In November 2024, president of the European Commission, Ursula von der Leyen, announced a proposal to simplify, streamline and align EU ESG disclosure and reporting rules. The announcement was a timely one, given the different reporting standards in place across the EU and the calls for the regulatory burden on EU businesses to be reduced.
On 26th February, 2025 the EU issued a media release comprising four documents:
- A question and answer document detailing the core simplifications proposed,
- Omnibus 15 – to be made law by 31st December 2025 and covers the proposed delay to the timetable (detailed later),
- Omnibus 26 – covering material amendments and anticipated to be operating on a longer timetable,
- A Call for Evidence on the Taxonomy Delegated Acts which comprise secondary legislation accompanying the EU Taxonomy.
Three pieces of EU sustainability-related legislation are affected:
Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD), which has been in force since July 2024, requiring certain EU organisations to disclose information relating to their impact on the environment (including greenhouse gas emissions – GHG) and human rights.
The proposed changes
- A reduction of the scope of reporting companies. If adopted, the requirements will apply only to large undertakings with more than 1,000 employees and either a turnover above €50m or a balance sheet total above €25m. This simple change would reduce the number of companies in scope by around 80%, although the changed scope would bring it more into line with the key thresholds of the CSDDD.
- A value chain cap. For companies no longer in scope of the CSRD due to 1. above, the Commission will adopt a voluntary reporting standard based on the standard for SMEs (VSME) developed by the European Financial Reporting Advisory Group (EFRAG). The standard will limit the information that companies or banks falling into scope of the CSRD can request from companies in their value chains with fewer than 1,000 employees.
- Commitment to revise the European Sustainability Reporting standards (ESRS). The Commission will set out to revise the delegated act establishing the ESRS. This includes significantly reducing the number of data points, clarifying previously unclear provisions and improving consistency with other relevant legislation.
- Delete sector-specific ESRS. Removal of the requirement for sector-specific standards
- Removal of the reasonable assurance standard (previously required by 2028). The new proposal for limited assurance will remain and the requirement for reasonable assurance by 2028 will be dropped. This is aimed at dealing with the increased costs associated with reasonable assurance.
- Two-year grace period, or ‘stop-the-clock’ for organisations that have not yet reported. The proposals include postponement of the entry into application of the reporting requirements for large companies that have not yet started implementing the CSRD, and for listed SMEs due to report in 2026 and 2027) by two years, in order to allow time for co-legislators to agree the Commission’s changes.
Corporate Sustainability Due Diligence Directive (CSDDD)
The Corporate Sustainability Due Diligence Directive (CSDDD), a legal requirement that requires certain EU organisations to consider the environmental and social impact of their operations, and to implement climate transition plans. EU member states have until 2026 to adopt CSDDD into national law.
The proposed changes include:
- One-year delay. A one-year delay has been introduced leading to the first phase of the application being delayed until 2028. Guidelines will be produced in 2026 to give companies time to prepare.
- Value chain due diligence will be limited to reporting only the organisation’s direct business partner (subject to carve-outs).
- Updates – every 5 years instead of every year unless there is good reason to report more frequently.
- Removal of the obligation to terminate the business relationship as a last resort measure.
- Trickle-down effect. By reducing the information required from smaller businesses, the trickle-down effect from large in-scope businesses to smaller organisations will be reduced.
- The mandatory civil liability requirement will be removed, enabling EU member states to determine their own civil liability provisions.
- Aligning the requirements on adoption of transition plans for climate mitigation with the CSRD (resulting in transition plans not being required to be ‘put into effect’/implemented).
- Introducing a ‘maximum harmonisation’ provision to ensure EU member states do not set a higher standard with regard to due diligence obligations across the EU.
- Removal of the review clause regarding inclusion of financial services firms in scope.
EU Taxonomy
The EU Taxonomy for sustainable activities. This classification system sets boundaries relating to economic activities considered sustainable – currently relating to environmental activities – and to prevent ‘greenwashing’ (a practice involving the use of misleading language, imagery or claims to give the impression that an organisation or its products are more environmentally benign than they really are).
