The European Commission has recently evolved the categorization of enterprises in Europe, by modifying the financial thresholds that define their size. More specifically, it has increased by 25% the criteria for turnover and balance sheet. For instance, a company must now realize a turnover of 50 million euros, instead of 40 million previously, to be classified in the category of medium or large enterprises.
This revision has a direct influence on the scope of financial and extra-financial reporting obligations for European companies. The decision was motivated by the need to lighten the administrative burden of SMEs and ETIs and to strengthen their competitiveness in a context of inflation experienced on the continent. As a result, many companies can now avoid some of these constraints, including the mandatory audit of their accounts.
However, this decision was met with some frustration from sustainable development advocates, who fear that this measure could compromise transparency and the collection of essential data for a responsible economy. On the contrary, ANSA - the National Association of Joint Stock Companies - believes that the European Commission could have gone further, as this update barely covers the effect of inflation on European competitiveness. These concerns highlight the delicate balance between reducing administrative constraints and promoting environmental and social responsibility.
Impact on CSRD
With the European Commission's financial threshold adjustments, the CSRD will naturally apply to fewer companies. This exemption is debatable. On one hand, it offers compliance relief for SMEs and mid-cap companies, but on the other, it raises concerns about diluting efforts to promote transparency and responsibility in European business practices.
Some advocates of maintaining the criteria fear a gap and subsequent delay in SMEs and mid-caps' competitiveness in ESG reporting. These companies will likely postpone reforming their impact measurement tools and face greater difficulties in catching up with larger companies already familiar with such practices.
Importance of Extra-Financial Reporting in Europe
Extra-financial reporting, especially in Europe, has become a major concern for companies aiming to be seen as responsible and transparent by society and financial markets. The European Union, through directives like CSRD, has intensified efforts to enhance corporate transparency and responsibility regarding social and environmental impact. The goal is to foster a more sustainable capitalism capable of addressing current climate and social challenges.
The Corporate Sustainability Reporting Directive (CSRD) is a critical milestone in the European Union's pursuit of a greener, more responsible economy. Set to come into effect in 2024, it requires companies to disclose detailed information about their social and environmental impact. The European Sustainability Reporting Standards (ESRS), associated with the CSRD, aim to standardize ESG reporting across numerous specific points to ensure data consistency and comparability. Their objectives are not only to guide companies in their sustainability transition but also to provide investors and stakeholders with reliable information for decision-making.