The EU Commission finally revealed what it’s efforts to bring reporting simplification to the sustainability disclosure space will mean. Through what’s known as an ‘Omnibus package’, the executive branch of the EU has suggested a series of changes to three key legislations: the CSRD (on corporate disclosures), the CSDDD (on supply chain due diligence), and the Taxonomy (which helps determine sustainable activities to support capital flows). These are part of the wider objective to reduce reporting burden for firms. However, we are currently at a proposals stage which still needs to go through the usual decision-making processes of the supranational body. We have below the key highlights of the proposed changes:?
- Delay to the second wave of CSRD obligations: also known as the “Stop the Clock mechanism”, the proposal aims to implement a two-year delay for companies who had to comply with CSRD in 2026 and 2027.?
- Scope reduction: the thresholds which determine application of CSRD have been lifted significantly to 1,000 employees, and a turnover of €50m or a balance sheet of €25m. This means that around 80% of companies initially under scope companies would no longer need to comply.?
- Simplification of disclosures: sector-specific standards will be scrapped under ESRS (European Sustainability Reporting Standards). A revision will also analyse how to further simplify the required datapoints and prioritise quantitative disclosures. Finally, reasonable assurance requirements which were expected for 2028 and onwards have been scrapped.?
- Significant changes to CSDDD: the provisions of this regulation would be impacted the most, including a removal of EU-wide civil liability, a decrease in the frequency of risk assessments from one to five years, and these assessments will only be relevant to direct suppliers (Tier 1). The application would also be delayed by one year to 26 July 2028.?
- Voluntary Taxonomy reporting: the EU Taxonomy will become voluntary for firms with a turnover below €450m. For those still under the regime, the EC proposes the introduction of a financial materiality threshold for reporting and reducing the reporting templates by 70%.?
Firms should keep an eye out for how these proposed changes evolve over time, as some member states and MEPs have already expressed opposition to these changes. For instance, they have raised that the initial objective of the Omnibus package was to streamline processes and reduce duplicities, not water down the contents or scope of the regulation. In the end, it is the European Council and European Parliament who need to debate and approve what, for now, is simply a proposal by the European Commission. If this follows usual EU policymaking progress, it is very likely that the final changes won’t be the same as the current text. Firms should expect to wait up to 9-12 months for this final decision to be reached. For companies having to report under CSRD by 2026, this means business as usual. This is because firms risk non-compliance if the Omnibus is not finalised in a year’s time or if the final text doesn’t bring as many changes as currently expected. In case this creates more questions than answers, and you are struggling to navigate these changes in the EU, feel free to reach out to us at [email protected].?
?In other news this week:?
- The FCA notified a significant threshold had been surpassed on SDR label uptake. On a brief LinkedIn post, the regulator announced 100 funds intend to use a label. This comes alongside a different publication highlighting label usage as part of the FCA’s supervisory strategy over asset managers & alternatives (for more detail on this see our recent blog). We expect the perceived increase in leniency at the authorisation gateway witnessed since November 2024 on label approvals to shift back towards a tougher stance via supervisory action.??
- The US SEC changed it's guidance on the Exchange Act sections 13(d) and 13(g), potentially affecting ESG stewardship activities by big institutional investors. In a nutshell, investors who hold more than 5% of a company cannot pressure the firm to improve their ESG performance or use voting activity to motivate this change. This meant the world’s biggest asset managers such as Vanguard and Blackrock had to pause their engagement activities in the US last week to digest the news. We will monitor this story to understand its longer-term ramifications.
