Explanatory Memorandum to COM(2025)80 - Amendment of Directives (EU) 2022/2464 and (EU) 2024/1760 as regards the dates from which Member States are to apply certain corporate sustainability reporting and due diligence requirements - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2025)80 - Amendment of Directives (EU) 2022/2464 and (EU) 2024/1760 as regards the dates from which Member States are to apply certain ... |
|---|---|
| source | COM(2025)80  |
| date | 26-02-2025 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Contents
- General context and objectives
- Specific context and objectives of this proposal regarding the CSRD
- Specific context and objectives of this proposal regarding the CSDDD
- The policy objective is to delay the dates of entry of application of certain provisions of EU law. There only means of achieving that objective is to propose to modify those dates
- Corporate Sustainability Reporting Directive
- Corporate Sustainability Reporting Directive
- Corporate Sustainability Due Diligence Directive
In his report on ‘The Future of European Competitiveness’, Mario Draghi emphasised the need for Europe to create a regulatory landscape which facilitates competitiveness and resilience, drawing attention to burden and compliance costs created by the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). 1 In the Budapest Declaration on the New European Competitiveness Deal, EU Heads of State and Government called for ‘a simplification revolution, ensuring a clear, simple and smart regulatory framework for businesses and drastically reducing administrative, regulatory and reporting burdens, in particular for SMEs’. 2 They called on the Commission to make concrete proposals to reduce reporting requirements by at least 25% in the first half of 2025.
In its Communication on the Competitive Compass for the EU, the Commission confirmed that it would propose a first ‘Simplification Omnibus package’ which would include far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy. 3 In its Communication entitled ‘A simpler and faster Europe: Communication on implementation and simplification’, the Commission set out an implementation and simplification agenda that delivers fast and visible improvements for people and business on the ground, requiring more than an incremental approach and underlining the need for bold action to streamline and simplify EU, national and regional rules. 4
The CSRD entered into force on 5 January 2023. 5 It strengthened and modernised corporate sustainability reporting requirements through modifications to the Accounting Directive, the Transparency Directive, the Audit Directive and the Audit Regulation. 6 The CSRD is an important element of the European Green Deal and of the Sustainable Finance Action Plan. 7 It aims to ensure that investors have the information they need to understand and manage the risks to which investee companies are exposed from climate change and other sustainability issues. It also aims to ensure that investors and other stakeholders have the information they need about the impacts of companies on people and the environment. It thereby contributes to financial stability and environmental integrity. This is a necessary condition for financial resources to flow to companies that pursue sustainability goals and creates more accountability and transparency towards all stakeholders regarding companies’ sustainability performance.
The CSDDD was adopted on 13 June 2024. Its objective is to contribute to the European Union's broader ambition to transition towards a sustainable and climate-neutral economy as outlined in the European Green Deal. It requires companies to identify and address adverse human rights and environmental impacts in their own operations, those of their subsidiaries and their chains of activities.
The CSRD and the CSDDD are now being implemented in a new and difficult context. Russia’s war of aggression against Ukraine has driven up energy prices for EU undertakings. Trade tensions are rising as the geopolitical landscape continues to shift. The different approach undertaken by some other major jurisdictions regarding the regulation of corporate sustainability reporting and due diligence raises questions about the effects of these laws on the competitive positioning of EU companies. The ability of the Union to preserve and protect its values depends amongst other things on the capacity of its economy to adapt and compete in an unstable and sometimes hostile geopolitical context.
This proposal therefore postpones the entry into application of the CSDDD and of certain provisions of the CSRD.
The CSRD currently applies to large undertakings, SMEs with securities listed on the EU regulated markets, parent undertakings of large groups, as well as to issuers that belong to these categories of undertakings. The entry into application of the reporting requirements introduced by the CSRD is phased in according to different categories of undertakings. In the first wave, large public interest entities with more than 500 employees must report for the first time in 2025 for financial year 2024. 8 In the second wave, the other large undertakings must report in 2026 for financial year 2025. 9 In the third wave, SMEs with securities listed in EU regulated markets must report in 2027 for financial year 2026, although they have a possibility to opt out of reporting for financial years 2026 and 2027. 10 In the fourth wave, certain non-EU undertakings that have business in the territory of the Union above certain thresholds must report in 2029 for financial year 2028. 11
The CSRD requires undertakings in scope to report sustainability information according to mandatory European Sustainability Reporting Standards (ESRS) and requires the Commission to adopt such standards through delegated acts. In July 2023 the Commission adopted a first set of ESRS which are sector-agnostic, meaning they are to be applied by all undertakings in scope independently of the sector of the economy in which the undertaking operates. 12 The CSRD also requires the Commission to adopt sector-specific reporting standards, with a first set of such standards to be adopted by June 2026. The CSRD allows listed SMEs to report using a separate and lighter, proportionate set of standards instead of the full set of ESRS.
