Taking a simplified approach to sustainability reporting

The Corporate Sustainability Reporting Directive (CSRD) came into force in January 2023 with the objective of helping stakeholders evaluate the sustainability performance of companies through improved sustainability reporting. This, in turn, contributes to the transition to a fully sustainable and inclusive European economy under the European Green Deal. It marks the EU taking the lead in regulating sustainability reporting and setting standards, through tremendous volume and pace of legislation over the past five years.

In the first months of 2025, the inaugural sustainability reports have been published under Wave 1 of the CSRD.

Despite the difficulties during this first (short) transition period, it has been a significant journey for businesses and policymakers to transform the sustainability reporting landscape and extend obligations beyond the Non-Financial Reporting Directive (NFRD). Businesses have made enormous efforts and worked diligently to comply with the obligations set out for them and real progress has been made, setting the benchmark for others to follow. Alongside these Wave 1 reporters, the next wave of companies was set for implementation over the next two years.

However, the scale, complexity and cost of compliance associated with these legislative initiatives has been criticised by various stakeholders. Critics argue that these factors inhibit Europe’s potential for investment, innovation and growth, leaving it unable to compete on the global market.

The Omnibus

The calls for simplification, reduction of regulatory burden and increasing European competitiveness led to the first EU Omnibus Simplification Package (the Package) being published on 26 February 2025. This is a significant legislative initiative designed to streamline and simplify existing sustainability reporting requirements, allow more time for implementation, reduce the number of companies in scope (by an estimated 80%) and make it easier for those companies that remain in scope to comply. It seems clear that the EU’s commitment to the EU Green Deal remains; it is only the path towards achieving transition that is changing.

The Omnibus is composed of several legislative proposals: 

• a ‘stop-the-clock’ directive to postpone the effective dates of requirements under the CSRD and Corporate Sustainability Due Diligence Directive (CS3D). NOTE: This has been updated since this article was written; 
• a directive making substantive amendments to the CSRD and CS3D and their linkage to the Taxonomy; 
• a draft delegated act to revise some of the currently applicable delegated acts under the EU Taxonomy Regulation (EUTR); and
• a proposal to amend the Carbon Border Adjustment Mechanism (CBAM) Regulation.

What are the main simplification proposals for CSRD?

Implementation

Implementation will be postponed by two years for Wave 2 (to reporting in 2028 on FY2027 information) and Wave 3 undertakings (to reporting in 2029 on FY2028 information).

Scope thresholds for EU and EEA

The reporting requirements will only apply to large undertakings with more than 1,000 employees and either turnover above EUR 50m or a balance sheet total above €25m. This applies equally to listed and non-listed undertakings. The increased threshold of 1,000 employees is expected to decrease the number of companies in scope by approximately 80%.

Scope thresholds for non-EU parents

The proposals raise the reporting threshold for non-EU undertakings to:

1. consolidated turnover of more than €450m generated in the EU, an increase on the previous threshold of more than €150m turnover; and 
2. either an EU subsidiary that meets the definition of ‘large’, which includes having more than 250 employees (this is unchanged) or EU branches with turnover of more than €50m, an increase on the previous threshold of €40m.

Value chain

The proposals introduce a ‘value chain cap’ on information requests of companies below the revised CSRD threshold of 1,000 employees. Information requests cannot exceed what would be reported under the amended Voluntary Sustainability Reporting Standard for micro, small and medium-sized enterprises.

Simplified European Sustainability Reporting Standards (ESRS)

The delegated act establishing the ESRS will be revised, with the aim of substantially reducing mandatory data points and improving consistency.

What does the process entail and what is next?

Publication of the proposals marks the start of the legislative process. They will now be subject to negotiations with the European Parliament and the Council of the EU.

The package is using a staggered approach: 

• The first step is to ‘stop the clock’. The objective is to avoid a situation in which certain companies are required under the current CSRD to report for financial year 2025 (Wave 2) or 2026 (Wave 3) and are then subsequently relieved of this requirement in a revised CSRD. The directive making substantive amendments to the CSRD and CS3D must be transposed into national legislation within 12 months after its entry into force.
• In a second step, the Commission will seek to amend the CSRD and CS3D more substantively with a separate directive. The aim is to conclude this second step and have the law for a revised CSRD and CS3D implemented across the EU member states, before implementation and reporting for FY2027 takes place under the revised timelines in the first step above.
• The draft delegated act amending the Taxonomy Regulation will be adopted after public feedback (open to consultation until 26 March 2025) and scrutiny by the European Parliament and the Council of the EU. It is expected that it will be adopted at some point late in Q2 2025.

In terms of simplification of the ESRS, the European Financial Reporting Advisory Group will play a role in refining the ESRS over the next six months and beyond.

What should companies do to prepare?

Companies should monitor the progress of the package through the legislative process and follow national transpositions. 

• The CSRD revisions are still under legislative review, so it will be necessary to track updates in EU Parliament and Council decisions. 
• Be aware of potential national-level sustainability reporting requirements beyond the EU directives.
• Stay informed about legislative developments and respond to public consultation on the ESRS. Assess the impact of changes in scope on compliance.

In the meantime, companies in the first wave will continue having to report in line with the original CSRD in countries that have already transposed it into national legislation until the directive making substantive amendments takes effect.

Companies in the proposed ‘revised’ scope should also continue to prepare for reporting obligations where applicable.

For companies outside of the proposed ‘revised’ scope, this is an opportunity to take the time to refine their strategy, governance and sustainability objectives based on the analysis of impacts, risks and opportunities for the business. It’s also an opportunity to enhance active dialogue with stakeholders to understand their expectations relating to sustainability information. Such companies may consider voluntary reporting to meet investor and stakeholder expectations as well as safeguarding their competitive position by aligning disclosures to the expectations applicable for larger companies.

What effect will the changes have?

The proposed amendments to the CSRD introduce significant changes to sustainability reporting requirements. The reduced scope and reduced requirements create opportunities for flexibility, more time for preparation and cost savings, as well as focus on material activities. They also present potential challenges to achieving sustainability outcomes, including delays in EU economies transitioning to net-zero-enabled business models, reduced transparency and potential delays to flows of capital to sustainable businesses.

The EU Omnibus Simplification Package should be used as an opportunity for companies to focus on material impacts that truly matter to their business and stakeholders. Stakeholders should monitor developments closely and actively engage in the process – steps that will help navigate the challenges ahead and contribute to a more sustainable future.

Christiana Panayidou, Partner, EY Greece.