POSITION | SUSTAINABILITY | REPORTING
The European Sustainability Reporting (CSRD): lack of international coherence Necessary improvements to avoid double reporting obligations
June 2022 Support for the global minimum standard from the ISSB German industry has a vital interest in Europe taking a leading position in the establishment of highquality sustainability reporting recognized by the international capital market. To achieve this, it is essential that European sustainability reporting is aligned with global minimum standards, which will be published by the end of the year by the ISSB (International Sustainability Standards Board) based in Frankfurt. European sustainability reporting should be based on the global minimum standards (global baseline) for sustainability reporting.
The CSRD must build on the global baseline According to the state of negotiations on the "Corporate Sustainability Reporting Directive" (CSRD), there is a threat of a European solo effort in sustainability reporting. So far, the structure of the CSRD and the drafts of the "European Sustainability Reporting Standards" (ESRS) are not coherent with the international approach by the ISSB. However, this is a precondition for the international capital market. There must be internationally uniform minimum standards (global baseline).
A unilateral European approach leads to double reporting obligations The concept of the CSRD risks to deviate considerably from the "global baseline". This is due to a lacking focus on the investors as the primary stakeholder of the reporting, the deviating of financial materiality and the potential separation of financial and sustainability reporting. With these requirements, European sustainability reporting according to the CSRD becomes a mandatory regulatory exercise without relevance for the global capital market. Thus, businesses will be confronted with double reporting obligations and a considerable administrative burden which must be prevented.
BDI | Tax and Financial Policy | www.bdi.eu
The European Sustainability Reporting (CSRD): lack of international coherence
The need for an integrated reporting option The coherence to the global ISSB minimum standards must be anchored in the CSRD. In order to achieve this, the possibility of integrated reporting (no separation of financial and sustainability reporting) must be retained. The mandatory separation of financial and sustainability information does not meet the requirements of the international capital market and constitutes a step backwards for many companies which already apply integrated reporting.
Consolidated reporting aligned with financial reporting For an international recognition of European sustainability reporting, it is also essential that the same requirements apply to sustainability reporting as to financial reporting. This is especially true for the consolidating requirements and the statutory audit. The imminent abolition of consolidated reporting, including an exception for subsidiaries, will undermine the efficiency and acceptance of the CSRD, as capital markets only analyse relevant information at group level. Furthermore, the separation of financial and sustainability audits should not be mandatory. Requiring two different auditors disregards the fact that financial and non-financial contents are closely intertwined. An obligation to separate the financial and sustainability audit must not be included in the CSRD.
CSRD risks to overburden companies The reporting requirements of the CSRD will impose a heavy burden on capital-oriented companies with more than 500 employees (already falling under the current Nonfinancial Reporting Directive) as well as on large corporations newly subject to reporting requirements. In Germany, this affects a total of almost 15,000 companies. These companies have neither reporting processes nor structures and enough staff to implement the reporting obligations planned according to the draft standards of the European Sustainability Reporting Standards (ESRS). High additional burdens from the CSRD for companies, especially for newly affected small and medium-sized enterprises (SMEs), must be prevented. To this end, the planned expansion of the scope of application, the expansion in detail and complexity, the development of standards for SMEs, and the short transposition period must be reviewed and improved.
Summary
BDI supports the ISSB's global minimum standards for internationally recognised sustainability reporting (global baseline). With the CSRD, Europe should not go its own way. Instead, the CSRD must be built on the global baseline by ISSB to ensure international recognition. The prerequisites for international recognition of the CSRD are the option of integrated reporting as well as the alignment to financial reporting concerning consolidation and statutory audit. The CSRD shall not overburden companies. The massive expansion of the scope of application of the CSRD and the depth of detail and complexity of the reporting must be questioned.
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The European Sustainability Reporting (CSRD): lack of international coherence
Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 German Lobbynumber: R000534 Contact Dr. Monika Wünnemann Head of Department Tax and Financial Policy T: +49 30 2028 1507 m.wuennemann@bdi.eu Annette Selter Senior Manager Tax and Financial Policy T: +49 30 2028 1430 a.selter@bdi.eu Document number: D 1584
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