At the request of the Commission, EFRAG has submitted a sustainability reporting standard for voluntary use by SMEs that are not in scope of the reporting requirements (VSME standard). 13 The objective of the VSME standard is to provide SMEs with a simple, widely recognised tool through which they can provide sustainability information to banks, large companies and other stakeholders that may demand such information.
Other important aspects of the CSRD are the provisions on assurance and on reporting value-chain information. Undertakings must publish their sustainability information together with the opinion of a statutory auditor or, if the Member States allows, an independent assurance service provider. The current requirement is for limited assurance and the CSRD provides that this could in the future become a requirement for reasonable assurance under certain conditions. 14 The CSRD also requires the Commission to adopt standards for sustainability assurance by means of delegated acts.
The CSRD requires undertakings to report value-chain information to the extent necessary for understanding their sustainability-related impacts, risks and opportunities. The CSRD establishes a so-called value-chain cap, which states that ESRS may not contain reporting requirements that would require undertakings to obtain from SMEs in their value chain information that exceeds the information to be disclosed under the proportionate standard for listed SMEs.
This proposal aims to reduce the reporting burden and to limit the trickle down of obligations on smaller companies. Firstly, the separate legislative proposal made by the Commission in parallel to this proposal would simplify the framework and reduce burden in the following ways:
–The number of undertakings subject to mandatory sustainability reporting requirements would be reduced by about 80%, taking out of scope large undertakings with up to 1000 employees (i.e. some of the undertakings from the second wave and some of the undertakings from the first wave) and listed SMEs (i.e. all undertakings in the third wave). The reporting requirements would only apply to large undertakings with more than 1000 employees on average (i.e. undertakings that have more than 1000 employees and either a turnover above EUR 50 million or a balance sheet above EUR 25 million). This revised threshold would align the CSRD more closely with the CSDDD. 15
–For undertakings not subject to mandatory sustainability reporting requirements, the Commission proposes a proportionate standard for voluntary use which would be based on the VSME standard developed by EFRAG. According to this proposal, the Commission would adopt this voluntary standard as a delegated act. In the meantime, to address market demand, the Commission intends to issue a recommendation on voluntary sustainability reporting as soon as possible, based on the VSME standard developed by EFRAG.
–The value-chain cap would be extended and strengthened. It would apply directly to the reporting company instead of being only a limit on what ESRS can specify. It would protect all undertakings with up to 1000 employees rather than just SMEs as is currently the case. And the limit would be defined by the voluntary standard adopted by the Commission as a delegated act, based on the VSME standard developed by EFRAG. This will substantially reduce the trickle-down effect.
–There would be no sector-specific reporting standards, so avoiding an increase in the number of prescribed datapoints that undertakings should report.
–The possibility of moving from a requirement for limited assurance to a requirement for reasonable assurance would be removed. This will provide clarity that there will be no future increase in costs of assurance for undertakings in scope.
–Instead of an obligation for the Commission to adopt standards for sustainability assurance by 2026, the Commission will issue targeted assurance guidelines by 2026. This will allow the Commission to more quickly address emerging issues in the field of sustainability assurance that may be generating unnecessary burden on undertakings that are subject to the reporting requirements.
–The proposal introduces an “opt-in” regime where large undertakings with more than 1000 employees on average (i.e. undertakings that have more than 1000 employees and either a turnover above EUR 50 million or a balance sheet above EUR 25 million) and a net turnover not exceeding EUR 450 million which claim that their activities are aligned or partially aligned with the EU Taxonomy shall disclose their turnover and CapEx KPIs and may choose to disclose their OpEx KPI. This “opt-in” approach will eliminate entirely the cost of compliance with the Taxonomy reporting rules for large undertakings with more than 1000 employees on average (i.e. undertakings that have more than 1000 employees and either a turnover above EUR 50 million or a balance sheet above EUR 25 million) and a net turnover not exceeding EUR 450 million which do not claim that their activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation. In addition, this proposal provides more flexibility by allowing these undertakings to report on activities that meet certain Taxonomy technical screening criteria without meeting all of them. Such reporting on partial alignment can foster a gradual environmental transition of activities overtime, in line with the aim to scale up transition finance.
