reporting, which should reduce the administrative burden for up to 80% of those originally required. However, this is a reduction in the administrative burden for reporting that has not yet been introduced! It should be noted that large companies with more than 500 employees, previously falling under NFRD, must report unchanged from this year for 2024. These ill-considered nuances undermine the credibility of the proposal, and it is clear that the whole proposal must undergo significant changes before final approval.
“We welcome changes in the scope of the CSRD directive. We have always told clients that European legislation is confusing and often lacks logical continuity. However, many companies have already started preparing for reporting and have spent considerable resources, which they will, of course, want to recover from those responsible for the whole situation,” explains Lukáš Ferkl, consultant and Managing Partner of EnviTrail, adding that the overall market sentiment is clearly in favor of sustainability. According to him, as unnecessary administration disappears, companies will be able to focus on real projects instead of filling out spreadsheets.
Administrative consulting firms profiting from the bureaucratic side of sustainability will thus disappear from the market, leaving companies with engineering and economic backgrounds and expertise that can offer ESG in the original sense of the word. “It is a return to the primary purpose of ESG and carbon footprint measurement, which are managerial tools for analyzing risks and opportunities. Our experience in this area is clear – an ESG strategy always has a positive impact. Collecting data in one place allows for better analysis of the company’s specific situation and the search for savings,” Ferkl explains.
Even more changes are expected. At the same time, the start of the CSDDD directive is to be postponed to mid-2028 and the scope of supply chain control obligations is to be narrowed; currently, it will only apply to direct suppliers once every five years. Other changes include the exclusion of small importers from the Carbon Border Adjustment Mechanism (CBAM).
The reduction of administrative burden in these sectors should save European companies up to EUR 40 billion and, at the same time, an investment package of EUR 100 billion is to be created to support clean production and simplify state aid rules. The paradox is that it is again about saving funds that companies were supposed to spend according to previous decisions on non-financial reporting. This proposal now awaits approval by the European Parliament and individual EU Member States, so, given the existing uncertainties and significant contradictions, it will undoubtedly undergo substantial modifications.
“It is now important for the amendment to be comprehensible and clear. And in the area of non-financial reporting, the new, simple VSME ESG methodology for small and medium-sized companies will be very important – unfortunately, its finalization has again been entrusted to EFRAG, which is also responsible for creating the controversial ESRS reporting standards,” adds Lukáš Ferkl.