EU curbs on corporate sustainability reporting confirmed

The European Parliament overwhelmingly agreed to delay the introduction and reduce the impact of EU directives on corporate sustainability in early April.

This followed significant changes to requirements under the EU’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) proposed by the European Commission in February.

The biggest companies will get an additional year to prepare for the due diligence reporting rules, while other companies won’t have to report on sustainability for an additional two years.

The CSRD only came into force in January, imposing requirements on all EU companies with a turnover of €50 million or more and 250-plus employees, as well as on non-EU companies with significant EU business. But the EC almost immediately announced measures to simply the requirements and reduce the number of companies within scope by about 80% “to boost economic growth”.

Under the changes, the CSRD will apply initially only to companies with 1,000-plus employees and €50-million-plus turnover, and its application will be delayed by two years for companies due to report in 2026 and 2027.

Similarly, the first wave of CSDDD reporting – for EU companies with more than 5,000 employees and turnover above €1.5 billion – won’t apply until 2028. The delays should save affected companies an estimated €6.3 billion in administrative costs.

In proposing the changes, the EC noted: “The EU needs to foster a favourable business environment and ensure companies are not stifled by excessive regulatory burdens. That is why the Commission is recalibrating some EU rules.”

It argued the changes “will protect SMEs from excessive sustainability information requests when they are included in the value chains of larger companies or from financial institutions such as banks” which fall within the scope of the CSRD and the CSDDD.

For companies which remain in scope, with above 1,000 employees and €50 million turnover, the EC will “revise and simplify the existing sustainability reporting standards”, including by “substantially reducing” the number of data points required, “deleting sector-specific standards” and “relieving companies from the obligation to systematically conduct in-depth assessments of adverse impacts”.

About 6,000 EU companies and 900 non-EU companies estimated to fall within the scope of the CSDDD, as well as “value chain partners including SMEs”.

The changes still require European Council approval, but this appears a formality as the Council endorsed the relevant text in March.