EU Council Postpones Critical Sustainability Reporting: CSRD and CSDDD Updates

In a strategic effort to alleviate the regulatory burden on businesses, EU member states have approved the European Commission’s directive to delay essential sustainability reporting and due diligence requirements. This initiative, commonly referred to as the ‘stop-the-clock’, is a critical element of the Commission’s Omnibus I package introduced earlier this year, which aims to ease the sustainability reporting obligations, particularly for small and medium-sized enterprises (SMEs).

Overview of the EU’s Omnibus I Package

The Omnibus package introduces significant changes to various regulations, including:

• Corporate Sustainability Reporting Directive (CSRD)
• Corporate Sustainability Due Diligence Directive (CSDDD)

Key proposals within this package include:

1. A two-year delay in CSRD enforcement for companies yet to begin reporting.
2. A one-year extension for the transposition and application of the CSDDD.

Purpose of the ‘Stop-the-Clock’ Initiative

The ‘stop-the-clock’ initiative was created to streamline the implementation of these delays, ensuring businesses do not have to commence reporting only to see those requirements rescinded shortly thereafter. The Polish presidency of the Council has stressed the need for quick action on this proposal, providing EU companies with the necessary legal certainty regarding their reporting and due diligence responsibilities.

Importance of Simplification for Businesses

Adam Szłapka, Poland’s Minister for the European Union, emphasized the significance of these reforms, stating, “Simplification is one of the priorities of the Polish presidency. Today’s agreement marks the first step toward reducing red tape and enhancing the EU’s competitiveness.”

Targeting Smaller Enterprises

The Omnibus package primarily focuses on smaller businesses, aligning with the Commission’s ‘Competitiveness Compass’. This initiative aims to:

• Reduce reporting burdens by at least 25% for all companies.
• Achieve a 35% reduction for SMEs.

Proposed Changes to Reporting Standards

Further modifications to the CSRD would significantly narrow its scope, effectively exempting around 80% of businesses. The revised standards would only apply to companies with:

• Over 1,000 employees.
• Annual revenues exceeding €50 million.

Moreover, the European Commission plans to adjust the European Sustainability Reporting Standards (ESRS) to reduce the required data points.

Changes to Due Diligence Requirements

Modifications to the CSDDD include:

• Limiting full due diligence to direct business partners unless credible adverse impacts are identified further along the value chain.
• Extending the monitoring period for due diligence practices from annually to every five years.

Next Steps for the Proposal

The European Parliament is scheduled to vote on the ‘stop-the-clock’ proposal on April 1, which will be a crucial step toward regulatory adaptation that responds effectively to business needs.

For more information on sustainability regulations in the EU, visit European Commission’s official site.