Committee on Legal Affairs Ordinary Meeting
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JURI European Parliament
Follow its sittingsMaria Luís Albuquerque
First, we aimed to give companies outside the CSRD scope a voluntary, proportionate, and useful reporting framework, one that meets market needs, protects them from excessive requests, and keeps costs to a minimum. From stakeholders, I hear significant interest. I am convinced that the voluntary framework will have a greater uptake than most would think. The reason is that the voluntary disclosure can facilitate undertakings' access to financing and helps them to understand and monitor their own sustainability performance, thereby improving their resilience and competitiveness, as well as their reputation among consumers, stakeholders, and regulatory authorities, and can ultimately lead to better management practices. This is ultimately a competitive advantage if properly used.
Secondly, we aimed to strengthen the protection against the trickle-down effect of value chain reporting by limiting the information that a larger corporation can ask a smaller company in its value chain to report. We clarified that CSRD reporting companies cannot request information beyond the voluntary standard and that the value chain cap is composed of the essential data points within the voluntary standard. The voluntary standard will also deliver extra proportionality for the smallest companies. Several simplifications have been included for undertakings with 10 employees or less. In addition, the absence of a mandatory assurance requirement will help keep compliance costs to a minimum and make sustainability reporting more accessible for smaller businesses.
The revision of the ESRS comes with an important lesson. The EU has chosen to lead in the area of sustainable reporting. As first movers, we entered in an uncharted territory, and co-legislators called us to adjust. We are adjusting and, in my view, improving our framework, achieving the balanced approach between usability and ambition. What I believe is important now is to give this framework the possibility to stabilize and work in practice.
The quality of a reporting framework should be measured on how it works in practice. It should not be measured by the number of data points it generates, but by whether it produces information that is relevant, reliable, and useful. When reporting requirements are clearer and the resulting data is more usable, reporting becomes less of a compliance exercise and more of a strategic tool for decision-making and risk management. Companies that understand their long-term risks and opportunities are better positioned to remain resilient and competitive. And this is particularly true in a world shaped by climate change, technological disruption, and geopolitical uncertainty.
So I look forward to your views and to a constructive exchange. Thank you.
Ilhan Kyuchyuk
Thank you, Madam Commissioner, for your presentation. Indeed, we are going to ask members to put their questions, and first is Mr. Repasi on behalf of S&D Group.
René Repasi
It feels good to be the largest group for once, but it also shows something about the notable absence of the EPP on this question, which I find deplorable as we have a very excellent EPP commissioner here in front of us. So, Commissioner, I'm very grateful that you are here in our committee. We know each other from a different committee and also already there I appreciate the cooperation and the respect that you have towards Parliament very much. And therefore also that Parliament had the possibility to check on those draft delegated acts before the formal deadline started to run was much appreciated. The S&D group was getting in touch with you before the Commission adopted its delegated act and we are positively noted that our major requests were taken on board, in particular that you resisted a certain temptation within the Commission, from the outside of the Commission, to water down the double materiality and that you took over large parts of EFRAG.
As you know, the S&D was not part of the sustainability omnibus that led to this delegated act and we still are not. But as you rightly mentioned so, there we also speak here about voluntary standards. We have parts on the financial markets that need information which under the changed changes in the omnibus are now not to be delivered at least by mandatory way, so that therefore the standards for the voluntary reporting are of utmost importance for businesses also those that are outside of the scope. So therefore, despite the fact that the S&D was not supportive on the omnibus as such and we still are critical about the final result, we see the added value of this delegated act to the overall system, in particular that the Commission upheld Europe's uniqueness in non-financial reporting which is from our perspective and remains an opportunity rather than a burden. I wanted to address one more specific element into it, which is a bit linked to the debate that we have also in ECON committee on the revision of the SFDR, which is on the reporting for asset managers.
As here we have a carve out for asset managers to report on client relationships, which if you then read it together indeed with the SFDR discussion that is not linked to this delegated act, that here there is no reporting at entity level could create a loophole. And where I'm wondering how you intend to address that matter or whether there are any other safeguards in the Commission proposal on the delegated act that address this though. Once again, thanks a lot for being in the committee and for having this discussion.
Mario Mantovani
Sì, grazie presidente. Signora commissario, buongiorno. Benvenuta, finalmente siamo agli atti delegati. La semplificazione Omnibus si sta realizzando ed è credo un bene per le piccole imprese soprattutto, standard semplificati e volontari e un tetto alle richieste di dati da parte delle grandi imprese. Tuttavia rimane secondo noi un disallineamento, ne ho interessato più volte anche la Commissione e la sua presenza qui oggi può darci delle risposte.