Secondly, the Commission intends to adopt without delay a delegated act to revise the first set of ESRS. To deliver swiftly on the simplification and streamlining of the ESRS, and to provide clarity and legal certainty to undertakings, the Commission aims to adopt the necessary delegated act as soon as possible, and at the latest six months after the entry into force of the Directive to simplify the reporting framework that is the subject of the separate legislative proposal referred to above. 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.
Thirdly, this proposal would postpone by two years the entry into application of the reporting requirements for the second wave (large undertakings that are not public interest entities and that have more than 500 employees, as well as large undertakings with fewer than 500 employees 16 ) and the third wave (listed SMEs, small and non-complex credit institutions, and captive insurance and reinsurance undertakings). The objective of the postponement is to avoid a situation in which certain undertakings are required to report for financial year 2025 (second wave) or 2026 (third wave) and are then subsequently relieved of this requirement. Such a situation would mean that the undertakings in question incur unnecessary and avoidable costs.
The Commission invites co-legislators to reach rapid agreement on the proposed postponement, in particular to provide the necessary legal clarity for undertakings in the second wave that are currently required to report for the first time in 2026 for financial year 2025.
According to the current rules, Member States should transpose the CSDDD by 26 July 2026. Entry into application is envisaged in three phases: as from July 2027, the rules would start applying only to the largest EU companies, i.e. those that have more than 5000 employees and report a net annual (worldwide) turnover of more than 1.5 billion euro, as well as to non-EU companies that generate more than EUR 1.5 billion net turnover in the EU. In the second wave, EU companies with more than 3000 employees and more than EUR 900 million net turnover, as well as non-EU companies generating such net turnover in the EU would need to comply with the new framework as from July 2028. Last, in July 2029, all other companies falling under the general scope would have to start applying the (national rules transposing the) Directive. As from this date, the CSDDD is estimated to apply to approximately 6000 large EU companies, and some 900 non-EU companies. The personal scope and phased-in application take into account that companies of different size have different capacities to implement the new mandatory framework and, as such, is a key element in ensuring a proportional approach.
In addition, the separate legislative proposal made by the Commission in parallel with this proposal would simplify the framework and reduce companies’ burden in a number of ways. This proposal would postpone the first phase of the entry into application of the Directive by one year. The objective of the postponement is to provide additional time for the first group of companies to prepare for their obligations under the Directive, as amended, also taking into account the guidelines that the Commission will have adopted in accordance with the tighter timeline set out in the parallel simplification proposal.
Moreover, this proposal would postpone the transposition deadline for the Member States by one year to account for possible delays in their ongoing CSDDD transposition efforts due to possible amendments to the Directive by the parallel simplification proposal.
• Consistency with existing policy provisions in the policy area
Undertakings that are subject to the CSRD reporting requirements are also automatically required to report certain indicators under article 8 of the Taxonomy Regulation. By postponing the application of the reporting requirements for companies in the second and third waves, this proposal would therefore also automatically postpone the date by when such companies must report those indicators under the Taxonomy Regulation.
The reporting requirements set out in the CSRD and ESRS aim to ensure, amongst other things, that financial market participants, credit institutions and benchmark administrators have access to the sustainability information that they need from undertakings to meet their own reporting obligations under the Sustainable Finance Disclosure Regulation, the Capital Requirements Regulation and the Benchmarks Regulation. The proposed postponement will delay improvements to availability of information for financial market participants, credit institutions and benchmark administrators.
Undertakings subject to both the CSRD and the CSDDD are not required by the CSDDD to report any information additional to what they are required to report under the CSRD. Since this proposal postpones the measures foreseen in the CSDDD as well as the date of application of the reporting requirements for certain undertakings under the CSRD, meaning that the consistency between these two pieces of legislation is maintained.
