Latest / PwC's accounting podcast / Sustainability now: EU Omnibus in motion – August 2025 update

Transcript

Sustainability now: EU Omnibus in motion – August 2025 update · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC's National Office.
• 0:06
  SPEAKER_02: Hello, I'm Heather Horn, PWC's U.S.
• 0:09
  SPEAKER_02: Sustainability Technical Leader, and I'd like to welcome you back to PWC's Accounting Podcast.
• 0:15
  SPEAKER_02: In today's episode, we're back with our third installment on the latest updates on the European Commission's omnibus package.
• 0:22
  SPEAKER_02: Today we're going to bring you the latest developments and some thoughts on what may be coming next.
• 0:27
  SPEAKER_02: To walk through these updates, I'm happy to be joined today once again by Diana Stolsfiss, a partner in our National Office Focus on Sustainability, and co-chair of our global environmental technical working group.
• 0:39
  SPEAKER_02: There's quite a title there.
• 0:41
  SPEAKER_02: And also, obviously, you've been on this podcast numerous times.
• 0:44
  SPEAKER_02: So, a couple of quick notes before we get started.
• 0:47
  SPEAKER_02: I do want to remind people that if you're listening, but you'd like to actually watch well uh we talk on this episode, please check out the show notes for a link to the video.
• 0:56
  SPEAKER_02: In addition, for further background on all these proposals, I encourage you to check out our past episodes, which we've released in March, May, and June.
• 1:05
  SPEAKER_02: Links to these episodes may also be found in the show notes.
• 1:08
  SPEAKER_02: All right, so with that, we can get started.
• 1:10
  SPEAKER_02: Now, I guess actually, we I do have a couple more reminders.
• 1:14
  SPEAKER_02: Um, so before we get into it, given how quickly things are changing, I just want to remind listeners that we are recording this on August 7th.
• 1:22
  SPEAKER_02: So the information is current as of this date.
• 1:24
  SPEAKER_02: However, I will give one more caveat, which is some of what we're talking about is what we understand, but may not be based on, you know, um full information.
• 1:36
  SPEAKER_02: And that will be in particular when we're talking about the status of some of the proposals that aren't complete.
• 1:41
  SPEAKER_02: So we will try to make sure we're saying we understand or otherwise.
• 1:44
  SPEAKER_02: Um, and so just keep an eye out for that.
• 1:47
  SPEAKER_02: All right.
• 1:48
  SPEAKER_02: So with all of those comments aside, Diana, July has been a huge month for uh sustainability reporting in the EU.
• 1:56
  SPEAKER_02: Can you just run through some of what happened?
• 1:59
  SPEAKER_01: Sure.
• 1:59
  SPEAKER_01: Yeah, it was a big month, and I think a lot happened that will be exciting for a lot of our listeners and preparers.
• 2:05
  SPEAKER_01: So the EU taxonomy regulations, there were amendments to that delegated act.
• 2:09
  SPEAKER_01: Those were approved in the month of July.
• 2:12
  SPEAKER_01: The European Commission also extended the deadline for FRAG by 30 days to November 30th.
• 2:19
  SPEAKER_01: Uh, the European Commission adopted what was called the quick fix, which effectively delay or extended some of the transition provisions for Wave One by two years, Wave One reporters.
• 2:31
  SPEAKER_01: And then the European Commission also adopted a recommendation related to the voluntary small and medium-sized entity standard or VSME as it's also known.
• 2:42
  SPEAKER_01: And then the last thing, which was really big and exciting, was that FBRAG published the revisions to the European sustainability reporting standards.
• 2:51
  SPEAKER_02: All right.
• 2:52
  SPEAKER_02: So definitely a lot to talk about.
• 2:53
  SPEAKER_02: And uh we did run through those very quickly, but we're gonna focus on each of them in the rest of the podcast.
• 2:58
  SPEAKER_02: So let's go in order, starting with the taxonomy regulation.
• 3:02
  SPEAKER_02: What happened there?
• 3:03
  SPEAKER_01: So the taxonomy regulations were approved, and there is no need for those to be transposed by the member states.
• 3:10
  SPEAKER_01: What the next step is related to those is that they will go through what's called the period of scrutiny.
• 3:15
  SPEAKER_01: So as long as there's not any changes from the European Parliament or the European Council, and they're really not allowed to make substantial changes, it's really they either accept or no, right?
• 3:25
  SPEAKER_01: It's a yes or no.
• 3:26
  SPEAKER_01: So once those go through the four-month period of scrutiny, they'll get entered into the official journal and then they will become effective.
• 3:34
  SPEAKER_01: Uh, those amendments can be applied as of January 1, 2026.
• 3:39
  SPEAKER_02: All right.
• 3:39
  SPEAKER_02: And then I guess a couple of points on that though, is that that scrutiny period could be expanded to extended by two more months.
• 3:46
  SPEAKER_02: But here's our first we understand.
• 3:48
  SPEAKER_02: We understand that there is some pressure to just pass these as quickly as possible.
