Two of the highest-profile pieces of recent EU legislation in the corporate reporting field are set to be radically streamlined, following a vote in the European Parliament.

On 13 November, MEPs adopted measures to simplify sustainability reporting and due diligence duties for corporates by 382 votes to 249. Pending trilogue negotiations with the European Council and Commission, the move will require significant amendments to both the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

Higher thresholds for reporting

As a result of the vote, only businesses that employ over 1,750 staff and achieve an annual, net turnover of more than €450m would have to carry out social and environmental reporting. Setting a considerably higher threshold than CSRD’s initial focus on companies with more than 250 staff and annual net turnover of more than €50m, the measure narrows the Directive’s coverage from around 50,000 companies to fewer than 5,000.

Only those businesses would be required to provide reporting under EU taxonomy rules. In tandem, disclosure standards would be simplified and reduced, requiring fewer qualitative details, while sector-specific reporting would become voluntary.

On the due diligence side, requirements would apply only to large corporates with over 5,000 employees and an annual net turnover of more than €1.5bn. Obligations would also be restricted to direct suppliers – thereby excluding the majority of the supply chain.

In a statement on the vote’s outcome, the European Parliament explained that MEPs want those 5,000 businesses to take a risk-based approach to monitoring and identifying their negative impacts on people and planet. Rather than systematically requesting information from their smaller business partners, they should rely upon data that is already available and request further details only as a last resort.

In another major change to CSDDD, applicable companies would no longer have to prepare transition plans to conform their business models to the Paris Agreement. However, they could face fines for not complying with the Directive’s new requirements – guidance for which will be provided by the European Commission and Member States. Offending firms would be liable at a national rather than EU level, and they must fully compensate their victims.

Non-EU parent companies may be in scope

Some large corporates based outside the EU that trade within the bloc would still need to comply with the directives.

According to analysis from KPMG, non-EU parent companies remain within CSRD’s scope if their group includes at least one local subsidiary or branch that generates more than €450m in EU turnover.

However, reporting obligations for those businesses are now delayed until FY 2028, with the first reports not due until the following year. Meanwhile, Non-EU Sustainability Reporting Standards are postponed until October 2027, to give multinationals more time to prepare.

Turning to due diligence, KPMG notes that non-EU corporates with significant EU operations also remain within CSDDD’s scope only if they meet the dual threshold of 5,000 employees and €1.5bn turnover. The Directive’s application to those businesses has been deferred to 2028, reducing immediate pressure to comply.

Alongside their support for the simplification plans, MEPs signalled in the vote that they want the Commission to set up a special digital portal providing businesses with free access to templates, guidelines and information on all EU reporting requirements. The resource will complement the existing European Single Access Point, which provides a wealth of publicly viewable data on specific EU companies and investment products.

With the vote tallied, trilogue talks will aim to finalise the directives’ new legislative texts by the end of the year.

The right balance?

Reacting to the ballot’s outcome, Jörgen Warborn – Rapporteur for the EU Committee on Legal Affairs – said in a statement: “Today’s vote shows that Europe can be both sustainable and competitive. We are simplifying rules, cutting costs and giving businesses the clarity they need to grow, invest and create well-paying jobs.”

At a subsequent, post-vote press conference, a journalist put it to Warborn that critics – including the European Central Bank – have argued that simplification would restrict access to the sort of reliable, comparable data that helps investors make informed decisions.

“I’ve heard some concerns,” Warborn said. “But we also have concerns on the other side – that it is too complicated, too bureaucratic and costs too much money to produce the reports. That’s why we’re trying to find the right balance here.”

Warborn confirmed that the standard-setting body the European Financial Reporting Advisory Group (EFRAG) is working on cutting down the data points for the simplified directives, and welcomed the focus on quantitative information. “Today, there are lots of obligations for qualitative data,” he said. “And qualitative data is not always comparable. With numbers, it’s easier. So, I think that’s a very good shift – and that the data points come down.”

He noted: “If there is a company that feels that they need to deliver qualitative data to attract investors, they are absolutely free to provide all the information to the investors that they would like to do. But what we are doing is setting the obligation by law that you need to deliver. And that’s why I think it’s important to not be too bureaucratic – not to ask for data that is not necessary to have. And that’s what we have accomplished today.”

However, WWF scorned the vote, accusing the European Parliament of turning its back on the sustainability agenda. Mariana Ferreira – Sustainable Finance Policy Officer in WWF’s European Policy Office – said: “These laws that provided hope, security, and promise for a fairer and more sustainable future have been reduced to performative exercises.”

Commenting on the developments, Sally Baker, ICAEW’s Head of Corporate Reporting Strategy said: “While this significant retreat on previous ambitions may be driven by political pressures to reduce reporting burdens and promote growth, we’re pleased to see further progress towards substantial changes in CSRD and CSDDD scoping thresholds. The ultimate objective of providing high-quality, credible and decision-useful sustainability information to investors must be kept in focus – and is more likely to be achieved through proportionate and phased implementation requirements, compared to the EU’s original intentions.”