• Consistency with other Union policies
This proposal is consistent with EU policy to enhance competitiveness, to simplify the regulatory framework and to reduce burden on business while still achieving the policy goals of the CSRD and CSDDD. This includes preserving the Green Deal as mid- to long-term competitiveness depends on companies sufficiently integrating sustainability considerations into their operations.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The proposal’s legal basis rests on Articles 50 and 114 of the Treaty on the Functioning of the European Union (TFEU). Article 50 of the TFEU is the legal basis for adopting EU measures aimed at attaining the right of establishment in the single market in company law, and it mandates the European Parliament and the Council to act by means of Directives. Article 114 of the TFEU is a general legal basis with the objective of establishing or ensuring the functioning of the single market – in this case, the free movement of capital. Articles 50 and 114 of the TFEU are the legal basis for Directive (EU) 2022/2464 and Directive (EU) 2024/1760.
• Subsidiarity (for non-exclusive competence)
This proposal modifies the dates of entry of application of certain provisions of EU law. These dates can only be modified through action at EU level.
• Proportionality
The policy objective is to delay the dates of entry of application of certain provisions of EU law. There only means of achieving that objective is to propose to modify those dates
• Choice of the instrument
This proposal is composed of a Directive that amends provisions of the Corporate Sustainability Reporting Directive (CSRD) and of the Corporate Sustainability Due Diligence Directive (CSDDD). An Omnibus Directive is considered to be the most appropriate legal instrument to amend existing Directives as regards simplification and burden reduction in the area of sustainability reporting and due diligence.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
The CSDDD has not yet been transposed or applied by companies. The CSRD has been applied by a first set of companies who are publishing their first sustainability statements mainly in the first half of 2025. It has therefore not been possible to undertake an ex-post evaluation or fitness check of either piece of legislation.
• Stakeholder consultations
The following consultation activities have helped to shape the content of this proposal.
-European Commission ‘Call for evidence on the rationalisation of reporting requirements’, from October to December 2023. 17
-European Commission ‘Reality Check on Sustainability Reporting and Roundtable on Simplification’ in early February 2025.
-The European Commission has also held separate stakeholder activities including two large hybrid stakeholder forums on the CSRD in May and November 2024 with the participation of more than 400 people in person and more than 3000 people virtually.
-The European Commission received a very significant number of letters and detailed analyses from all types of stakeholders (from companies to investors, banks, civil society, Non-Governmental Organisations, chambers of commerce and Member States’ national administrations).
The European Commission’s Call for Evidence on the Rationalisation of Reporting Requirements sought evidence and views regarding regulations which are perceived to produce administrative burden. Almost 200 stakeholders responded, and primarily called for a simplification of sustainability reporting, due diligence and the EU Taxonomy.
In the European Commission’s meetings with European industry, social partners and civil society in early February 2025, stakeholders expressed support for the overarching objectives of the CSRD and CSDDD but highlighted a need for simplification and harmonisation in their implementation.
Some stakeholders, particularly business and industry groups, suggested pausing the application of existing legislation to focus on simplification. They argued that a postponement of the reporting requirements of the CSRD would give the Commission the opportunity to simplify the framework while allowing companies more time to prepare for any impending changes.
Other stakeholders, particularly civil society groups, saw strong merits in maintaining the rules and argued for the importance of legal certainty and regulatory stability for companies, as well as for maintaining the objectives of the European Green Deal and the Sustainable Finance Action Plan. They also highlighted that implementation guidelines should be used to clarify and simplify certain parts of the sustainability reporting framework, instead of a postponement or change to the existing rules.
The need for simplification has also been echoed by many other reports, recommendations, and stakeholder views from both financial and non-financial sector undertakings, many of which underscore the importance of reducing complexity and administrative burdens and which have informed the burden reduction measures described in this proposal.
Corporate Sustainability Due Diligence Directive
Consultations with various stakeholders, including businesses, trade associations, and civil society organizations, as well as other contacts with and inputs received from stakeholders have informed the proposal. This includes, in particular, a two days-stakeholder event that allowed the Commission to hear from practitioners about which challenges they see with the current legislative framework and what could be possible solutions to address them. While some stakeholders called for far-reaching changes and postponements, others emphasized the need for regulatory certainty and opposed reopening the Directive, instead focusing on implementation. The proposal, together with the parallel proposal on simplification, aims to balance these perspectives by maintaining the integrity of the CSDDD while introducing changes to simplify and streamline the Directive.
