In the view of Deutsches Aktieninstitut (DAI), the exemptions from reporting obligations for SMEs proposed by the EU Commission are not enough to fulfil the announcement of a far-reaching reduction in bureaucracy.

„Excessive bureaucracy also affects and burdens large companies,“ says Henriette Peucker, Chief Executive of the DAI, in an interview with Börsen-Zeitung. This is not an issue that only poses problems for small and medium-sized companies. „It is therefore not sufficient to only exempt some SMEs from certain obligations in order to strengthen competitiveness. Europe's competitiveness also depends on large companies not being burdened with unnecessary bureaucracy, which entails immense costs.“

In February, the EU Commission presented its so-called Omnibus package on non-financial reporting, which the EU legislators – the EU Parliament and the Council of Ministers – will be negotiating over the next few months. The legislative package provides for small and medium-sized companies to be exempted from certain sustainability reporting obligations.

Specifically, the EU authority proposes that 80% of the companies covered by the Corporate Sustainability Reporting Directive (CSRD) should be made exempt from non-financial reporting, namely all companies with fewer than 1,000 employees and a turnover of less than 50 million euros. In addition, with a view to the EU Supply Chain Act, it is planned that the due diligence obligations of companies will only apply to „direct business partners“. Changes to liability obligations are also planned.

The Aktieninstitut's overall assessment of the omnibus proposal from Brussels is mixed, though Peucker does have some praise for the package as "an opportunity to bring about noticeable changes.“ If the costs for regulated companies, and the effects of regulation on competitiveness, are taken into account in future regulation, the omnibus package be a real turnaround. Nevertheless, the DAI has identified two different approaches in the discussion. Some tried to make small-scale reforms within traditional thinking. The others wanted to make a major change. „What the EU Commission has now put on the table is a big leap, but a big leap within the system,“ is her assessment. The proposal goes further than anything the EU Commission has implemented so far, but without calling the fundamental rules into question.

From a company's perspective, it is crucial that there are not so many contradictory and overlapping legal texts with reporting obligations. It would be better if all sustainability reporting requirements were bundled into one regulation. „In our view, the CSRD is best suited as an anchor point from which every data point should be derived,“ emphasises the DAI board member.

In a second step, a significantly reduced set of data would be important to the DAI, on the basis of which companies could document where they stand and where they are heading. A drastic reduction of the current 1,100 or so data points is called for. Companies do not have to report all of them. „But they must check all of them in order to be able to justify why they are not reporting something,“ explains Peucker.

She therefore suggests agreeing on the LSME SME standard, „which would mean around 500 fewer data points.“ The DAI board member also advocates harmonising the regulatory requirements. „It is of little use to companies if their reporting obligations are streamlined but they still have to fulfil additional requirements from banks.“ If banks were forced by regulation to collect other data via the Sustainable Finance Disclosure Regulation (SFDR) or regulatory capital requirements, they would also have to request this from companies.

When asked how much of the European Commission's proposal will be implemented, expectations are modest. „The EU Commission has made a proposal – but what ultimately comes out of it depends on what the subordinate authority EFRAG, the European Financial Reporting Advisory Group, does with it over the next few months.“ The DAI is sceptical as to whether the authority that drafted the rules should be tasked with correcting them.

There are also very different positions in the EU Parliament. Some would prefer to keep all company obligations as they are. Others would prefer to remove all requirements completely. And in the Council of Ministers, there is a dividing line between those who have already implemented CSRD and those who have not. Differences can also be seen in the political assessment of how much bureaucracy reduction is necessary to achieve the goal of creating a competitive Europe.

The DAI is still dealing with one special issue. Peucker cites so-called iXBRL tagging for the machine readability of reports as an example of a requirement that no longer makes sense. This means that certain information and text sections must be electronically labelled – and this labelling is then also checked by the auditor. „At a time when a PDF document can also be analysed by AI, this technological specification is unnecessary and outdated,“ complains the DAI board member. Investors are already relying on AI applications. Therefore, the effort and costs of tagging using iXBRL could be saved.