• 3:53
  SPEAKER_02: Right.
• 3:53
  SPEAKER_02: Because to your point, companies can apply as of January 1, 2026, which would mean they would apply or could be applied to 2025 reporting, but you're not required to.
• 4:04
  SPEAKER_02: That's right.
• 4:05
  SPEAKER_02: You're not required to.
• 4:06
  SPEAKER_02: All right.
• 4:07
  SPEAKER_02: So definitely uh very interesting on that.
• 4:10
  SPEAKER_02: And I think for more information on those changes, you can check out we have an in brief that's out there that talks about that.
• 4:16
  SPEAKER_02: Right.
• 4:17
  SPEAKER_02: All right.
• 4:18
  SPEAKER_02: So then why don't we move on to FRAG?
• 4:21
  SPEAKER_02: So you noted that the um European Commission extended the deadline for FRAG to November 30th.
• 4:28
  SPEAKER_02: But can you rewind?
• 4:30
  SPEAKER_02: I know I told listeners to check out the past podcast, but let's just give a little more information about what that really relates to and why that matters.
• 4:37
  SPEAKER_01: Sure.
• 4:38
  SPEAKER_01: So FRAG is supposed to deliver to the European Commission what's what's called technical advice, but our understanding is that that's really the revisions to the European sustainability reporting standards.
• 4:49
  SPEAKER_01: They had laid out a plan earlier in the summer as to these key milestone dates.
• 4:54
  SPEAKER_01: And the ultimate deadline was for them to deliver these revisions to the European Commission by October 31st, was the original deadline.
• 5:03
  SPEAKER_01: There was a lot of concern generally by stakeholders around whether or not that would provide sufficient time for public consultation related to it, because with the October 31st deadline, that was going to only allow for a 30-day comment period, which was our understanding was basically the month of August, which we know in a lot of cases a big month for vacations and all of that.
• 5:24
  SPEAKER_01: And so I think recognizing this and wanting to make sure that there was sufficient time, but then also understanding all the pressures and need to get the revisions done, they did allow an extra 30 days.
• 5:37
  SPEAKER_01: And now those 30 days will go into the comment period.
• 5:39
  SPEAKER_01: So now there's going to be a 60-day comment period.
• 5:42
  SPEAKER_01: I know we're going to touch on this in a few minutes, but the uh stand the revisions to the standards were released for public comment last week.
• 5:49
  SPEAKER_01: Uh, that would be uh the end of July.
• 5:51
  SPEAKER_01: Yes.
• 5:52
  SPEAKER_01: And then a 60-day comment period.
• 5:53
  SPEAKER_01: So now comments will be due at the end of September.
• 5:56
  SPEAKER_01: Then FBRAG will have the opportunity to absorb those comments, make any additional changes to the ESRS, and then deliver those revisions to the European Commission by November 30th.
• 6:07
  SPEAKER_02: Yeah, and I mean, I know we're gonna talk a little bit more about ESRS, but before we get into that, one thing that's quite interesting is the amount of actual opportunity for comment there already has been.
• 6:19
  SPEAKER_02: Because if you think about the fact that F-Rag really didn't get asked to take on this responsibility until April timeframe, due in November, so six-ish months, maybe seven months.
• 6:30
  SPEAKER_02: And they had comments that they asked for before they did the revisions.
• 6:36
  SPEAKER_02: Now they're having this other comment period, and as we're gonna get into lots of revisions made.
• 6:42
  SPEAKER_02: So really interesting to see how they've they've been able to incorporate that.
• 6:47
  SPEAKER_01: I think one thing that was interesting to me that seems a little bit in the European context than maybe what we think about in the US standard setting, was even before they had this draft 1.6, I believe it was called, where there was even a public exposure, not for comment, but at least to see some of the early indications.
• 7:04
  SPEAKER_01: So you know it's not exactly the same as what was released for public comment, but at least starting to give people an early indication of some of the changes that they were making.
• 7:13
  SPEAKER_01: So it does seem, at least in my view, that they're really trying to get that public feedback around the changes that they're making.
• 7:20
  SPEAKER_01: Yes, I definitely agree.
• 7:21
  SPEAKER_02: All right, so like I said, we'll come back to ESRS, but let's keep going through the regulatory actions.
• 7:26
  SPEAKER_02: So another one that I think is of a lot of interest to particularly wave one report is is this quick fix delegated act that was adopted.
• 7:35
  SPEAKER_02: So, what can you tell us about that?
• 7:37
  SPEAKER_01: Yeah, and maybe just to step back a little bit, I think of this too as a little bit of a complement to the stop the clock.
• 7:44
  SPEAKER_01: So we know the stop the clock, which was approved a few months ago, that delayed reporting for wave two and wave three by two years.
• 7:52
  SPEAKER_01: And I think there's been a lot of questions around what about wave one reporters?
• 7:56
  SPEAKER_01: There was a lot of or some reliefs that were provided in the initial ESRS.
• 8:00
  SPEAKER_01: A lot of those were for one year only.
