Dive Brief:
- The European Commission adopted a package of proposals Wednesday that will drastically reduce the number of companies required to comply with the bloc’s sustainability laws and delay reporting timelines for a pair of its key corporate disclosure directives.
- The omnibus package will remove an estimated 80% of companies from the scope of the European Union’s Corporate Sustainability Reporting Directive and push back reporting timelines for companies in the scope of both the CSRD and the bloc’s Corporate Sustainability Due Diligence Directive, according to a Feb. 26 press release.
- The simplification of the corporate reporting laws is a part of the Commission’s work programme for the year, according to the announcement. By 2029, the EU’s executive body wants to reduce administrative burdens for all companies by 25% and for small- and medium-sized businesses by 35%.
Dive Insight:
The omnibus proposal raises the thresholds for companies to be considered in scope, as a key tenet of its CSRD simplification. The current version of the CSRD applies to companies that reach two of three baselines — 50 million euro net turnover (over $52 million), a 25 million euro balance sheet (over $26 million) and 250 employees — or have securities listed on EU regulated markets. The revised proposal would reduce the scope of the CSRD to only apply to companies with more than 1,000 employees that hit the turnover or balance sheet thresholds.
The Commission will also delay reporting for companies due to comply with the CSRD starting in 2026 by two years and align the CSDDD reporting timeline with that delay. This deferred timeline will also push out the first wave of reporting requirements for the largest companies by a year to 2028, according to a release detailing the changes. European Commission President Ursula von der Leyen also promised “more simplification is on the way” in Wednesday’s release.
“Simplification promised, simplification delivered,” von der Leyen said in the release. “This will make life easier for our businesses while ensuring we stay firmly on course toward our decarbonisation goals.”
Companies in the scope of the CSRD will report using a revised and simplified version of the European Sustainability Reporting standards. The Commission committed Wednesday to revising the ESRS to “substantially” reduce the number of data points, clarify unclear provisions and make it more consistent with other pieces of legislation. The revisions also remove the Commission’s authority to create sector-specific standards and remove a reasonable assurance standard in the legislation, according to the Q&A released by the Commission.
Previously, Deloitte estimated that more than 3,000 U.S. companies would be required to comply with the CSRD. Non-EU companies and certain sectors were given until 2026 to begin to comply with the regulation, after the EU adopted a two-year delay in 2024. Companies will now have until 2028 to begin to comply.
For companies no longer in the standard, the Commission plans to adopt a voluntary reporting standard aligned with the European Financial Reporting Advisory Group. The Commission said the standard will limit the information in-scope banks or corporations can request from companies in their supply chain with fewer than 1,000 employees.
When it comes to the CSDDD, the package removes the obligation for companies to “systematically conduct in-depth assessments” of adverse effects in its supply chain. Now, companies will only be required to do a “full due diligence” of its value chain, beyond direct business partners, “only in cases where the company has plausible information suggesting that adverse impacts have arisen or may arise there,” the Q&A said.
The proposal also removes companies’ obligation to terminate a business relationship “as a last resort;” expands the interval for required regular assessments from one year to five years; simplifies the stakeholder engagement obligations; and aligns the transition plan requirements with those of the CSRD. The omnibus also deletes the civil liability portions of the CSDDD, which previously made companies liable for adverse impacts to the environment or society stemming from their supply chains.
The changes come shortly after House Financial Services Chair French Hill said the CSDDD should be treated as a “non-tariff barrier” for U.S. companies at a webinar this month. The adjustments also come as the Securities and Exchange Commission has moved to delay arguments in the lawsuits about the agency’s climate risk disclosure rule, indicating that it is not inclined to defend the regulation.
“You’re creating another standard that could see our biggest companies with their sales and leadership disqualified from financing or disqualified from business outside the U.S.,” Hill said. “I think America wants to be engaged with our colleagues in Europe on so many issues, but we have to make sure that we put our own interests first and not confuse what harmonization is.”
Stéphane Séjourné, the EU Commission’s executive vice president for prosperity and industrial strategy, said in Wednesday’s release that the EU is taking “concrete steps to cut red tape and make EU rules more accessible and effective for citizens and businesses.”
“This proposal delivers real simplifications — less administrative burden, easier access to funding, and clearer, more predictable rules,” Séjourné said. “We keep our objectives but change the way to better achieve them.”
The EU’s omnibus proposal was met with criticism from environmental groups, climate advocates, policymakers and investors alike. Three major European investor membership bodies — the European Sustainable Investment Forum, the Institutional Investors Group on Climate Change and the United Nations-backed Principles for Responsible Investment — issued a joint statement earlier this month calling on the Commission to “preserve the integrity and ambition” of the EU’s sustainable finance framework.
The Feb. 3 statement, which was also backed by over 200 investors and financial service providers, warned that “reopening these regulations in their entirety risks creating regulatory uncertainty and could ultimately jeopardise the Commission’s goal to reorient capital in support of the European Green Deal.”
The EU’s Green Deal, introduced in 2019, consists of a package of policy initiatives that aim to make the EU climate neutral by 2050 by accelerating the clean energy transition, boosting sustainable transport and a circular economy, among other objectives.
The World Wildlife Fund also called on the Commission to stick to its sustainability commitments and to prioritize the implementation of existing laws. Sebastien Godinot, a WWF senior economists said in a Feb. 24 statement that the proposal “would destroy the EU’s corporate sustainability reporting and due diligence framework.”
Morningstar Sustainalytics’ Senior Director of ESG Product Management Anne Schoemaker said the reduction of the CSRD’s scope is “very drastic,” and the changes mean that there will be less data than anticipated for companies currently in the scope.
“Although the hope is that more companies will report voluntarily once reporting standards are more reduced and streamlined, it will still mean a significant reduction in available ESG data for investors and others who see this information as critical in their strategic and investment decisions,” Schoemaker said in emailed comments Thursday.
The Commission said the proposals will now be sent to the European Parliament and European Council for consideration and adoption. Prior to the commitment to simplification, the Commission had warned 17 member states that they needed to adopt the CSRD into their jurisdictional laws.
