Leaked Draft Shows Lower EU Sustainability Reporting Requirements

EU Set to Simplify Green Deal Regulations Amid Pressure to Ease Business Burden

The European Union is preparing to overhaul several key pieces of legislation tied to the EU Green Deal, following growing calls from businesses to alleviate what is perceived as an excessive regulatory load. At the heart of these reforms is the Omnibus Simplification Package, which aims to reduce reporting requirements under three major directives: the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD). The package is set for release on February 26, although a leaked draft on February 22 has already sparked considerable discussion and debate. The leaked proposal suggests significant changes, including the elimination of mandatory reporting for small and medium-sized enterprises (SMEs), higher thresholds for reporting, and limitations on what large companies can request from SMEs.

Background: EU’s Green Deal and Sustainability Directives

In line with the European Green Deal and the Paris Agreement’s ambitious goal of achieving net-zero greenhouse gas emissions by 2050, the EU has introduced several landmark directives to ensure businesses contribute to climate action. The EU Taxonomy, adopted in 2020, established a classification system to identify environmentally friendly activities, aiding businesses and investors in making sustainable choices. This was followed by the Corporate Sustainability Reporting Directive in 2023, which mandates companies to disclose their environmental, social, and governance (ESG) performance. Reporting requirements for large companies are set to begin in 2025, with SMEs and non-EU companies facing phased implementation over the next year.

The most recent addition, the Corporate Sustainability Due Diligence Directive (CSDDD) adopted in May 2024, introduced both reporting obligations and legal liability for companies regarding their supply chains, ensuring compliance with climate and human rights standards. However, its adoption was contentious, with significant pushback leading to a narrowed scope before its approval.

Proposed Changes to the Corporate Sustainability Reporting Directive

The leaked draft of the Omnibus Simplification Package reveals substantial amendments to the CSRD, primarily aimed at mitigating the burden on SMEs. Key changes include raising the reporting thresholds, removing mandatory reporting for listed companies unless they meet specific criteria, and limiting the demands large companies can impose on SMEs, particularly concerning Scope 3 emissions, which track GHG emissions across the value chain. These adjustments aim to streamline compliance and reduce costs for smaller businesses, while maintaining the EU’s commitment to sustainability.

Implications for Non-EU Companies and the Path Forward

Non-EU companies operating in the EU will also see changes under the proposal, with higher thresholds for reporting based on employee numbers and annual turnover. This shift may align with recent suggestions from the European Financial Regulatory Advisory Group to allow non-EU companies to use their home country’s standards for reporting. As the Omnibus Simplification Package moves through the legislative process, further debate and potential revisions are anticipated. However, the leaked draft aligns with the EU’s broader strategy to ease regulatory pressure on businesses, suggesting that the proposed changes are likely to be adopted in some form.

In conclusion, the EU’s move to simplify its sustainability regulations reflects a balancing act between addressing climate change and supporting business competitiveness. While the reforms aim to reduce administrative burdens, particularly on SMEs, they also highlight the ongoing challenges in harmonizing sustainability goals with economic realities. The final outcome of the Omnibus Simplification Package will be a critical marker of the EU’s approach to sustainable business practices in the coming years.