• 8:02
  SPEAKER_01: Are they gonna have to now report on things like anticipated financial effects or other things?
• 8:07
  SPEAKER_01: And so my understanding is that it the real purpose of the delegated act was really to put a pause on everything.
• 8:13
  SPEAKER_01: So for wave two and three reporters, we had the stop the clock.
• 8:16
  SPEAKER_01: Now this quick fix puts in a delay so that no new reporting requirements at least are gonna come in for wave one.
• 8:22
  SPEAKER_01: Wave one will continue to report, but all the reliefs that were available under um the initial ESRS for those first years will extend for an additional two years.
• 8:33
  SPEAKER_01: So no new reporting requirements will come in.
• 8:36
  SPEAKER_01: And there was actually an additional relief that was put in as well for wave one reporters, which allows them to omit the information, even if it's material for um E4 biodiversity, as well as S2, uh workers in the value chain, S3 affected communities, and S4 uh consumers and end users.
• 9:00
  SPEAKER_01: And so they can omit that information.
• 9:02
  SPEAKER_01: There is still some required disclosures around policies, actions, and targets and the relevant metrics, but not the same full disclosures that you would have normally.
• 9:10
  SPEAKER_02: Yeah, and I think that relief is interesting.
• 9:13
  SPEAKER_02: And when we saw that there was a lot of discussion, how much relief is this really?
• 9:18
  SPEAKER_02: Because you do still have those US trust two, I think paragraph 17 uh disclosure requirements.
• 9:23
  SPEAKER_02: But nonetheless, I think it is showing this uh activity to really to try to reduce the burden already, even though we haven't seen the full effects of the omnibus come through.
• 9:35
  SPEAKER_02: Right, right.
• 9:36
  SPEAKER_01: I think about it kind of like no new companies in scope and no additional requirements until this two years where they can sort out what the new requirements look like.
• 9:44
  SPEAKER_01: Exactly.
• 9:45
  SPEAKER_02: So I think that's very important, very helpful for these companies.
• 9:48
  SPEAKER_02: I think particularly uh the biggest thing probably from the quick fix is the fact that the anticipated financial effects is still put off.
• 9:55
  SPEAKER_02: Yeah.
• 9:55
  SPEAKER_02: And I think that is some disclosure.
• 9:57
  SPEAKER_02: I know you spent a lot of time trying to think through some interpretation on that, but I think the additional time on that will be helpful.
• 10:03
  SPEAKER_01: Right.
• 10:04
  SPEAKER_01: And I think also, at least what we've seen in the initial draft of the revisions, and I know we're getting ahead of ourselves here, is some of the reliefs that we thought were really helpful under the ISSB standards maybe coming in related to anticipated financial effects.
• 10:16
  SPEAKER_02: All right, so more to come on that.
• 10:18
  SPEAKER_02: Before we get into that though, we also talked about the VSME standard.
• 10:22
  SPEAKER_02: And this one I also find quite interesting because when the VSME, we first saw the VSME, I think was at the end of 2024.
• 10:30
  SPEAKER_02: And have to say, I don't think there was a lot of attention paid to that, although I do know one of our at least EU partners were quite, quite focused.
• 10:38
  SPEAKER_02: But nonetheless, I think for most you know larger companies, they did not focus because people were very tuned into the ESRSs.
• 10:48
  SPEAKER_02: Right.
• 10:48
  SPEAKER_02: Now we saw at the omnibus a new proposal with VSME, and then we saw this latest action.
• 10:53
  SPEAKER_02: So can you just give a bit of context there?
• 10:55
  SPEAKER_01: Yeah, and I think maybe to your point, going back to the content proposal is a little bit helpful.
• 10:59
  SPEAKER_01: At least in my mind, I think of two kind of significant references that were in the omnibus proposal related to the VSME.
• 11:07
  SPEAKER_01: So one was given the change in the scope of the number of companies that was proposed, there'd be a number of companies that would come out.
• 11:13
  SPEAKER_01: And so companies that were no longer within the scope of CSRD, but that would want to voluntarily report sustainability information, that they could look to the VSME standards for what they would report.
• 11:23
  SPEAKER_01: And then a second was there's the potential that there would be a limit on the information that CSRD reporters could ask from their value chain partners.
• 11:33
  SPEAKER_01: And that limit would be limited to the information that is in that would be provided under the VSME standards.
• 11:40
  SPEAKER_01: And so kind of two significant ways in which companies that aren't in the scope of CSRD might be looking to the VSME standards.
• 11:47
  SPEAKER_01: And so what this was was ultimately it will need to come through a delegated act, the the adoption of the VSME standards.
• 11:55
  SPEAKER_01: So that again would need to work through the co-legislative process.
• 11:58
  SPEAKER_01: But FRAG, essentially, in my mind, I guess I think about it endorsing the VSME standards or suggesting that these should be the standards that would be used or should be part of that delegated act.
• 12:09
  SPEAKER_01: Um, that that really puts a lot more emphasis on them.