In primo luogo, mentre gli atti delegati riducono gli oneri per le imprese, le disposizioni di vigilanza del terzo pilastro e della normativa prudenziale bancaria continua tuttora a imporre alle banche obblighi stringenti di raccolta dei dati granulari. E questo è un problema per la piccola impresa. Cioè da un lato abbiamo tolto e semplificato degli obblighi, dall'altro invece li abbiamo mantenuti invariati quando un'azienda ha bisogno di un credito.
E questo è un problema. Perché anche queste disposizioni, per esempio, non vengono riportate nel perimetro ridotto dei nuovi ESRS, diversamente non avrebbe avuto senso semplificarli. Inoltre, le tutele formali scatteranno solo nei prossimi anni e ogni grande impresa usa già oggi il proprio questionario privato. In questa fase transitoria, come intende tutelare la piccola e media impresa contro eventuali abusi contrattuali? Infine, e chiudo, intende promuovere una piattaforma informatica unica europea che eviti alle piccole imprese di dover compilare decine di portali digitali e form diversi in funzione del cliente diverso?
Grazie per le risposte che mi darà.
Dainius Žalimas
Thank you, Chair. First of all, I also would like to express my gratitude for you, Commissioner, for coming here and for this possibility to exchange views on this omnibus package. I would like, of course, first to welcome the Commission's adoption of these long-awaited revised European Sustainability Reporting Standards. Their finalization should give companies greater clarity and allow them to move forward with the implementation of new requirements. My questions are the following.
First, the Commission has stated that the revised ESRS could reduce reporting costs by around 30%. It will be important to assess whether this estimate is borne out in practice. So I just want to clarify when and how will it evaluate whether the expected savings have actually been achieved. My second question is related to what already has been said about voluntary reporting standards. Of course, it is very important that this voluntary reporting standard is intended to support SMEs.
Many smaller companies are concerned that although the standard is voluntary in law, large customers, banks, investors may effectively require them to use it as a condition for doing or supporting business. How will the Commission monitor whether the voluntary standard remains genuinely voluntary rather than becoming a de facto mandatory requirement imposed through supply chain contracts and or financing arrangements? And finally, some organizations have raised concerns that voluntary standard was originally developed primarily with undertakings of less than 250 employees in mind and has not yet been sufficiently tested for use by larger companies that still fall outside the mandatory reporting scope. Will the Commission include an assessment of the standard's suitability for these larger undertakings in the post-implementation review? Thank you.
Sergey Lagodinsky
Thank you so much, Commissioner, and I would like to join colleague Repasi on expressing appreciation that you are here, that you reach out and that we have a good exchange constantly. As you know, our group did not support the first omnibus and therefore we are skeptical and regretting regarding the overall reduction of ESRS.
With regard to the recently adopted DA of the Commission, we have some positive sides. We welcome the safeguarding of fair representation. We welcome the requirement to quantify anticipated financial effects. We welcome that the double materiality is kept, this is something that was especially important to our group, and we welcome that the requirement to benchmark workers' wages against adequate wages is still there. But there are of course things that are not to our liking.
We regret especially the lack of ambition on the following points and the fact that the reforms that and the changes that are proposed go against the advice of EFRAG, whom we respect very much. Number one is of course the rolling back rules and too much flexibility for GHG emission calculation. As you know, we are critical of deleting requirements to disclose on secondary microplastics and also the further limiting disclosure on human rights incidents is something that we still regret. We call on the Commission on two points. Number one, that we would like to see an assessment and review as needed of these standards on a regular basis and also ensure the proper and independent functioning of EFRAG.
And as your team knows, we are especially concerned about the resources and the involvement of civil society organizations in the future. We are as well concerned about the reporting standards for non-EU companies because we know it hasn't been finalized yet, but there are public consultations that are going in a direction that if there is a mixed approach, we would be very concerned about the splitting between EU-relevant and EU-non-relevant operations because this has a number of drawbacks and also especially would disadvantage the EU companies. So as you see, there is some light and some shadow in our assessment and we're looking forward to continuing our conversation. Thank you very much.
