By Mark Vaessen, Chair of the KPMG Global Corporate & Sustainability Reporting Topic Team
The European Union’s ambitious drive towards a more sustainable economy has been a defining characteristic of its regulatory landscape in recent years. This year, the focus of the EU has shifted more towards competitiveness of the economy with a number of measures to reduce the administrative burden for companies. On November 13, the European Parliament agreed its position on the EU Omnibus proposals, signalling a step further for both the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
This decision, which saw MEPs vote to adopt an amended report, introduces revised thresholds that will dramatically reduce the number of companies falling under these regulations. For CSRD, the proposed threshold for reporting under European Sustainability Reporting Standards (ESRS) would now be limited to companies with more than 1,750 employees and EUR 450 million net turnover. This represents a substantial reduction in scope – around 95 percent compared to the initial ambition. Similarly, due diligence obligations under CSDDD would now apply only to companies with over 5,000 employees and EUR 1.5 billion net turnover, with the removal of requirements for climate transition plans and more stringent rules on human rights and environmental abuses in supply chains.
While the initial objective of these directives was to expand aligned sustainability reporting requirements to many companies, fostering transparency and accountability across a broad spectrum of businesses, the Parliament’s revised stance reflects the desire to reduce the administrative burden, particularly for smaller entities.
It’s important to note this is not the final word. These proposals will now enter into “trilogue” negotiations with the Council of the EU and the European Commission, with the aim of reaching an agreement by the end of the year. The outcome of these discussions will determine the final shape of these crucial pieces of legislation.
For companies, especially those below the revised threshold, this development creates a degree of further uncertainty. The first companies subject to the CSRD – most commonly large, publicly listed entities with over 500 employees – are still required to report under the current ESRS. Meanwhile the legislative process continues, and the potential for a significantly reduced scope means that many will need to reassess their reporting strategies. The European Commission’s goal to adopt simplified ESRS in time for application for FY27 (reporting in 2028), with a possible option for FY26 (reporting in 2027), remains.
This shift, if it comes to pass, will undoubtedly spark debate. Some will see it as a sensible adjustment, preventing an overload of regulation on businesses still grappling with economic headwinds. Others may view it as a watering down of essential sustainability goals. Regardless of one’s perspective, it underscores the dynamic nature of EU policymaking and the continuous balancing act between ambition and practicality. As always, staying informed and agile will be key for businesses navigating this evolving landscape.