• 12:12
  SPEAKER_01: And I think what we've heard from from talking to others around the globe is that there could be changes to the VSME standards, but I don't think that most people think that there is going to be changes.
• 12:24
  SPEAKER_01: That the VSME standards now that are that have been you know recommended by FRAG would be what we would expect to see coming through the delegated act.
• 12:32
  SPEAKER_02: Yeah, and I think uh one thing that's important then, and and you briefly touched on this, but I just want to make sure.
• 12:39
  SPEAKER_02: So Quick Fix was also delegated act.
• 12:42
  SPEAKER_02: Right.
• 12:43
  SPEAKER_02: And taxonomy was the delegated act.
• 12:45
  SPEAKER_02: Right.
• 12:46
  SPEAKER_02: So for all of those, then there is no need for the transposition and they just go into effect.
• 12:52
  SPEAKER_01: That's right.
• 12:52
  SPEAKER_01: Typically there's this period of scrutiny that we talked about a little bit where you know between four and six months.
• 12:58
  SPEAKER_01: So if the legislators, the co-legislative bodies, so the the parliament or the council, if they rejected the delegated act, then that it would have to follow a different process.
• 13:08
  SPEAKER_01: But I think with all of these, we think it's unlikely that they would get rejected through that period of scrutiny.
• 13:14
  SPEAKER_01: But yes, there's no need then for them to be transposed by each of the member states.
• 13:19
  SPEAKER_02: But in contrast, stop the clock was a direct directive.
• 13:23
  SPEAKER_02: So then that means that it does need to get transposed and that needs to be done by the end of December.
• 13:29
  SPEAKER_02: That's right.
• 13:30
  SPEAKER_02: Okay.
• 13:30
  SPEAKER_02: So I do think it's important to understand that distinction.
• 13:33
  SPEAKER_01: Yes.
• 13:33
  SPEAKER_01: And my understanding as well is that the changes that will be made to the CSRD, so think about the content proposal, that many of those changes will be coming through a directive.
• 13:43
  SPEAKER_01: And so those again will need to be transposed as well.
• 13:46
  SPEAKER_01: Right.
• 13:46
  SPEAKER_02: And that makes sense because the original CSRD was a direct directive.
• 13:50
  SPEAKER_02: So okay, so that's uh important distinction there.
• 13:54
  SPEAKER_02: So now we're up to then uh the much anticipated changes to ESRS.
• 14:00
  SPEAKER_02: And I think, you know, there is no opportunity to do testing of the ESRS before they went into full effect.
• 14:08
  SPEAKER_02: So we, you know, really the trial run was the adoption by Wave One reporters.
• 14:13
  SPEAKER_02: And I think companies found that a lot of things worked, some things didn't work.
• 14:18
  SPEAKER_02: Yes.
• 14:19
  SPEAKER_02: And so this really was an opportunity to address those items.
• 14:23
  SPEAKER_02: And it's interesting to see all the things that changed, but what would you highlight?
• 14:27
  SPEAKER_01: And maybe I think I would start with two just structurally.
• 14:30
  SPEAKER_01: I think the standards were hard to navigate, was one of the major pieces of feedback.
• 14:35
  SPEAKER_01: And so I think some of the structural changes that they made have been helpful.
• 14:39
  SPEAKER_01: One thing that they've done is they've taken all the SHAL requirements or mandatory requirements and put those into the body of the standard.
• 14:45
  SPEAKER_01: And there are some variations of SHAL, so SHAL Consider and different things, but all of those are in the body of the standard now.
• 14:53
  SPEAKER_01: Additionally, they separately used to have what was called application requirements, which would come after the full text of the standard.
• 15:00
  SPEAKER_01: Sometimes it was hard to always know what piece of the guidance the application requirement applied to.
• 15:07
  SPEAKER_01: So now what they've done is after a disclosure requirement, if there is a relevant piece of application guidance, it's contained after that.
• 15:14
  SPEAKER_01: It's it's denoted in a box, boxed content is what it's called, so that you can specifically see that that is an application requirement.
• 15:23
  SPEAKER_01: It typically provides information on the methodology or a calculation that you're supposed to use.
• 15:28
  SPEAKER_01: There are some instances where it does have optionality for how you present something.
• 15:33
  SPEAKER_01: So still a little bit of, you know, ability to make some decisions in those cases.
• 15:38
  SPEAKER_01: Another thing that they've done is gotten rid of all the May requirements or the voluntary requirements.
• 15:43
  SPEAKER_01: I think that was controlled.
• 15:44
  SPEAKER_01: Almost all, I think, but very, very close to all.
• 15:47
  SPEAKER_01: Yes.
• 15:48
  SPEAKER_01: Yes.
• 15:50
  SPEAKER_01: And then another thing that's been done, and maybe this is a little bit to your point, Heather, is they've introduced what's called non-mandatory implementation guidance.
• 15:58
  SPEAKER_01: It's a little bit uncertain whether that will be part of the standards or not.