Axel Voss
Yes, thank you, Chair. Dear colleagues, dear Commissioner Albuquerque, thanks a lot for being present here also in our committee. So since we have the Omnibus Package 1, the adoption of the simplified ESRS is the next crucial step in delivering also here on this package. So we made a clear commitment to simplify the reporting framework and now we must follow through without delay. Companies across Europe are waiting for legal certainty and every month of uncertainty comes at a cost.
So as business continue to invest time and resources without knowing what reporting requirements will ultimately apply.
So the previous ESRS standards were simply too complex and too resource intensive. They need to be replaced now by the genuine simplified set of standards that reduces unnecessary administrative burden while preserving the core objectives of sustainability reporting. So we should therefore move swiftly now with this clear objective of enabling companies to apply the simplified ESRS already for this financial year. And business need clarity now and we should not prolong uncertainty by delaying the whole process. Thanks.
Ilhan Kyuchyuk
Thank you Mr. Voss. Dear Commission, this was the first round. I'll let you to answer the questions and if the colleagues are keen to to have some more questions, follow-up questions, I'll let them to speak. We have good a good time for this exchange.
Maria Luís Albuquerque
Thank you very much Mr. Chair and I will try to address all the all your questions. So I would start by Mr. Repasi on on the issue of the SFDR. We have report and the the issue mentioned about the no entity level reporting. We do have product level reporting and the assessment we have made about the different the the balance needed to be reached on the different requirements coming from very different views of the stakeholders we heard. We come came to the conclusion that this product level report would be sufficient to cover the information needed.
Of course now it's up for the co-legislators in the debate on the SFDR to either agree with our assessment or decide in in a different way. I would just like to to also thank you for your points about seeing the added value of this framework. We think that our companies do need stability in the framework. We need to let them to give them certainty on what they will need to report. And I would agree with what Mr. Voss also said that the sooner the better.
Companies need stability and need this information so that they can start work knowing what the framework is going to be and how it's going to to apply. On the question by Mr. Mantovani on the voluntary standards and the pillar three disclosure for banks. We do think that the voluntary standards will help even the smaller companies in getting the neces- in producing the necessary information. But what banks require for prudential reasons is a bit of a separate issue from the vol- the sustainability reporting per se. We're talking about different angles.
So the information requirements can also be different because banks are required to have information to assess risks in a way which is different from other investors because they are subject to different rules as we know. In any case, we think that it the voluntary standard will also help when they need to report to banks. And how they report to companies. And when would this apply, these voluntary standards that will make the life easier for companies below 1000 employees? Well, depending on yourselves, gentlemen and honorable members, they it could apply already from this year.
Even if the framework or this new standards have been designed to apply for the reporting from next year onwards, so to report in 28 the data from 27, we have included the possibility of the this new framework to be used already for the reporting of the data of 2026.
Or even if a company uses the former framework, there are some alleviations in this standards that could already be used. So we tried as much as possible to make it flexible to better cater for the needs of the corporates. And if we can earlier rather than later have this approved and give this certainty to the corporate sector, then they can start preparing the report of 26 already with these new standards. And I think that it will probably also help on the value chain impacts and the fact that companies are asking more. Because if I may, and it's a bit possibly beyond the questions I got, but when we talk about alleviations, it is not only about limiting what can be asked, of course, for reporting reasons.
Under the contractual freedom, companies can always agree whatever they want among each other. What we are saying is that for the obligations of reporting that the companies in scope have, they can't because they don't need to ask more than what is included on the voluntary standard. So no one will be telling them you should have more information from your value chain than the one included on the voluntary standard. So if they want to ask for more, it will have nothing to do with reporting obligations. And that is what we wanted to limit and we wanted to make clear.
That is the purpose of the voluntary standard. Which, by the way, is yes, it doesn't have different buckets. We have one further alleviation for companies with 10 employees or less. But the rest is basically under the same rules. But this was a decision made by the co-legislators that there would be no further differentiation.
So yes, they're all grouped under 1,000. And then there is this smaller, well, not a small group, but smaller companies with 10 employees or less who have a further alleviation because we recognize that if a company with 10 people needs to allocate one of them to reporting obligations, it's clearly excessive. And if you have a company with 1,000 people, they will not be allocating 100. They wouldn't need 100. So there is a disproportion here which could be complicated.
And that's why we thought that we should have this further alleviation. On the platform for electronic, an electronic platform to have this information, we have been working for a while on the ESAP. So the European Sustainability, oh God. Help me out with the acronym.