Proposed changes to the EU Taxonomy include:
- Those entities no longer in scope of the CSRD will also no longer have to report on their EU Taxonomy alignment on a mandatory basis, although they can do so voluntarily.
- An entity that has only met certain EU Taxonomy requirements may report on their partial EU Taxonomy alignment which acts a demonstration of the entity’s effort in reaching full EU Taxonomy alignment.
- The Commission has issued a Call for Evidence for potentially amending the Taxonomy Disclosures Delegated Act, the Taxonomy Climate Delegated Act and the Taxonomy Environmental Delegated Act.
Sensible though the announcement was, it has caused some unease.
The CSRD had been expected to bring circa 50,000 EU undertakings into scope for reporting, including multi-nationals with EU subsidiaries. EU member states had until 6th July 2024 to transpose the CSRD into national law, yet some EU member states have yet to do so.
One argument is that the increased reporting requirement may reduce EU competitiveness versus companies in the US and China. In fact, in November 2024, the European Council in the Budapest declaration on the New European Competitiveness Deal declared that reporting requirements should be reduced by 25%.
Controversially, some EU Members consider the existing rules as fit for purpose and favour leaving the CSRD, CSDDD and the EU Taxonomy as they currently are. Their argument is that increased transparency informs sustainable investment. Conversely, other EU Member countries determined the rules should be delayed, or both delayed and simplified.
The competition argument is looking increasingly valid. This year, President Trump halted ESG regulations being brought into force by the SEC (Securities and Exchange Commission). It is very likely that anticipation of this action contributed to the decision to streamline EU sustainability, environmental and social reporting.
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Implications of these changes
The benefits of the proposals in summary
- To simplify the reporting templates and reduce the number of data points by circa 70%.
- To limit the mandatory evaluation of EU Taxonomy eligibility and alignment of economic activities only to those financially material to the business – ie those exceeding 10% of turnover, capex or assets.
- To change the main KPIs of financial institutions (and simplification of templates for certain credit institutions) in order to reduce reported data points by circa 89%.
- Simplify thew ‘Do No Significant Harm’ criteria for pollution prevention and control with regard to the presence and use of chemicals that apply to all economic sectors under the EU Taxonomy.
In addition, proposals also exist to:
- Amend the Carbon Border Adjustment Mechanism (EU CBAM), applying a tonnage threshold and leading to the exemption of circa 182,000 smaller importers (circa 90% of participants from scope) and simplification of the compliance process,
- Amend the InvestEU Regulation – a programme that seeks to boost investments, innovation and job-creation in Europe between 2021 and 2027. Its three building blocks are the InvestEU Fund, the InvestEU Advisory Hub and the InvestEU Portal.
Assuming the proposals are implemented, the result will be a significant reduction in the scope of the CSRD, resulting in significant cost savings for many businesses. As a result, and sadly, the availability of data from businesses will be significantly reduced.
In addition, the new proposals miss an opportunity for simplification by not aligning the thresholds of CSRD and CSDDD which will be:
- The CSRD: >1,000 employees (and >€50m revenue or €25m balance sheet total)
- The CSDDD: >1,000 employees (and >€450m revenue).
Regarding the CSDDD there is a general view that the removal of mandatory civil liability being limited to Tier 1 suppliers will significantly reduce its impact.
The next steps:
The next steps are for the EU ESG omnibus proposals to pass to the European Parliament and the Council of the European Union. As EU legislative procedures can take up to 18 months, the Commission has asked for the changes to be fast-tracked. Whilst the next step may result in amendments, it makes sense for businesses likely to be in scope to continue their CSRD preparations. Equally, any organisation believing the proposed changes may remove them from scope should consider carefully the VSME standard developed by EFRAG so there are no surprises.
The proposals represent a significant impact on sustainability and environmental governance and reporting across the EU member states. As such, its potential impacts, both positive and negative, are likely to be felt for many decades to come. As with the planet, there really is only one opportunity to get things right.
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