• 16:02
  SPEAKER_01: But either way, what that's meant to do, and that does include maybe some of these voluntary disclosures, is more to provide, to be a helpful resource, really, to provide illustrations where maybe there isn't metrics in some of the standards, like potential disclosures that a company could make.
• 16:19
  SPEAKER_01: So really trying to be helpful, but but not required.
• 16:23
  SPEAKER_02: Right.
• 16:24
  SPEAKER_02: And then one of the things I know people were very focused on because it was part of the original ask from the European Commission, was the reduction in the number of data points.
• 16:33
  SPEAKER_02: And there's some analysis of that included in this proposal.
• 16:36
  SPEAKER_02: So what did we see?
• 16:37
  SPEAKER_01: That's right.
• 16:37
  SPEAKER_01: The basis for conclusion, they have a number of kind of different cuts of the data, but I would say overall, um, other than the minimum disclosure requirements, which have been named, renamed now, the general disclosure requirements, there was an overall reduction of about 68% of the data points.
• 16:52
  SPEAKER_01: So pretty significant reduction.
• 16:55
  SPEAKER_02: All right.
• 16:55
  SPEAKER_02: And then other than that reduction in data points, can you give some other overview of some of the other changes that we saw?
• 17:04
  SPEAKER_01: Sure, definitely.
• 17:05
  SPEAKER_01: I think one of the concepts that at least this seems important to me is fair presentation.
• 17:10
  SPEAKER_01: So there was a lot of questions around whether the ESRS was a compliance standard.
• 17:16
  SPEAKER_01: And what that means is really going through each of the specific disclosure requirements that would be material to your company and did they comply with the specific disclosure requirement versus a fair presentation framework.
• 17:27
  SPEAKER_01: And fair presentation, I think about is that stepping back and looking at whether, you know, the sustainability statement taken as a whole and saying, does that really accurately reflect, you know, what what we sometimes use the term faithful representation?
• 17:42
  SPEAKER_01: Does that really fully depict the impacts, risks, and opportunities related to sustainability for a company?
• 17:49
  SPEAKER_01: And so it's that step back to look holistically at the full statement and making sure it's providing the material information.
• 17:56
  SPEAKER_02: Yeah, definitely.
• 17:56
  SPEAKER_02: I think that is a change that is one of the items that's bringing it closer from ISSB perspective because obviously that is something that's in ISSB.
• 18:06
  SPEAKER_02: It talks about fair uh presentation and the financial statements have fair presentation.
• 18:12
  SPEAKER_02: Right.
• 18:12
  SPEAKER_02: Although I'm not sure that's something any of us fully focus on until all of the this happens.
• 18:17
  SPEAKER_02: Yeah.
• 18:18
  SPEAKER_02: Very interesting.
• 18:18
  SPEAKER_02: So, Diana, what else would you highlight then?
• 18:21
  SPEAKER_01: A few other points.
• 18:22
  SPEAKER_01: One is one thing that we've we've felt strongly about and articulated in our letter is the materiality of information.
• 18:28
  SPEAKER_01: So under the the initial set of ESRS, all there were some data points, not all, some data points that were required to be disclosed regardless of materiality.
• 18:38
  SPEAKER_01: Yes, including everything in ESRS too.
• 18:40
  SPEAKER_01: Right.
• 18:41
  SPEAKER_01: And so we felt that was important that materiality of information should really be applied across the full set of disclosure requirements, as well as within certain metrics, too, if an impact risk or opportunity really relates to a part of the business or a business activity allowing the company to report information related specifically to really what's driving the risk.
• 19:01
  SPEAKER_01: So those were big changes related to materiality that I thought were helpful.
• 19:05
  SPEAKER_01: A couple other things.
• 19:07
  SPEAKER_01: One, maybe building on your point around connectivity with the ISSB is bringing in some of the concepts of reasonable and supportable information without undue cost and effort.
• 19:18
  SPEAKER_01: I think that was something that people felt was an important concept that was within the ISSB standards, but initially not in the ESRS.
• 19:26
  SPEAKER_01: And so bringing that concept over, I think will be helpful as well for preparers and help with that interoperability as well.
• 19:32
  SPEAKER_01: And then maybe one last point, and I won't go through all the details, but there were some new reliefs that were introduced, specifically related to acquisitions and dispositions, the calculations of metrics, that type of thing.
• 19:45
  SPEAKER_01: And so I think a company should look at those too and think about, you know, those could be helpful to companies as well.
• 19:52
  SPEAKER_02: Yeah, and I guess a few comments before we go on to the broader content proposals.
• 19:56
  SPEAKER_02: So you mentioned the comment period.
• 19:58
  SPEAKER_02: I think we consistently on this podcast encourage people to comment, even if it's not responding to every question because there is a question, a detailed questionnaire.
• 20:07
  SPEAKER_02: There is also a couple opportunities to do testing of some of the concepts that are included.
• 20:13
  SPEAKER_02: But Diana, one of the things that really stood out that we've talked about within the firm is the fact you do still have the requirements to provide entity-specific disclosures.
• 20:23
  SPEAKER_02: And there is a bit of change to how it's worded, but it is still Essentially the same.
