The European Union is reportedly considering significant delays and potential weakening of its Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) implementation. This potential shift comes amid growing concerns from businesses and some lawmakers about the readiness and feasibility of meeting the original stringent requirements within the established timelines. The move aims to simplify the EU's ESG reporting regime and reduce the burden on companies, potentially impacting trade relations and the availability of crucial climate data.

Key Takeaways

• The European Parliament has voted to delay the implementation of CSRD and CSDDD.
• Proposed changes aim to reduce the scope and reporting burden for companies.
• Concerns exist about the impact of these changes on climate risk assessment and financial system stability.
• Several EU member states have adopted "stop the clock" directives, delaying transposition.

Proposed Delays and Scope Reductions

The European Parliament has overwhelmingly voted to delay the implementation of both the CSRD and the CSDDD. This decision, following endorsement from the European Council, effectively pauses the clock on many obligations. For instance, large enterprises and parent companies, initially slated to begin reporting in 2026 for the 2025 financial year, may now see their reporting start date pushed to 2028. Similarly, SMEs with listed securities in the EU, originally expected to report in 2027, might begin in 2029. Public interest entities already obligated to report in 2025 and non-EU companies with substantial EU activity remain largely unaffected by these specific proposed delays.

Driving Forces Behind the Potential Changes

The primary driver for these proposed modifications is a concerted effort to reduce regulatory costs for European businesses and enhance economic competitiveness, particularly in comparison to jurisdictions like the United States and China. Lawmakers are concerned that the current sustainability rules are overly complex and burdensome, especially for mid-sized companies. Proposals include raising the employee and revenue thresholds for CSRD applicability and simplifying due diligence requirements under the CSDDD. The European Central Bank (ECB), however, has voiced concerns that watering down these requirements could hinder its ability to assess and manage climate-related financial risks within the financial system due to a potential reduction in high-quality data availability.

Member State Actions and Evolving Standards

Several EU member states have already adopted "stop the clock" directives, delaying the transposition of CSRD into national law. Hungary, Ireland, and Norway are among the countries that have joined Estonia, France, and Lithuania in this regard. Meanwhile, the European Financial Reporting Advisory Group (EFRAG) is actively working on simplifying the European Sustainability Reporting Standards (ESRS), aiming for a significant reduction in mandatory data points. These ongoing efforts indicate a dynamic regulatory landscape where the final scope and burden of sustainability reporting are still being negotiated and refined.

What Companies Should Do

Despite the prospect of revised timelines and reduced obligations, companies are advised to continue preparing for CSRD and CSDDD implementation. The existing rules remain in effect, and early reporting is already underway for some entities. Businesses should evaluate their exposure under the proposed new thresholds, continue with their preparation efforts, and consider strategic voluntary reporting to demonstrate leadership and meet stakeholder expectations. Staying informed about political developments and negotiations within the EU will be crucial for timely compliance.

Sources

• A CSRD Transposition Update – Three Additional Countries Adopt the “Stop the clock” delay | Insights, Ropes & Gray LLP.
• EU pledges CSRD, CSDDD will not impose 'undue restrictions' on US trade, Responsible Investor.
• EU Parliament Votes To Delay Implementation of Sustainability Reporting and Due Diligence Obligations |
  Insights, Skadden, Arps, Slate, Meagher & Flom LLP.
• ECB President Warns Lawmakers Against Watering Down CSRD Sustainability Reporting Requirements, ESG Today.
• The EU’s CSRD and CSDDD Compliance Playbook Is Being Rewritten (Again), Akin.