In February, the European Commission adopted a proposal to drastically reduce sustainability reporting requirements in the European Union, including a rewrite of the European Sustainability Reporting Standards. While the proposal has yet to be discussed in the Council or the European Parliament, the Commission is moving forward by requesting the regulatory authority to begin the rewrite, in anticipation of the final passage. The instructions indicate that they expect passage of reforms by the end of 2025.
As part of the European Green Deal, the EU pushed through a trilogy of regulations aimed at controlling businesses’ climate related activities. In 2022, the EU adopted the Corporate Sustainability Reporting Directive to create requirements for businesses to report greenhouse gas emissions and other environmental, social, and governance actions. The CSRD called for the drafting of European Sustainability Reporting Standards to create the regulatory framework for reporting. That responsibility was delegated to the European Financial Reporting Advisory Group.
EFRAG released the first round of ESRS in late 2022. The Commission officially adopted them in July 2023 and EFRAG was tasked with drafting sector specific and non-EU company ESRS. However, companies struggled with implementing the first ESRS, forcing the Commission to delay further development by EFRAG, shifting focus to drafting additional guidance.
By the summer of 2024, the tide was shifting on green initiatives. As the financial obligations in the directives became clear, the business community began to push for reforms. During the 2024 European Parliament elections, the burden on businesses became a major theme, with the European Green Deal taking the majority of the blame for the EU’s faltering economy. The elections resulted in a shift to the right, with environmentally focused parties losing seats.
The reform process began almost immediately behind closed doors. In November 2024, Ursula von der Leyen, president of the European Commission, publicly announced her intention to revamp the Taxonomy, CSRD, and CSDDD to reduce the burden on businesses. The Omnibus Simplification Package was officially adopted by the Commission on February 26. Included in the proposal was a “stop the clock” directive to delay new sustainability reporting until 2028. That proposal was adopted by the Council on March 26. The Parliament is considering the delay, but could adopt it as soon as April 3. The broader directive to reduce reporting requirements will be heard over the next few months.
On March 25, Maria Luís Albuquerque, the EU Commissioner for Financial Services and Investments, sent a letter to EFRAG asking for updated recommendations to comply with the current proposal. EFRAG was given until April 15 to draft a timeline with a target completion deadline of October 31.
In the letter, she stated, “as you will be aware, on 26 February the Commission adopted a first ‘omnibus’ package of proposals to simplify EU rules, boost competitiveness, and unlock additional investment capacity. You will also have seen that, as part of this initiative, we propose to adopt a delegated act to revise and simplify the existing European Sustainability Reporting Standards (ESRS).”
As to the specific language in the omnibus proposal, Albuquerque provided the following excerpt:
“The revision of the delegated act will substantially reduce the number of mandatory ESRS datapoints by (i) removing those deemed least important for general purpose sustainability reporting, (ii) prioritising quantitative datapoints over narrative text and (iii) further distinguishing between mandatory and voluntary datapoints, without undermining interoperability with global reporting standards and without prejudice to the materiality assessment of each undertaking. The revision will clarify provisions that are deemed unclear. It will improve consistency with other pieces of EU legislation. It will provide clearer instructions on how to apply the materiality principle, to ensure that undertakings only report material information and to reduce the risk that assurance service providers inadvertently encourage undertakings to report information that is not necessary or dedicate excessive resources to the materiality assessment process. It will simplify the structure and presentation of the standards. It will further enhance the already very high degree of interoperability with global sustainability reporting standards. It will also make any other modifications that may be considered necessary considering the experience of the first application of ESRS.”
Looking at the timeline, Albuquerque stated, “at this stage we cannot know exactly when that directive will enter into force, since it is dependent on the pace and conclusion of negotiations between the co-legislators. We therefore cannot exclude that the target date for the submission of EFRAG’s technical advice may change. However, for the time being we believe that the target date of 31 October 2025 is reasonable and that it would allow the Commission to adopt the corresponding delegated act in time for companies to apply the revised standards for reporting covering financial year 2027, potentially with an option to apply the revised standards for reporting covering financial year 2026 if companies wish so.”
This letter shows a clear expectation that the Council and Parliament will adopt the full reduction of sustainability reporting requirements in the CSRD. However, expect a vigorous public debate in the Parliament with climate activists and interested businesses pushing for the protection of the existing requirements.