What you need to know:
|
On February 26th the EU Commission proposed the first “omnibus” package of sustainability rules, aiming to simplify and weaken EU sustainability reporting requirements for companies.
As part of the European Green Deal's push for EU climate neutrality by 2050 and a more competitive, sustainable, and circular economy, the EU Commission has published three key directives/regulations:
- Corporate Sustainability Reporting Directive (CSRD): Large undertakings are to report on their sustainability. Reporting has been made transparent and comparable through extensive standardization (European Sustainability Reporting Standard, ESRS). This affects around 50,000 companies across the EU with more than 250 employees, a turnover of 50 million euros and a balance sheet total of 25 million euros.
- EU Taxonomy Regulation (EU Tax-VO): CSRD-reportable companies are required to disclose revenues, capital and operating expenditures (CapEx and OpEx) for their environmentally sustainable economic activities. Together with the CSRD, the EU Tax-VO is one of the pillars of the EU's 'Sustainable Finance Strategy' and helps to channel financial flows in the European capital markets into sustainable investments.
- Corporate Sustainability Due Diligence Directive (CSDDD): Companies with more than 1000 employees and a turnover of more than 450 million EUR will be obliged to carry out human rights and environmental due diligence along their value chain and report their findings.
The Omnibus Package is intended to implement significant changes for the above-mentioned directives and regulations. The simplification efforts should enable a cost-effective implementation of sustainability rules, reducing the administrative burden overall by around 25% overall and by about 35% for small and medium sized enterprises (SMEs) in particular. These first proposals cover simplifications in the field of sustainability due diligence, EU taxonomy, carbon border adjustments and European investment programs.
The proposals are submitted to the European Parliament and the Council for their consideration and later adoption.
What changes have been proposed by the European Commission?
CSRD
| Element | CSRD (current directive) | New proposal |
|
Scope of reporting companies |
First wave: All companies falling under the NFRD (Non-Financial Reporting directive) Second wave: Reporting is mandatory for large undertakings fulfilling two of three criteria:
Third wave: SMEs |
Second wave: Reporting should be mandatory for undertakings with more than 1000 employees and either turnover of 50 million EUR or a balance sheet above 25 million EUR |
|
Mandatory reporting for non-EU-companies |
Non-EU-companies with 150 Mio. EUR turnover in the EU with an EU branch annual net turnover of 40 Mio. EUR are mandatory to report |
Non-EU-companies with 450 Mio. EUR turnover in the EU with an EU branch annual net turnover of 50 Mio. EUR are mandatory to report |
|
Postponing reporting requirements |
Second wave mandatory to report in financial year 2025, third wave in 2026 |
For companies affected in wave 2 or 3, the application of reporting requirements should be postponed by 2 years |
|
Value chain |
Undertakings can be required to collect data from direct and indirect suppliers |
For companies with fewer than 1,000 employees, voluntary reporting standards based on the EFRAG-VSME standard are to be adopted. This standard is intended to act as a protective shield by limiting the information that companies or banks subject to CSRD requirements can demand from smaller companies in the value chain (reducing the trickle-down effect). |
|
European Sustainability Reporting Standards (ESRS) |
Companies falling under the CSRD are required to use the ESRS. |
The standards should be revised by reducing the number of data points and clarifying unclear aspects. |
|
Sector-specific standards |
Sector-specific standards should be developed to simplify the reporting requirements. |
No sector-specific standards should be adopted |
|
Assurance |
Limited assurance should be extended to reasonable assurance in the future |
Only limited assurance |
EU Taxonomy Regulation
| Element | EU Taxonomy regulations | New proposal |
|
Scope of reporting companies |
Mandatory reporting according to the EU taxonomy for all companies covered by the CSRD |
Companies with <1000 employees and net turnover up to 450 million EUR can voluntarily report on the Taxonomy. |
|
Partial alignment |
Only fully aligned activities are considered as ecologically sustainable |
Reporting on partial alignment with the Taxonomy should be possible |
|
Materiality thresholds |
Companies could set and provide reasoning for thresholds by themselves |
No reporting for activities that are not financially material (e.g., not exceeding 10 % of turnover, CapEx or OpEx) |
|
Green asset ratio |
|
Exclusion of exposures relating to undertakings not falling under the CSRD possible |
|
New reporting |
Reporting templates are available |
New reporting templates to reduce the number of data points |
CSDDD
| Element | CSDDD (current directive) | New proposal |
|
Postponing reporting requirements |
Companies of Group 1 should report for 2027 |
The reporting requirements should be postponed by one year. Until then, guidelines should help the companies to build on best practices. |
|
Value chain coverage |
Covers direct and indirect suppliers |
Focus on direct business partners (Tier 1), only requiring due diligence beyond direct business partners in case of plausible information regarding adverse impacts |
|
Monitoring |
Yearly monitoring |
Prolonging the intervals of assessments from one to five years |
|
Harmonization |
Member states allowed to adopt stricter rules |
National rules must not deviate from European law |
The European Commission's proposals will further unsettle companies in the European Union. Many member states have already transposed the CSRD into national law, and many companies have already invested in sustainability reporting in accordance with the CSRD. There is therefore concern that such fundamental regulatory changes will also lead to planning uncertainties and to companies holding back on necessary investments. The projected savings from the changes appear to have been over-optimistic.
 “The European Commission's proposal marks a turning point in sustainability reporting. In the short term, many companies will be relieved. In the long term, the trend towards greater transparency and sustainability performance will continue unabated.”
Dr. Susanne Pankov |
How to proceed now?
Currently, the packages are merely proposals and still need to be approved by the European Parliament and the Council. Therefore, changes are still possible.
Many companies have already started to report according to European sustainability standards. The current proposals would make the obligation to report on sustainability voluntary for many. While this may seem like a reduction in bureaucracy at first glance, it actually creates uncertainty and market distortions.
Nevertheless, sustainability remains a central issue. Companies that are part of the supply chain of large businesses will still be required to provide sustainability data. Adhering to a proven framework helps meet the requirements of investors and business partners more effectively.
For companies, this means: A proactive adjustment of strategy brings long-term benefits. Companies that do not only react to current regulatory requirements but also proactively engage with future developments in sustainability regulations and market trends secure sustainable competitive advantages. These companies position themselves as leaders and can gain a crucial market edge while increasing their planning security and ensuring long-term stability.
How can TÜV SÜD help you?
We monitor the ongoing changes and developments very closely and help you fulfill the necessary requirements. As the final decisions are still pending, it makes sense to already prepare your company for sustainability: Considering sustainability in the business operations and strategy can lead to higher competitiveness, better access to finance and a positive reputation.
We can help you with our services to be best prepared for all upcoming developments:
1. Double materiality assessment: Strategic tool to find out your material topics
2. Reporting according to the Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME): Fulfilling requirements of clients, banks and investors
3. Reporting according to the European Sustainability Reporting Standard: Extensive sustainability reporting fulfilling al mandatory requirements
4. Climate risk analysis: Make sure that your assets are resilient regarding physical climate risks.
5. ESG performance analysis: Review your sustainability performance