• 20:27
  SPEAKER_02: Essentially the same.
• 20:28
  SPEAKER_02: And so if you take a step back and say, okay, huge reduction in data points, however, then you still have to provide these entity-specific disclosures for something that's not covered or not covered with sufficient granularity.
• 20:40
  SPEAKER_02: It will be interesting to see the true impact of well, I shouldn't use the word impact effect of some of these changes, um, just because of that reason.
• 20:49
  SPEAKER_01: And I think that was definitely something we highlighted too in our initial letter that we provided to F-Reg was you are going to have this tension now, and especially too when you don't have the development of sector-specific standards as well, is if a company identifies material impact, risk, or opportunity, there's still information that they need to provide related to that.
• 21:09
  SPEAKER_01: And how is the company managing that risk and what are they doing to it or you know, impact risk or opportunity?
• 21:16
  SPEAKER_02: Yeah, exactly.
• 21:17
  SPEAKER_02: So I again I think a lot for companies to think about there they did extend the comment period with the intent of receiving additional comments.
• 21:26
  SPEAKER_02: So I encourage people to look at that.
• 21:29
  SPEAKER_02: And then, you know, we within the firm have already met to talk about our comment letter and and more to come.
• 21:34
  SPEAKER_02: Diana, you and I are working on this next week.
• 21:36
  SPEAKER_02: So it should be interesting.
• 21:37
  SPEAKER_02: Okay, let's turn our attention then to the broader uh status of the content proposal because these changes to ESRS were proposed as prior part of a broader proposal to make additional change.
• 21:50
  SPEAKER_02: Right.
• 21:50
  SPEAKER_02: Uh so so, first of all, can just quick reminder of what else was in there that would be important.
• 21:56
  SPEAKER_01: I think a few things.
• 21:57
  SPEAKER_01: One is the scoping.
• 21:58
  SPEAKER_01: I think that was the biggest.
• 22:00
  SPEAKER_01: Thing that people have been focused on is what companies are going to be required to report and when are they going to be required to report?
• 22:06
  SPEAKER_01: There was also information around, we touched on this a little bit earlier, the value chain.
• 22:12
  SPEAKER_01: How far do you extend the value chain?
• 22:14
  SPEAKER_01: What information can you request from your value chain partners?
• 22:18
  SPEAKER_01: There was also um requirements around assurance.
• 22:22
  SPEAKER_01: So the initial ESRS moved to reasonable assurance at a point in time.
• 22:27
  SPEAKER_01: Now the initial content proposal did not have any move to reasonable assurance.
• 22:32
  SPEAKER_01: So started at limited assurance.
• 22:34
  SPEAKER_02: So, and I think the other thing that's interesting, particularly, we know most of our podcast audience, or a majority, comes from the US or not the EU.
• 22:45
  SPEAKER_02: And so I think we've definitely had to educate ourselves a bit on the system of government there.
• 22:50
  SPEAKER_02: And so the key thing is the original content proposal was made by the European Commission.
• 22:55
  SPEAKER_02: Then there's a process for the European Parliament to come up with this proposal, the Council of the European Union to come up with this proposal, then they go through these negotiations.
• 23:04
  SPEAKER_02: So where are we with these?
• 23:06
  SPEAKER_02: I'll call them alternative proposals.
• 23:09
  SPEAKER_01: So the council has put out at the end of June, they put out what they proposed.
• 23:13
  SPEAKER_01: It was called their general approach, which essentially was their view on what the omnibus content proposal.
• 23:19
  SPEAKER_01: They maintained the threshold of a thousand employees.
• 23:22
  SPEAKER_01: They also brought in a revenue threshold of 450 million euros.
• 23:27
  SPEAKER_01: We've seen that number in a couple other places.
• 23:29
  SPEAKER_01: So not completely new.
• 23:32
  SPEAKER_01: They did also maintain that the EU would develop their own limited assurance standards.
• 23:38
  SPEAKER_01: I think one of the things that was interesting to me in looking at their proposal was one of the issues, and maybe, maybe I feel strongly about this as an auditor myself, but there'd been a lot of questions under the initial set of ESRS around if you're a company that's headquartered in a country outside of the EU, could your auditor in that country, but you had a reporting requirement in an EU country.
• 24:04
  SPEAKER_01: So let's say you're a US entity and you have a reporting requirement in Italy, could your auditor in the US sign your report and then deliver it into the Italian system?
• 24:15
  SPEAKER_01: Or do you need to have an auditor that is within Italy to sign your report?
• 24:23
  SPEAKER_01: You know, we're getting a little bit technical here, but there were some questions around that.
• 24:26
  SPEAKER_01: And it creates some challenges if you're headquartered in the US and that's where most of your operations are.
• 24:31
  SPEAKER_01: You know, there can be challenges with having an auditor in another country.
• 24:35
  SPEAKER_01: So the EU council proposal does address this and has a transition period through 2030 to allow for auditors outside of the country where the reporting requirement is originating to sign the report.