The ESAP is the European Sustainability, European Portal on Disclosure.
Yes, it's a European Portal on Disclosure. I'm pretty sure that this acronym has a corresponding sentence, but we just get so used to using the acronyms that when you have to say it, anyway, ESAP is a platform where we will be having data. We've been working on this project for a number of years. And we hope that when it's up and running, it will actually make it much easier to access information. But while it is not up and running, the voluntary standards and the alleviations we include now will also help materially.
And that will lead to the estimated reduction in costs. But we will need to let the framework be implemented in full because this year companies can make different options. So we will need to see this new framework being implemented in full by the different companies. And then we can estimate again the reduction of costs. And I'm sure that the corporate sector will also be keen to tell us on how this is working or not working for them.
We think that it is indeed something that will be beneficial and they will appreciate if we allow them to do it already for this year if they so wish. Mr. Lagodinsky, we understand your concerns and your views. We have tried to find the right balance between divergent perspectives, as I mentioned before.
We've engaged extensively. We had a public consultation that got almost 500 respondents, so we had a lot of inputs coming from the different parts of the market, investors, companies in different sectors with different perspectives and we tried to get to a balanced outcome that would cater in a reasonable way for the concerns but would preserve the core of our framework, what makes our framework distinct from what exists in other jurisdictions and also to maintain our commitment to a sustainable future, also because we believe that it will help from a medium to longer term perspective, it will really help our competitiveness. The problems I hear and now that we are in the summer I think that regardless of other discussions, well, climate change is hitting us again and again, so we know it's happening and we need to prepare for that so that we have a better future and the sustainable finance framework is also about having the necessary information to understand where we are going, assess progress, try to limit the costs and the negative impacts it may have on our companies but get to a balanced result. It is an honest attempt to that and if I may say so I think it is a balanced result that we are now presenting you. On the some of the issues of the, for example, the non-disclosure of secondary microplastics, this is mostly an issue as I understand of there not being an agreed methodology.
So when there is the need to report on something but there can be no agreement on a common methodology then it becomes even more challenging. I think that these things tend to evolve, so maybe in the future when we come back to this topic we will have an agreed methodology and we could revisit, but for now that was the main reason why this was not included. On the human rights violations, our concern was to guarantee that there is disclosure on what is relevant because the two extreme positions would be report every complaint, which could mean having potentially a negative reputational impact on something with no grounds, or just reporting decisions by a court. And that could also be not enough because some things are material and should be disclosed before. So we tried also here to find the middle ground.
If it is material, if it is significant, it should be disclosed. And that will be an exercise to be done by the companies, the boards of the companies, but also by their auditors on the disclosure that the fair representation perspective that a company should give on the risks that it faces and also applies to the human rights violations, we tried to find a balanced solution. On the issue of the resources for EFRAG, well, we are now discussing the MFF, so we know resources is a big topic and as usual they are scarce for the many needs we have.
So I don't anticipate the discussion to be any easier than it was in the past. We have new priorities, but we don't seem to have given up on any of the old ones. So it might be even more challenging than usual. And EFRAG will also be impacted as any part of our financing structure will be impacted. But we will do our best and we've been working with EFRAG and following closely to guarantee that they have conditions to continue to do their work.
And I would like once again to acknowledge the work they have done. They were given a very challenging task and a very short time frame. So I am also very thankful to EFRAG for the excellent work that they did. And we will continue this engagement so that we can continue to talk about the sustainable finance framework and see how we can evolve going forward. Even on reporting things evolve, it gets easier when we have machine-readable format on all data.
It will be so much easier to get information and to produce reports. So I don't see this as something that will necessarily stay like this forever. But also I would ask you not to ask for reviews too soon because for companies they need to have some stability. This framework has been changing a lot. So we need to let it settle for a while, assess the outcome and then in the future potentially revisit, but not too soon because stability is also an important value and companies need to prepare.
So I think that if we move fast we will give a significant alleviation to companies, so we will be complying with the mandate that we Commission were given on simplifying the standards, following up on Omnibus 1. And I think the business community is really waiting for this alleviation and they will be happy to see us deliver as soon as possible. Thank you.
Ilhan Kyuchyuk
Thank you, Madam Commissioner. Is there any other colleague wishing to speak or follow-up questions? I don't see. Commissioner, thank you very much for this good exchange, short but good exchange. Always happy to have you back and looking forward for this continuation of a dialogue.
Thank you.
Thank you very much.