European Parliament and Council extend ESRS issuance deadlines for certain sectors and third-country companies – BAFA extends submission deadlines for reports under the German Supply Chain Due Diligence Act

The Corporate Sustainability Reporting Directive (CSRD, Directive (EU) 2022/2464) requires certain companies to prepare an annual sustainability report as part of their management report. The European Commission issued the first set of cross-sector European Sustainability Reporting Standards (ESRS) on 31 July 2023. We reported on this: Sustainability reporting under the CSRD: Adjusting the size criteria for companies and European Sustainability Reporting Standards (ESRS).

The CSRD also provides for the adoption of sector-specific reporting standards and reporting standards for third-country companies. Previously, the deadline for this was 30 June 2024, but the European Parliament and the Council decided in April 2024 that the European Commission should have another two years. The reporting companies concerned can therefore initially focus on implementing the disclosure requirements from the first set of ESRS.

At the same time, the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle – BAFA) has also extended the deadline for submitting reports in accordance with the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG) until the end of 2024. This measure is also to be understood in connection with the planned implementation of the CSRD in order to reduce the reporting burden for companies. It gives companies more time to adapt to the new requirements.

New deadline for adopting sector-specific standards in CSRD sustainability reporting

The previous version of the CSRD required the European Commission to present sector-specific reporting standards for sustainability reporting by 30 June 2024 (see Article 29b of the CSRD). This deadline has now been extended to 30 June 2026.

The sector-specific standards are intended to define for certain industries (e.g. the textile and automotive industries, coal and mining and oil and gas sector) which additional information companies operating in that sector must publish in their sustainability report. The aim is to enable investors and other users of sustainability information to compare companies in the same sector. The European Financial Reporting Advisory Group (EFRAG) is currently supporting the European Commission by working on a template for eight out of expected 30 sector-specific standards. According to EFRAG, developing the standards is time-consuming and may take up to 24 months.

In light of this, on 17 October 2023, the European Commission submitted a proposal to the European Parliament and the Council to extend the deadline for adopting sector-specific standards until June 2026. This was intended to give the European Commission and EFRAG enough time to develop practicable ESRS for certain sectors.

As the European institutions had already reached a provisional agreement on a corresponding deadline extension in the trilogue talks in February 2024, the European Parliament essentially approved the European Commission’s proposal on 10 April 2024 (see adopted text P9_TA(2024)0189). The Council has now given its consent on 29 April 2024 (see Council of the European Union press release dated 29 April 2024). The Directive amendment thus adopted is expected to be finalised and published in the Official Journal of the European Union in the near future.

New deadline for issuing standards for CSRD reporting obligations in connection with third-country companies

The deadline for issuing reporting standards for third-country companies has also been extended to 30 June 2026 as a result of the amendment to the Directive described above. The European Commission now has more time to issue standards for the disclosure of sustainability information relating to companies from third countries (see Article 40b of the CSRD).

Under certain conditions, German group subsidiaries and resident branches subject to reporting requirements must also include information on parent companies in third countries in their sustainability report. The decisive factor here is whether the third-country company has generated turnover of more than EUR 150 million at consolidated or group level in the European Union in each of the last two financial years. German-based branches of non-European groups or companies must also have generated their own net turnover of more than EUR 40 million in the previous financial year.

New deadline for submitting reports under the German Supply Chain Due Diligence Act

In the context of the developments at European level with regard to CSRD sustainability reporting and the CSDDD (see our report: Supply chain compliance: CSDDD and EU Forced Labour Regulation coming soon), the Federal Office for Economic Affairs and Export Control announced that, unlike previously on 1 June 2024, it will check for the first time on 1 January 2025 whether companies have prepared and published their report in fulfilment of their due diligence obligations under the German Supply Chain Due Diligence Act (see current notice on the Federal Office’s website (notice in German only)).

The Federal Office for Economic Affairs and Export Control will provide reports submitted before 31 December 2024 only with instructions for improvement, if necessary, i.e. without making a request for rectification. The Federal Office has updated the questions and answers on the German Supply Chain Due Diligence Act accordingly (see answer XIII.2). This means that companies are unlikely to be fined before the end of 2024 if they submit their reports late.

The deadline extension gives companies more time to also take into account developments in sustainability reporting for their report. According to the current bill from the Federal Ministry of Justice dated 22 March 2024 on the implementation of the CSRD, it is likely that in future companies subject to reporting requirements will also be able to fulfil their reporting obligations under the German Supply Chain Due Diligence Act with their sustainability report.

Conclusion and outlook

The extension of the deadline for issuing further reporting standards for CSRD sustainability reporting and the submission of German Supply Chain Due Diligence Act reports gives the companies concerned valuable time to prepare for the two reporting obligations. EFRAG and the European Commission will gradually develop and adopt the other European reporting standards in accordance with the CSRD.

 

For more information on our Environmental, Social & Governance (ESG) advisory services, please click here.

For more information on our Supply Chain Compliance advisory services, including the German Supply Chain Due Diligence Act (LkSG) and CSDDD, please click here.

For more information on our Energy & Infrastructure advisory services, please click here.