On 8th July 2021, the European Financial Reporting Advisory Group (EFRAG), the EU body in charge of developing the EU reporting standards, announced it will be building on the GRI framework to develop the final guidelines. The GRI Standards are currently the most commonly used sustainability reporting framework amongst EU companies.
The new disclosure requirements will include:
- Information about strategy, targets, the role of the board and senior management, the key adverse impacts connected to the company and its value chain, and intangibles (i.e. social, human and intellectual capital).
- Information on risks to companies but also the impacts of companies on society and the environment (the so-called ‘double materiality’ principle).
- The extent of alignment with the EU Taxonomy.
SMEs in scope will be allowed to report according to a simplified standard while non-listed SMEs are encouraged to report on a voluntary basis to anticipate regulatory, market trends and stakeholder demands.
Why is it important for SMEs?
- SMEs are already facing growing requests for sustainability information from banks that lend them money and large companies that they supply. They need the information partly to meet their own disclosure requirements under the Sustainable Finance Disclosure Regulation.
- Without relevant sustainability reporting, SMEs will increasingly find themselves at a competitive disadvantage, missing new market opportunities, and being prevented from accessing resources for development of new technological solutions. As an indication of the prize they could miss out on, the EU plans to mobilise €1 billion public investments annually to fund new technologies.
Timetable
Adoption of the new reporting directive is expected by the first half of 2022. The Commission would then publish the first set of reporting standards by the end of 2022. Large companies will apply the standards to reports published in 2024, covering the 2023 financial year.
However, there is a three-year delay for SMEs to apply the new reporting rules.