• 24:49
  SPEAKER_02: And that was a lot of information.
• 24:51
  SPEAKER_02: But I would say, I mean, obviously you said you're interested because you're an auditor, but what we've actually seen is so many companies asking about this requirement because, again, to your point, each company has a different approach they want to take to these.
• 25:04
  SPEAKER_02: And so it just provides additional flexibility to those companies.
• 25:08
  SPEAKER_01: And I think makes it makes it easier for the companies where where they have the relationships, people who know their business, those types of things, right?
• 25:15
  SPEAKER_01: Exactly.
• 25:15
  SPEAKER_02: All right, so that is the council.
• 25:18
  SPEAKER_02: Now we also have the European Parliament, and anyone who's following this carefully, there's continual news coming out of the parliament of all these different proposals, which I do think can be a bit confusing.
• 25:28
  SPEAKER_02: But can you explain where we are with the parliament and what we expect to see next?
• 25:33
  SPEAKER_01: Sure.
• 25:33
  SPEAKER_01: So it my understanding is that there's a number of different committees that are putting together different proposals.
• 25:40
  SPEAKER_01: Ultimately, the jury committee, which we've talked about before on this podcast, will be the one that puts together a report that then is voted on by the parliament.
• 25:52
  SPEAKER_01: And so you think of that, that report ultimately becoming what the parliament's proposal is for the content of the omnibus.
• 26:00
  SPEAKER_01: Right now, given there's so many different political views within the European Parliament, it it there's a wide range of proposals that are out there.
• 26:09
  SPEAKER_01: And so there'll have to be coalitions formed and negotiations to what ultimately comes out of parliament.
• 26:15
  SPEAKER_01: Right now, the expectation is that they will vote on that by the end of October.
• 26:21
  SPEAKER_01: Uh, so that's when we expect to see what's coming out of the parliament.
• 26:25
  SPEAKER_02: Yeah, and I think one thing that's quite interesting to me is that each of these committees may be proposing on the same thing.
• 26:33
  SPEAKER_02: So the scope threshold or otherwise.
• 26:36
  SPEAKER_02: I do understand that there is, there are certain items that are the exclusive purview, they have a different word of a certain committee.
• 26:44
  SPEAKER_02: So then the jury uh committee would need to carry that forward.
• 26:48
  SPEAKER_02: But it will be interesting to see with all these conflicting proposals, what, for example, on the number of employees and the revenue thresholds, if any, what the jury committee does, but then it also could still be changed by parliament, right?
• 27:03
  SPEAKER_02: But then now you would have the original proposal on the omnibus from the European Commission.
• 27:08
  SPEAKER_02: You have the council's proposal that we saw in July.
• 27:11
  SPEAKER_02: Then we will, whatever proposal comes out of parliament, then what?
• 27:16
  SPEAKER_01: So then there'll have to be a negotiation process through that.
• 27:20
  SPEAKER_01: I think the we've heard it called the tri-party negotiation, but ultimately it will need to go through the co-legislative process.
• 27:26
  SPEAKER_01: So ultimately, that's Parliament and the European Council agreeing on what that content proposal will look like.
• 27:34
  SPEAKER_01: The goal is that that would be done in Q1 2026.
• 27:39
  SPEAKER_01: So still some time till we see that ultimate final proposal.
• 27:42
  SPEAKER_01: There is Commissioner Albuquerque said that there was an optimistic scenario while where they would be able to get the content proposal finalized by the end of this year, so the end of 2025.
• 27:54
  SPEAKER_01: So I think there's still some time till we see what ultimately these thresholds are going to be and what companies are gonna be in scope and you know some of the major provisions that we talked about a few minutes ago.
• 28:03
  SPEAKER_02: Yeah, although it's interesting, and I definitely understand the faster this can get moved along, the better, just to give some more surety to companies.
• 28:12
  SPEAKER_02: However, whether it's done at the end of December or at the end of 2025 or the beginning of 2026, for Wave One reporters, this is not changing anything for 2025.
• 28:24
  SPEAKER_02: You're still using ESRS set one v1, and the scope of companies will have not have changed.
• 28:31
  SPEAKER_02: Now, one of the things that we're not going to get into too much detail, but you mentioned transposition.
• 28:37
  SPEAKER_02: Right.
• 28:38
  SPEAKER_02: Regular listeners will know the original CSRD has not been transposed in all countries.
• 28:44
  SPEAKER_02: We are seeing some of those countries approaching transposition now.
• 28:48
  SPEAKER_02: So that's where maybe some of the scope will come into play, but it will be interesting to see how those final transpositions work and you know if additional reporting from that perspective will be required at the end of 2025.
• 29:01
  SPEAKER_01: And I think that that's an important thing to highlight too.
• 29:03
  SPEAKER_01: And I know companies are watching that, but if you're a Wave One company where you didn't report initially because the country where you had the reporting obligation didn't transpose, I think continuing to watch that transposition because we are hearing that some of those countries will transpose the initial CSRD as well as the stop the clock.
