The corporate sustainability regulatory landcape is shifting yet again. The European Commission proposes to amend the Corporate Sustainability Reporting Directive (CSRD) following pushback from companies and member countries. On Wednesday, the Commission said, “The European Union needs to foster a favorable business environment and ensure that companies are not stifled by excessive regulatory burdens.” 

We have summarized the proposed changes below and included our advice on how to proceed. Bear in mind that the proposed changes need to go through further approvals before becoming effective. As of today, the existing CSRD adopted by the EU in 2023 is still in effect. 

Read more: ESRS reporting: Key lessons from early adopters

Scope and timing

The proposal includes changes to the scope of application of the CSRD to apply to EU companies with more than 1,000 employees; the previous financial thresholds continue to apply. Some 80 percent of companies that were going to be in-scope for CSRD are now expected to be out of scope.

Additionally, the Commission has proposed delaying required reporting for two years for companies that are not public-interest entities (i.e. those that were due to report in 2026 and 2027, also known as wave 2 and 3 companies).

The threshold for wave 4 reporting for non-EU ultimate companies having to report from 2029 has been increased from €150m in the EU to €450m.

Below is a table outlining the phasing in of the application of CSRD, updated to reflect the proposed changes: 

The double materiality assessment (DMA) and disclosures in the European Sustainability Reporting Standards (ESRS) 

The requirement for a double materiality assessment remains, meaning that companies still in scope will have to report about how sustainability risks affect their business as well as their own impact on people and the environment. However, the Commission has said they will “provide clearer instructions on how to apply the materiality principle, to ensure that undertakings only report material information and to reduce the risk that assurance service providers inadvertently encourage undertakings to report information that is not necessary or dedicate excessive resources to the materiality assessment process.”  All this is to say that the DMA remains in place with some simplifications to come. 

They have also stated an intention to amend the European Sustainability Reporting Standards to substantially reduce the number of mandatory disclosable data points. There will be no sector-specific ESRS introduced. 

Details on both the DMA and the ESRS were not unveiled in today’s announcement, but we expect fewer mandatory data points, a focus on quantitative data over narrative, clear materiality guidance, and further alignment with recognized global standards. 

Read more: Double materiality, explained

Value chain reporting

One of the key perceived barriers to CSRD success has been the burden on small to medium enterprises from excessive sustainability information requests that they would receive when they are included in the value chains of larger companies, which fall in the scope of the CSRD. This proposal aims to curb that by preventing companies in scope of CSRD from requesting certain information from companies with fewer than 1,000 employees in their value chain.

Voluntary reporting

So what now for companies who have started on their CSRD journey based on the current version of the directive but who no longer fall into the scope for reporting? The updated proposal includes an option for companies to report voluntarily in response to market demand with more details to follow. 

‍Assurance 

For companies that remain in scope, their CSRD reports will continue to be subject to limited assurance only and this will not progress in the future to a requirement for reasonable assurance (as was envisaged by the CSRD). The Commission has also promised to issue guidelines by 2026 for targeted assurance.

Consequences of non-compliance

The consequences of non-compliance remain within the remit of the member states who transpose CSRD into national law. Under the current version of CSRD, France, for example, has included monetary fines and additional penalties (such as exclusion from public procurement contracts) for not publishing a sustainability report. There are also criminal penalties, including a maximum of five years in prison, for not appointing an accredited independent third party for assurance or obstructing their audit. Germany’s legislation includes fines of up to €10 million, and, in some countries, up to 5% of a company’s annual revenue will be the penalty for non-compliance.

Other changes proposed in the Omnibus package

The omnibus package covers more than CSRD — it also proposes amendments to the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Adjustment Mechanism (CBAM), and the InvestEu Regulation. The package is accompanied by a draft Taxonomy Delegated Act for public consultation. More information on those changes is available here. 

Next steps for the proposal

We are about to enter a period of flux. So far, 18 countries have adopted legislation implementing the CSRD in its current form (reminder: not the proposed changes) and another eight have proposed legislation. 

The newly proposed changes are significant and would need to be approved by the EU parliament and Council of the EU. A law is adopted only if it receives an absolute majority from parliament. Following the parliament, the Council of the EU will pass a proposal if at least 55% of member states, representing at least 65% of the EU population, vote in favor. 

While the Commission has committed to making changes to CSRD, the average time from Commission proposal to a Directive being finalized has been 9 to 15 months in the past. The final Directive must be introduced into the national laws of each EU country, the timing of national implementation tends to vary, which leads to further uncertainty. ‍

Our take‍

Technically speaking, nothing has changed as of today. However, it looks like things are very likely to change in the months ahead. If I was a Chief Sustainability Officer, here’s what I would consider: 

• What should be our first step? Assess the application of the proposed CSRD scope and timing on your company (i.e., based on your revenue and your employee number, when will you need to issue a report?) 
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• Will we still need to do a DMA? Yes, the DMA remains and any changes to that are yet to be revealed. However, the extension of time for reporting allows companies to get to grips with the results of their DMA, set strategy, close gaps and prepare for reporting when that time comes around.
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• What will we need to disclose? The indication is that companies will still report on their identified materiality topics. The disclosures may change but the focus will be on quantitative data.  

Bear in mind that this is not enshrined in law yet. Educate your internal stakeholders and help them break through the noise to understand that this is a proposal but that a lot of what you have already been preparing for still applies.

Need help navigating all these changes? I'm here to help. Reach out to me anytime.

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