EU May Fast-Track Legislation To Delay Sustainability Reporting Until 2028

Introduction: The EU’s Shift in Sustainability Reporting

On February 26, 2024, the European Commission introduced a proposal to significantly simplify and delay sustainability reporting requirements for businesses in the European Union. This move, known as the Omnibus Simplification Package, includes two key directives aimed at reducing the administrative burden on companies while allowing more time for the EU institutions to finalize other aspects of sustainability regulations. The package was fast-tracked, with the European Parliament and Council beginning their debate on the proposed changes. This shift marks a notable change in the EU’s approach to sustainability reporting, which has been a cornerstone of the European Green Deal since its adoption in 2020.

Background: The Evolution of EU Sustainability Regulations

The European Union has been at the forefront of global efforts to address climate change and promote sustainability through robust regulatory frameworks. Following the adoption of the European Green Deal in 2020, the EU introduced several key initiatives to guide businesses toward more environmentally friendly practices. One of the first major steps was the establishment of the Taxonomy for Sustainable Activities in 2020, which provided a classification system to help businesses and investors identify environmentally friendly activities.

In 2023, the EU took a significant step forward with the adoption of the Corporate Sustainability Reporting Directive (CSRD), which mandated companies to disclose their greenhouse gas emissions and other environmental, social, and governance (ESG) actions. Building on this, the Corporate Sustainability Due Diligence Directive (CSDDD) was introduced in 2024, further expanding reporting requirements and introducing legal liability for companies in relation to their value chains. These measures were praised by environmental activists and advocates as crucial steps toward achieving the EU’s climate goals.

The Backlash and Political Shift

While these initiatives were initially lauded for their ambition, the business community soon began to push back against the growing regulatory burden. As the full extent of the obligations under the CSRD and CSDDD became clear, concerns about their impact on businesses—particularly smaller companies—grew. The 2024 European Parliament elections became a turning point, as the economic challenges facing the EU, partly blamed on the Green Deal, led to a shift in the political landscape. Environmentally focused parties lost seats, and the new political configuration brought a more business-friendly approach to the forefront.

In response to these concerns, Ursula von der Leyen, President of the European Commission, announced plans to overhaul sustainability regulations in November 2024. She emphasized the need to reduce the burden on businesses while maintaining the EU’s commitment to sustainability. The proposed Omnibus Simplification Package, unveiled on February 26, 2024, aimed to achieve this balance by delaying and simplifying the implementation of key sustainability directives.

The Omnibus Simplification Package: Key Proposals

The Omnibus Simplification Package consists of two main directives. The first directive proposes delaying the implementation of the CSRD and CSDDD until 2028, specifically for the fiscal year 2027. This delay gives businesses more time to adapt to the new requirements and reduces the immediate pressure on companies struggling to comply with the regulations.

The second directive aims to reduce the scope of businesses subject to sustainability reporting under the CSRD. Under the revised rules, only large companies with over 1,000 employees and annual net turnover exceeding €450 million would be required to file sustainability reports. Additionally, the directive weakens the enforcement mechanisms of the CSDDD by limiting pecuniary damages and restricting the ability of certain parties to bring civil actions. These changes have sparked debate, with critics arguing that they water down the EU’s commitment to sustainability.

The Legislative Process: What’s Next?

Now that the European Commission has adopted the proposal, it has been sent to the European Parliament and the Council of the European Union for consideration. The package was formally presented to the Parliament on March 10, 2024, marking the start of the legislative process. Both institutions will now deliberate on the proposals, with a series of committee reviews and negotiations expected to take place.

The process is likely to be lengthy, with the Parliament and Council each developing their positions before entering into trilogue discussions. These discussions involve representatives from the three EU institutions—the Parliament, Council, and Commission—who negotiate the final text of the legislation. Once an agreement is reached, the final version will be put to a vote in both the Parliament and the Council.

Conclusion: Implications and Future of EU Sustainability Reporting

The adoption of the Omnibus Simplification Package signals a pragmatic adjustment to the EU’s sustainability reporting framework, reflecting the political and economic realities of the time. While the delay in implementing the CSRD and CSDDD is expected to move quickly through the legislative process—potentially being finalized by May or June 2024—the broader debate over the scope and enforcement of sustainability reporting is likely to be more contentious.

The outcome of this process will have significant implications for businesses and the EU’s ability to meet its climate goals. On one hand, the delays and simplifications may ease the burden on companies, particularly smaller ones, and allow for more targeted and effective regulations in the long run. On the other hand, critics fear that these changes may undermine the EU’s leadership in sustainability and weaken its ability to hold businesses accountable for their environmental and social impacts. As the debate unfolds, the EU will need to strike a delicate balance between supporting businesses and advancing its sustainability agenda.