• 29:23
  SPEAKER_01: And then you'll have the delegated act related to the release for the wave one, but then that reporting obligation for those wave one companies will be in effect for this year, which may not have been in true for the prior year.
• 29:35
  SPEAKER_02: Yes, so definitely something to keep a focus on.
• 29:37
  SPEAKER_02: All right.
• 29:38
  SPEAKER_02: So, Diana, you gave a very quick uh, you know, overview of what happened in July.
• 29:44
  SPEAKER_02: Any final thoughts before we wrap things up today?
• 29:47
  SPEAKER_01: I I said this earlier, but I do think that all of this action that happened in the month of July really did help to, at least in my mind, align between wave one and wave two of not changing any of the requirements.
• 29:59
  SPEAKER_01: I think a point that you made as well is be engaged in this process.
• 30:04
  SPEAKER_01: People, you know, we heard so much feedback through the initial wave one and even helping clients, wave two and wave three, as they're preparing a lot of feedback on the standards.
• 30:13
  SPEAKER_01: And so I think giving that feedback, your views on the changes that are proposed is really important.
• 30:18
  SPEAKER_01: So be engaged, and whether that's individually as a company or there's other forums in which you can make your feedback known.
• 30:25
  SPEAKER_01: Uh, and then I think, you know, if you're a company that you don't think you're gonna be in the scope of CSRD anymore, but you want to voluntarily report, you think you'll be in the value chain of CSRD reporters.
• 30:35
  SPEAKER_01: You'll you'll information will be requested.
• 30:38
  SPEAKER_01: I do think now it's not 100% certainty around the VSME, but I think there's more certainty around that being some sort of, you know, sustainability reporting that people are gonna look to.
• 30:50
  SPEAKER_01: And so I think starting to look at that, see what the requirements are and doing an evaluation can be helpful for your company.
• 30:57
  SPEAKER_02: Yeah, and I would just say also don't forget California, even though this is a podcast about a totally different topic.
• 31:03
  SPEAKER_02: But no, I mean, obviously it is still related and we are seeing those deadlines coming up.
• 31:08
  SPEAKER_02: So it is something to keep in mind.
• 31:10
  SPEAKER_02: Uh so maybe just to wrap things up, then I would just say I'm gonna have you back next month.
• 31:16
  SPEAKER_02: We'll talk a little bit more about PwC's feedback on the letter as well as some of the key changes in the ESRS's.
• 31:23
  SPEAKER_02: Uh, so that, you know, to look to that, I think we're talking about either publication or podcasts on VSME and what else is on the runway.
• 31:31
  SPEAKER_01: Any other thoughts?
• 31:32
  SPEAKER_01: I think that I think that covers it for now, but I'm sure as the developments come, we will have more to talk about.
• 31:38
  SPEAKER_01: All right.
• 31:38
  SPEAKER_01: Well, so thank you as always for joining me, Diana.
• 31:41
  SPEAKER_02: Such a pleasure to talk to you.
• 31:42
  SPEAKER_02: And to all our listeners slash viewers, thank you as well for joining us today.
• 31:46
  SPEAKER_02: And as I said, please look for those other podcasts coming out in the next month or so, as well as ongoing discussions of developments related to sustainability reporting.
• 31:56
  SPEAKER_02: Other podcasts we have in the pipeline include uh topics on the GHG, uh scope two, and just trying to understand that a little bit better.
• 32:05
  SPEAKER_02: And we'll continue to monitor as well the developments coming out of the GHG protocol and the proposals that they are making there.
• 32:11
  SPEAKER_02: So a lot going on.
• 32:13
  SPEAKER_02: So I encourage you to stay tuned.
• 32:15
  SPEAKER_02: And the best way to do that is to either subscribe to the podcast on your favorite platform and or uh subscribe to our newsletter so you can see the weekly announcements.
• 32:24
  SPEAKER_02: Thanks again for joining us today.
• 32:27
  SPEAKER_02: That's our show for today.
• 32:29
  SPEAKER_02: Tune in next week for more fresh episodes so that you never miss any of our audio content.
• 32:35
  SPEAKER_02: Follow the PWC Accounting Podcast wherever you listen to your podcasts.
• 32:39
  SPEAKER_02: And to stay up to date on all our latest accounting and reporting news, sign up for our newsletter at viewpoint.pwc.com.
• 32:49
  SPEAKER_02: From Thought Leadership at PWC, I'm Heather Horn.
• 32:53
  SPEAKER_02: Thanks for tuning in.
• 33:00
  SPEAKER_00: This podcast is brought to you by PWC, all rights reserved.
• 33:04
  SPEAKER_00: PwC refers to the U.S.
• 33:06
  SPEAKER_00: member firm or one of its subsidiaries or affiliates, and they sometimes refer to the PwC network.
• 33:12
  SPEAKER_00: Each member firm is a separate legal entity.
• 33:15
  SPEAKER_00: Please see www.pwc.com slash structure for further details.
• 33:22
  SPEAKER_00: This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors, including accountants and lawyers.