The EU proposes sustainability reporting to simplify

The Omnibus Simplification Package can be divided into the proposal to amend the legislation (‘simplification proposal’) and a proposal to postpone the entry into application of the CSRD and the CSDDD (‘stop the clock’ proposal). On April 3, 2025, the stop the clock proposal was approved.

The aim of this simplification is to reduce the complexity of EU regulations for all companies and to stimulate competition. This will be achieved by reducing burdens and ensuring a more coherent and simpler regulatory framework, while taking into account the EU’s sustainability objectives.

Concretely, the European Commission wants to reduce the administrative burden by 25% and for SMEs by at least 35%.

1. Changes to the CSRD

Under the CSRD, companies of a certain size are required to disclose sustainability information in a transparent manner. This includes the risks and opportunities these companies see in social and environmental issues, as well as the impact of their activities on people and the environment. Companies must report this information via the European Sustainability Reporting Standards (ESRS).

The European Commission is drastically changing the scope of the CSRD:

• With this proposal 80% of European companies currently covered by the CSRD, will be excluded from its scope

Only companies with more than 1,000 employees will be covered. Previously, the threshold was that the company had to have more than 250 employees. Companies with up to 1,000 employees and listed SMEs will therefore no longer be required to comply with the sustainability reporting requirements under this proposal.

In doing so, the EU maintains sustainability reporting requirements only for the largest companies, which are likely to have the biggest impact on people and the environment. Previously, approximately 50,000 companies fell within the scope of the proposal. As a result of this proposal, this number would be reduced to an estimated 7,000 companies. Additionaly, this proposal aims to ensure that the sustainability reporting obligations of large companies will not pose as a hindrance to smaller companies.

The financial thresholds of at least EUR 50 million in turnover or a balance sheet above EUR 25 million remain unchanged for European companies. For non-European companies, the threshold is at least EUR 450 million in turnover and either a EU subsidiary considered large (previously criteria) or an EU branch with a turnover of EUR 50 million.

• No mandatory sector-specific reporting standards

The Commission intends to review the first set of ESRS. Under the CSRD, companies must report sustainability information in accordance with the mandatory ESRS. The Commission has established a first set of ESRS for all companies, regardless of sector. The CSRD requires the Commission to also establish sector-specific reporting standards, with the first set of sector-specific standards to be established by June 2026.

Listed SMEs (small and medium-sized enterprises) are allowed to report on the basis of a separate and lighter set of standards instead of the ESRS (VSME standard). The aim of the VSME standard is to provide SMEs with a simple and general tool for providing sustainability information.

The Commission’s requirement to establish sector-specific standards is abolished from the proposal. This significantly reduces the reporting burden, as no additional data points are further required for companies in their reporting obligations.

• The implementation is postponed

The reporting obligation for 2026 and 2027 is postponed by two years.

The directive entered into force on January 5, 2023, and had to be transposed into national law by July 6, 2024, at the latest. Listed companies and large public interest entities were the first to publish these sustainability reporting rules in 2025 for the 2024 financial year (first wave). Other large undertakings were required to report for the first time in 2026 for the 2025 financial year (second wave). Listed SMEs were given an additional year and had to publish their first report in 2027 (third wave). Certain non-EU undertakings must report in 2029 (fourth wave).

The proposal postpones the reporting obligation under the CSRD for 2026 and 2027 to 2028.

The objective of the two-year postponement is to avoid a situation where undertakings in the second or third wave would be required to report and then be subsequently relieved from this reporting obligation. Such a situation would only entail unnecessary costs.

•  The Belgian transposition of the CSRD

Belgium transposed the CSRD into national law at the end of 2024. If the simplification proposal is also approved, the scope of application in Belgian law can be adapted in accordance with the directive. As a result, fewer Belgian companies will fall within the scope of application and thus fewer companies will be required to comply with the reporting obligations. Until the simplification proposal is approved and transposed into national law, the initial requirements of the CSRD will continue to apply.

2. Changes to the CS3D  

The CS3D requires undertakings of a certain size to set up a policy to identify, prevent, mitigate, and eliminate the potential and actual adverse impacts of their activities, their subsidiaries, and certain other companies in their value chain on people and the environment. The EU aims to promote sustainable and responsible behavior by these companies through a due diligence obligation. The CS3D aims to address negative impacts on people and the environment within the company’s own activities and in its value chain.

The CS3D applies to companies with more than 1,000 employees and a turnover of more than 450 million. Non-EU companies with a turnover of more than 450 million also fall within the scope of the directive.

The thresholds within the scope remain the same, but the due diligence requirements are significantly simplified:

• Civil liability is removed

One of the biggest changes concerns the removal of a harmonized set of conditions for liability. Uniform rules on civil liability for non-compliance with sustainability reporting obligations is removed from the proposal. As a result, Member States will have to rely on national legislation to interpret civil liability.

• The value chain is limited to direct business partners

Concerning the chain of activities, due diligence requirements will be limited to the company’s own activities, the activities of its subsidiaries, and the activities of its direct business partners. Companies falling within the scope of application will mainly have to assess human rights and environmental risks at the level of their direct business partners.

Previously, undertakings that did not fall within the scope of the CS3D could indirectly experience the effects of the CS3D. The proposal removes this indirect application. However, the EU recognizes that there are situations where companies need to look beyond their direct business partners. A full due diligence requirement extending beyond direct business partners will only apply where a company has plausible information suggesting potential or actual adverse impacts at the level of an indirect business partner in its chain. Plausible information should be understood as information with an objective character that enables a company to assess that there is a reasonable likelihood that the information is true. Apart from this exception, other business partners are thus exempt. Previously, the CS3D applied to the entire value chain, including indirect suppliers and business partners.