• Collection and use of expertise
Not applicable.
• Impact assessment
This proposal is accompanied by a Commission Staff Working Document that includes an analysis of the impacts of the proposed measures. Given the urgent need to put forward proposals to address the identified problems, it has not been possible to prepare a full impact assessment.
• Regulatory fitness and simplification
This proposal is expressly designed to facilitate a major simplification of the sustainability reporting regime.
• Fundamental rights
The proposal respects the fundamental rights enshrined, and adheres to the principles stated, in the Charter of Fundamental Rights of the European Union. The Corporate Sustainability Reporting Directive has an indirect positive impact on fundamental rights, given that sustainability reporting requirements can influence corporate behaviour for the better. It serves to make companies more aware of fundamental rights and positively influence how they identify and manage actual and potential adverse impacts on fundamental rights. The proposed postponement would also delay these positive impacts with regard to companies that would start applying the reporting requirements at a later date. However the reduction of burden on such companies, and especially the reduction of burden on companies that would be taken out of the CSRD scope by the separate proposal made by the Commission in parallel to this proposal, should lead to other societal gains in terms of wealth creation, employment and innovation, including innovation for sustainability.
The proposal respects the fundamental rights enshrined, and adheres to the principles stated, in the Charter of Fundamental Rights of the European Union. The CSDDD has protection and promotion of fundamental rights as one of its main objectives. It requires very large companies to identify and address adverse human rights and environmental impacts in their own operations, those of their subsidiaries and their chains of activities. The proposed postponement would delay these positive impacts with regard to the first group of companies in the scope of the Directive that would start applying the due diligence requirements at a later date.
4. BUDGETARY IMPLICATIONS
The proposal does not have any budgetary implications.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
Not applicable.
• Explanatory documents (for directives)
No explanatory documents are considered necessary.
• Detailed explanation of the specific provisions of the proposal
Article 1 amends Article 5(2) of Directive (EU) 2022/2464 (Corporate Sustainability Reporting Directive “CSRD”) by introducing a 2-year postponement of the sustainability reporting requirements for all companies in the CSRD scope that are required to comply from financial year 2025 or 2026 depending on their size.
In particular:
–Paragraph i point (a) requires Member States to ensure that the following undertakings report on sustainability from financial years starting on or after 1 January 2027 (instead of 1 January 2025):
·large undertakings with not more than 500 employees on average during the financial year;
·large undertakings with more than 500 employees on average during the financial year but that are not public-interest entities;
·parent undertakings of a large group with more than 500 employees on average on its balance sheet dates, on a consolidated basis, during the financial year;
·parent undertakings of a large group with more than 500 employees on average on its balance sheet dates, on a consolidated basis, during the financial year, but that are not public-interest entities;
–paragraph i point (b) requires Member States to ensure that SMEs with securities admitted to trading on an EU regulated market, small and non-complex institutions (provided they are large undertakings or listed SMEs) and EU captive (re)insurance undertakings (provided they are large undertakings or listed SMEs) report on sustainability from financial years starting on or after 1 January 2028 (instead of 1 January 2026);
–paragraph (2) point (a) requires Member States to ensure that the following issuers report on sustainability from financial years starting on or after 1 January 2027 (instead of 1 January 2025):
·issuers that are large undertakings with not more than 500 employees on average during the financial year;
·issuers that are parent undertakings of a large group with not more than 500 employees on average, on a consolidated basis, during the financial year;
–paragraph (2) point (b) requires Member States to ensure that issuers that are SMEs, small and non-complex institutions (provided they are large undertakings or listed SMEs) and EU captive (re)insurance undertakings (provided they are large undertakings or listed SMEs) report on sustainability from financial years starting on or after 1 January 2028 (instead of 1 January 2026).
Article 2 amends Article 37 of Directive (EU) 2024/1760 (Corporate Due Diligence Directive "CSDDD”) by postponing the transposition deadline as well as the application of the Directive by 1 year for the first group of companies in the scope of the Directive.
Article 3 requires Member States to transpose Article 1 of this Directive by 31 December 2025 at the latest, and to communicate to the Commission the text of their transposing measures.
Article 4 specifies that this Directive enters into force on the day following that of its publication in the Official Journal of the European Union.