New 1,000-Employee Threshold: Key Exemption for Firms Under CSRD Reporting Requirements

The European Commission’s Omnibus Proposal, unveiled in February 2025, marks a significant transformation in sustainability reporting as part of the Corporate Sustainability Reporting Directive (CSRD). This proposal aims to enhance compliance and lighten the administrative load for businesses navigating the intricate Environmental, Social, and Governance (ESG) landscape, as highlighted by Greenomy.

Key Components of the Omnibus Proposal

The Omnibus Proposal is anchored by two major legislative instruments:

1. The “Stop-the-Clock” Directive

• This directive grants a temporary two-year extension for companies yet to initiate their CSRD reporting obligations.
• It includes listed small and medium-sized enterprises (SMEs) and postpones the timeline for the Corporate Sustainability Due Diligence Directive (CSDDD) by one year.

2. The “Simplification” Proposed Directive

• This directive aims to implement more permanent modifications, specifically by adjusting the reporting threshold.
• It will only apply to companies with more than 1,000 employees and either a balance sheet total exceeding €25 million or a turnover surpassing €50 million.
• Moreover, the volume of data required for disclosure under the CSRD, CSDDD, and the EU Taxonomy will significantly decrease.

Balancing Ambition and Compliance

These proposed adjustments reflect the European Commission’s broader objective to simplify EU sustainability legislation. The goal is to achieve a balance between ambitious ESG targets and the concerns raised by the business community, particularly SMEs, regarding compliance burdens. By lowering reporting demands and introducing voluntary standards, the proposal aims to ensure more proportionate regulation.

Impact on Smaller Businesses

If the new 1,000-employee threshold is approved, many businesses—especially smaller or listed entities with limited staff—will no longer be subject to mandatory CSRD reporting. Instead, they will be encouraged to adopt voluntary standards developed by EFRAG, based on the forthcoming VSME framework. However, these standards may not be mandatory for companies with 250–999 employees.

Legislative Process and Key Clarifications

The legislative journey is still in progress. The European Parliament’s Committee on Legal Affairs is expected to vote on the proposal in mid-October 2025, followed by a plenary vote and subsequent passage through the Council to become law.

One crucial clarification concerns the method for calculating the 1,000-employee threshold. The Commission refers to the 2003 Recommendation on defining enterprise size, utilizing Annual Work Units (AWUs) as a measurement proxy. This approach allows firms to account for part-time and seasonal workers proportionately based on the time worked during the reference year.

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