With regard to financial institutions, it is proposed to remove the downstream due diligence requirements.

• Frequency of the due diligence assessments

The frequency of due diligence periodic monitoring is being reduced from annual to every five years. There is a deviation from this, namely whenever there are reasonable grounds to believe that the current due diligence measures are no longer adequate or effective.

• Maximum harmonization

The directive is based on maximum harmonization. This means that due diligence requirements may not go beyond what is specified in the directive. This is to ensure a level playing field between undertakings across different jurisdictions.

• The implementation is postponed

The CS3D entered into force on July 25, 2024. Member States have two years to transpose the directive into national law. The first deadline for implementation for the first wave of undertakings has been extended by one year to July 26, 2027. The first phase of the application of the CS3D to the largest companies will be extended to July 26, 2028.

The postponement aims to reduce the administrative burden. The two-year period should allow companies to take into account the Commission’s guidelines and best practices when implementing the due diligence requirements. The proposal gives companies time to prepare for the implementation of the directive. The postponement also takes into account possible delays resulting from the simplification proposal.

3. Changes to the Taxonomy Regulation

Companies whose activities can be classified as sustainable in accordance with the EU taxonomy must disclose via the EU reporting rules the percentage of their KPI capital expenditure (CapEx) and KPI operating expenditure (OpEx) that relates to the sustainable activities listed in the taxonomy. They must also disclose the percentage of their turnover that comes from products or services related to the sustainable activities in the taxonomy.

When companies fall within the scope of the CSRD, they automatically fall within the scope of the Taxonomy Regulation. The proposal amends this correlation with the CSRD and introduces new thresholds. This again results that only the largest companies will be covered.

The Taxonomy Regulation will only apply to companies with more than 1,000 employees and a turnover of more than €450 million.

Undertakings that no longer fall within this scope and claim that their activities are aligned or partially aligned with the EU Taxonomy can report on a voluntary basis. They disclose their turnover and CapEx KPIs and may choose to disclose their OpEx KPIs.

However, if the thresholds of the new scope are not met, there is a possibility of an opt-in. The opt-in aims to eliminate compliance costs for companies that do not claim that their activities are related to activities that qualify as sustainable under the Taxonomy Regulation.

A financial materiality threshold is also introduced, exempting companies from reporting if the targeted activities account for less than 10% of their activities.

In addition, the data to be reported is reduced by almost 70%.

4. Timeline: what does this mean in concrete terms?

The EU aimed to make the legislative framework easier to implement without undermining sustainability objectives.

As this proposal contains significant simplifications and changes to the scope, it is possible that your company may no longer fall within the scope. However, many companies have already taken preparatory measures and invested resources to comply with the CRSD and CS3D requirements. The European Commission proposes to companies that would no longer fall within the scope to voluntarily comply with the reporting obligations.

• Stop the clock proposal

On April 3, 2025, the stop the clock proposal was approved. This provides certainty to companies as to when the obligations will apply. For the CSRD, the application is postponed by two years for undertakings in the second or third wave that are not yet subject to the reporting requirement. The postponement of the CSRD automatically entails the postponement of the Taxonomy Regulation in line with the CSRD. Regarding the CS3D, the first phase has been postponed by one year. The approval of the stop the clock proposal also gives the EU more time to reach an agreement on the broader simplification proposal.

The next step is the entry into application of the stop the clock proposal and its transposition into national law. Member States must transpose this directive into national law by 31 December 2025 at the latest. Nevertheless, uncertainty remains regarding the postponement of the CSRD, as a postponement must also be approved for national law.

• Simplification proposal

It should be noted that the simplification proposal still needs to be approved by the European Parliament and the Council. Only when an agreement is reached will this proposal become law and enter into application. It remains to be seen whether this proposal will be accepted in its entirety. Changes may still be made between the current proposal and the final text.

5. What are the consequences for your company?

With the necessary information on the sustainability aspects of a company, the risks and impact on people and the environment can be better understood and managed. The sustainability reporting requirements aim, among other things, to eliminate or at least reduce the information asymmetry between companies and stakeholders outside the company.

Even though you may no longer fall within the scope of the EU sustainability requirements –  if you do not (or no longer) exceed the above threshold – voluntary reporting offers several benefits. Companies that voluntarily disclose sustainability information can improve their reputation. Consumers will also use the information disclosed to influence their decision on whether or not to purchase a particular product or service.

Not only at the commercial level can sustainability play a role, but also at the financial level. Companies with strong sustainability profiles can consequently attract more investors. Through reporting, investors gain insight into how sustainable a company operates, an aspect they are paying increasing attention to. By voluntarily complying with the reporting requirements, sustainability issues are addressed without a company having to comply with all the requirements of the CSRD and/or CS3D or deal with the administrative burden that this entails. This allows financial resources to flow to companies that pursue sustainable objectives, disclose them transparently, and take responsibility for them towards all stakeholders.

Integrating sustainability criteria into management and reporting this information can therefore provide a competitive advantage. Companies themselves are the direct beneficiaries of high-quality sustainability reporting, as this can lead to higher profitability, improve the company’s access to financial capital, and enable more efficient risk management.

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