EU postpones mandatory ESG reporting, Brazilians buy time

The European Council has postponed the implementation of parts of new regulation that makes environmental, social and governance reporting mandatory for companies in the EU. One of the postponed aspects relates to the reports of companies from outside the bloc that do business in the region. This measure will give Brazilian companies more time to prepare.

The so-called Corporate Sustainability Reporting Directive (CSRD) was created to replace another Non-Financial Reporting Directive (NFRD), and specifies that a series of companies follow a certain standard for environmental, social and governance reporting, reporting on the risks, environmental impacts and social issues that their activities cause or suffer. This change caused the number of companies that need to publish this report to rise from 12,000 to 50,000.

In addition to large European companies and SMEs listed on the stock exchange, the law also applies to foreign companies earning more than 150 million euros in the bloc.

The general rules, neutral for sectors of the economy, came into effect at the beginning of this year for publicly traded companies that were already subject to the NFRD.

The next step will be for the European Commission, later this year, to adopt standards set for various sectors of the economy and foreign companies.

With the newly approved postponement, the EU's executive arm gets another two years to adopt these standards, until 2026.

Therefore, large European companies that were not subject to the NFRD and foreign companies will have their adjustment period extended and will have to publish their reports from 2028, not 2026.

Other business groups, such as small and medium-sized European companies, will have until 2030 to comply with the standard.

“This postponement was actually expected, because the Reconstruction and Development Committee sets standards that are still developing,” says Adriana Matos, a senior ESG lawyer at Matos Filho.

The CSRD is just one of a series of sustainability and corporate responsibility regulations approved by the European Union in recent years. Recently, as implementation deadlines approach, there has been growing debate about the need for more time for companies to adapt to all the requirements, Matos says.

The amount of information required and the work that needs to be done to meet the guidelines is enormous, says Bruno Galvão, a lawyer at Blumstein in Berlin.

Galvão says the delay in mandatory reporting cannot be seen as a setback, but rather as maturity, while regulations on deforestation and due diligence have closer application.

For Brazilian companies, the news is positive, as they have more time to prepare. “Demand is increasing from all sides, and among European companies, there is already some experience. But here we are still starting from scratch, so postponement is an excellent scenario,” says Matos.

The CSRD was developed when there was no global standard for sustainability disclosures, such as the International Sustainability Standards Board (ISSB), nor the Task Force on Nature-related Financial Disclosures (TNFD), for example, the lawyer recalls.