EU Drastically Scales Back Sustainability Reporting Requirements for Companies
- The European Commission plans to exempt 80% of companies from CSRD sustainability reporting.
- Other key ESG regulations, including CSDDD and CBAM, will also see major reductions.
- Changes aim to cut compliance costs and boost European competitiveness.
In a sweeping regulatory shift, the European Commission has proposed a significant rollback of corporate sustainability reporting obligations, exempting 80% of companies from the Corporate Sustainability Reporting Directive (CSRD). The changes, part of the newly unveiled “Omnibus” package, are designed to ease the administrative burden on businesses by limiting the sustainability data that large firms and banks can demand from smaller enterprises. The move aligns with the EU’s broader strategy to enhance economic competitiveness by cutting red tape.
Many of the most significant measures proposed are targeted at smaller businesses, in alignment with the recent release by the Commission of its “Competitiveness Compass” aimed at boosting Europe’s productivity and global competitiveness, which included goals to reduce reporting burdens by at least 25% for all companies, and 35% for SMEs.
The CSRD, based on new underlying European Sustainability Reporting Standards (ESRS), took effect from the beginning of 2024 for large public-interest companies with over 500 employees, with the first reports being issued in 2025, which were to be followed by companies with more than 250 employees or €50 million in revenue in the following year, and listed SMEs one year later.
Under the new proposal, however, only companies with more than 1,000 employees and either revenue greater than €50 million net turnover or a balance sheet above €25 million would be included in the scope of the CSRD, removing an estimated 80% of companies from the regulation’s sustainability reporting requirements.
Alongside CSRD revisions, the Commission also announced major changes to the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy, and the Carbon Border Adjustment Mechanism (CBAM). Under the new proposals, CSDDD implementation will be delayed, and due diligence obligations will be narrowed to direct business partners.
For smaller companies, the EU plans to introduce voluntary sustainability reporting requirements, based on the voluntary standards for SMEs (VSME) recently released by EFRAG.
Meanwhile, the Taxonomy framework will only apply to companies with over €450 million in revenue, and CBAM will eliminate 90% of importers from its scope while still covering the vast majority of emissions. The Commission estimates these changes will save businesses approximately €6.4 billion annually, including €4.4 billion from the changes to the CSRD.
While the proposals have been framed as necessary simplifications, they have drawn mixed reactions. Supporters argue the reforms will provide much-needed relief for businesses struggling with regulatory overload, while critics warn they could weaken Europe’s leadership in sustainable finance and climate action. However, Commission President Ursula von der Leyen defended the move, stating, “Simplification promised, simplification delivered,” emphasizing that the EU remains committed to its decarbonization goals. The proposals will now go to the European Parliament and Council for approval, with fast-tracked negotiations expected.
