Introduction

The Corporate Sustainability Reporting Directive (CSRD) has undergone substantial changes since its initial introduction. Originally designed to transform how companies report their environmental, social, and governance (ESG) impacts, the CSRD has recently seen significant modifications through the European Commission's Omnibus simplification package. This article provides an up-to-date overview of the CSRD, highlighting recent changes and what companies need to know moving forward.

What is the CSRD?

The Corporate Sustainability Reporting Directive is a European Union regulation that enhances sustainability reporting requirements for companies operating in the EU. It replaces and significantly expands upon the Non-Financial Reporting Directive (NFRD), which was deemed insufficient in providing stakeholders with transparent and comprehensive sustainability information.

The CSRD is considered a cornerstone of the EU's sustainability agenda and the European Green Deal as it modernizes and strengthens rules about social and environmental information that companies must report.

Major Changes in 2025: The Omnibus Proposal

On February 26, 2025, the European Commission introduced the Omnibus package, a set of proposals designed to simplify EU regulations and boost competitiveness. This package has dramatically altered the CSRD's scope and implementation timeline.

Reduced Scope

The Omnibus proposal significantly redefines which companies fall under CSRD reporting obligations. Rather than applying to companies with over 250 employees, the threshold has been raised to companies with over 1,000 employees on a group or standalone basis, with financial thresholds increased to €50 million turnover or a balance sheet total above €25 million.

This change will exempt approximately 80% of companies that were originally within the CSRD's scope, focusing reporting obligations on the largest companies that likely have the most significant impacts on people and the environment.

Extended Implementation Timeline

In a landmark vote on April 3, 2025, the European Parliament overwhelmingly approved postponing the implementation dates for corporate sustainability reporting requirements. The postponement extends deadlines by approximately two years for certain categories of companies.

The new implementation timeline is as follows:

• Large public-interest companies with over 500 employees: First reports in 2025 (covering financial year 2024)
• Large companies with over 1,000 employees: Reports now due in 2028 (covering financial year 2027)
• Listed SMEs: Reports now due in 2029 (covering financial year 2028)
• Non-EU companies with significant EU operations: Reporting begins in 2029 (for financial year 2028)

ESRS Revision

The European Commission intends to revise the European Sustainability Reporting Standards (ESRS) to reduce substantially the mandatory ESRS datapoints number by removing those deemed least important for general purpose sustainability reporting and prioritizing clarity.

According to documents from the European Financial Reporting Advisory Group (EFRAG) dated April 25, 2025, a comprehensive revision of these standards is underway with a detailed timeline:

• April to mid-May 2025: Establishing actionable levers for substantial simplification
• Second half of May to July 2025: Drafting and approving Exposure Drafts amending ESRS
• August and September 2025: Public consultation and feedback collection
• October 2025: Finalizing and delivering technical advice to the European Commission

Key Components of the CSRD

Despite the simplifications, several fundamental components of the CSRD remain intact:

1. Double Materiality Approach

The ESRS takes a "double materiality" perspective – companies are obliged to report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for the company. This dual approach ensures comprehensive reporting that considers both a company's impact on the world and how sustainability factors affect the company itself.

2. Mandatory Assurance

The directive introduces a mandatory assurance obligation for all reported sustainability information, which stands in contrast to the assurance requirement outlined in the US Securities and Exchange Commission's recently adopted climate disclosure rules. This third-party verification enhances the credibility and reliability of sustainability reports.

3. Digital Reporting Format

Companies must submit their reports in a standardized digital format (XHTML) with applied XBRL tags, making the information machine-readable and more accessible for stakeholders to analyze and compare. This digitalization facilitates the creation of the European Single Access Point (ESAP) for sustainability disclosure data.

4. Value Chain Considerations

In June 2024, EFRAG released a significant update to their Q&A on the ESRS providing further clarification on reporting requirements. While the original CSRD mandated extensive value chain reporting, the Omnibus package introduced a "shield" or "value chain cap" for smaller companies.

For companies not in scope of the CSRD (those with less than 1000 employees), the Commission will adopt a voluntary reporting standard. This standard is intended to act "as a shield" by limiting the amount of information that companies and banks falling into scope of the CSRD can request from companies in their value chains with fewer than 1,000 employees.

Implications for Businesses

Extended Preparation Time

The most immediate benefit for companies is the additional preparation time. Organizations that were rushing to implement reporting systems now have more breathing room to develop comprehensive and effective approaches to sustainability reporting. This extension allows companies to learn from the experiences of early adopters who published their first CSRD-aligned reports in early 2025.

Strategic Importance Despite Simplifications

Despite the delays and simplifications, sustainability reporting remains strategically important for businesses. The CSRD aims to transform sustainability reporting from a mere communication exercise to a standardized, transparent framework comparable to financial reporting.

Companies should view these changes not as a reason to deprioritize sustainability but as an opportunity to integrate ESG considerations more thoroughly into their business strategies.

Implementation Challenges

Even with the simplifications, companies face significant challenges in implementing CSRD requirements:

• Data Collection and Management: Gathering the required information demands robust systems and processes, especially for tracking data along the value chain.
• Cross-Functional Integration: Successful implementation requires collaboration across departments, including finance, sustainability, and communications.
• Materiality Assessment: Determining which sustainability topics are material from both impact and financial perspectives requires thorough analysis.

Looking Forward

The CSRD represents a significant shift in corporate reporting requirements, even with the recent simplifications. Companies should:

• Assess their status under the revised thresholds to determine if and when they need to comply
• Monitor ongoing revisions to the ESRS to understand specific reporting requirements
• Develop robust data collection systems that can track and report the necessary information
• Integrate sustainability considerations into core business operations and decision-making

While the Omnibus package has reduced the immediate reporting burden for many companies, the direction of travel remains clear: sustainability reporting is becoming an essential component of corporate transparency and accountability. Forward-thinking organizations will use the extended implementation timeline to their advantage, preparing thoroughly for this new reporting paradigm.

Conclusion

The Corporate Sustainability Reporting Directive has evolved significantly since its introduction, with recent changes demonstrating the EU's commitment to balancing comprehensive sustainability reporting with practical business considerations. While the simplifications provide relief, particularly for smaller companies, the core objectives of enhancing transparency and accountability remain. Companies that proactively adapt to these requirements will be better positioned to thrive in an increasingly sustainability-focused business environment.

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