MEPs endorse delay to sustainability due diligence and reporting rules

In February, the European Commission unveiled an omnibus package of proposals to water down sustainability-related reporting and due diligence requirements under the EU’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CS3D), respectively. That move was prompted amidst concerns about the relative compliance burdens the legislation introduces and their effect on EU competitiveness.

The CSRD is regarded as the most comprehensive sustainability reporting standard globally, requiring companies in-scope to report both on how sustainability issues affect their performance, position and development, and on their own impact on the environment and people.

The CSRD was written into EU law in 2022 and the first wave of CSRD-compliant reports have already started to be published, amidst some concern about over-disclosure and associated legal risks. However, under the proposals now backed by the European Parliament, around 80% of businesses that were due to face reporting duties under the CSRD will no longer do so.

The first set of omnibus proposals voted on and passed by the European Parliament on 3 April  implement a two-year delay for certain companies under CSRD. While the delay will not apply to large listed EU companies already in scope of the CSRD’s sustainability reporting requirements, the delay comes into effect just in time for other large companies which were due to publish their first reports in 2026.

James Hay, an expert in sustainability reporting at Pinsent Masons, said: “For some companies, this may mean pens down for now. For others, which have already carried out significant implementation activities, this two-year delay may lead to a certain degree of streamlining but otherwise a continuation with reporting activities.”

There are further plans in train to further reduce the scope of companies needing to report under CSRD. Under proposals not yet voted on, the proposed revised CSRD will apply to ‘large’ undertakings that have more than 1,000 employees and either an annual turnover above €50 million or a balance sheet total above €25m, which will require to report later than was originally drafted – on financial year of 2027 for publication in 2028, rather than on financial year of 2025 for publication in 2026.

The two-year delay also applies to listed SMEs, due to commence sustainability reporting for their 2028 financial year to be published in 2029, although these companies may fall out of scope altogether under the proposals not yet voted on.

The two-year delay does not apply to non-EU companies which operate in the EU and these companies remain subject to sustainability reporting obligations, although under proposals not yet voted on the financial thresholds for falling in-scope would be increased significantly to €450 million in EU-derived net turnover from the current threshold of €150 million.

Given the significant 80% reduction in companies in scope of mandatory sustainability reporting, a new voluntary sustainability reporting regime is envisaged for businesses not in-scope of the revised CSRD, which is significantly streamlined compared to the existing European Sustainability Reporting Standards.

The CS3D is a separate framework that provides for sustainability-related due diligence for large EU companies and non-EU companies with significant EU activity. It imposes a duty on in-scope companies to identify and address actual and potential adverse human rights and environmental impacts within their own operations, those of their subsidiaries, and their “chains of activities”. This duty is backed by related disclosure obligations as well as by the threat of turnover-linked fines and a civil liability framework in respect of intentional or negligent breaches of certain obligations. CS3D was written into EU law in 2024 but has not yet taken effect.

Under the planned amended CS3D regime, the directive will not need to be transposed into the national laws of EU member states until 25 July 2027, one year later than is currently provided for. In addition, the application of the disclosure obligations that in-scope companies will face will be pushed back, meaning the disclosure regime would be triggered for financial years commencing on or after 25 July 2028 for the first wave of companies in-scope – large EU companies with over 5,000 employees and a net turnover exceeding €1.5 billion, as well as non-EU companies meeting the same turnover threshold within the EU.

The Parliament engaged an urgent procedure to fast-track its vote on the Commission’s proposed omnibus package. In total, 531 MEPs voted in favour of the plans, with 69 voting against. There were 17 abstentions.

The omnibus package will only be adopted into EU law if the EU’s other law-making body, the Council of Ministers, also formally votes through the proposed amendments. Last month, the Council, which is made up of representatives of the governments of EU member states, signalled its intent to do so.

Sean Elson, an expert in regulatory compliance at Pinsent Masons, said: “Following the announcements by the US regarding the imposition of tariffs globally, this is a tumultuous time for global trade with the impact on supply chains across the world fluid and highly uncertain. Although no one must lose sight of the evils that are endured by people daily where they are working in terrible conditions, the additional time that the postponement will allow affected businesses to adjust to the new requirements may be welcome at this time.”