At the May 23 meeting of the Council of Europe’s COREPER, leadership circulated a guidance document on the future of sustainability reporting in the EU. As negotiations continue on the Omnibus Simplification Package occur mostly behind closed doors in the Council, the document gave a preview of possible compromises relating to changes to the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. The document shows agreement on the future of the CSRD, and potential conflict with the CSDDD.
The European Green Deal, adopted in 2020, proposed a series of directives aimed at tracking and limiting greenhouse gas emissions by companies. In 2022, the EU passed the CSRD, imposing sustainability reporting requirements on businesses operating in the EU. In 2024, the CSDDD, or CS3D, created a legal liability for companies to exercise “due diligence” in ensuring that companies in their value chain were in compliance with EU standards. Both the CSRD and CSDDD included an expanded scope that went beyond climate change and GHG emissions, to include other environmental, social, and governance issues. Most notably, human rights concerns.
Sustainability reporting standards were on a path to become the new normal in the EU and globally. However, political pushback on European Green Deal directives during the 2024 European Parliament elections has causing a reevaluation of these proposals and their broader impact on business. The EU is engaged in a vigorous debate over the future of sustainability reporting and its impact on business and the economy.
In February, the Commission proposed the Omnibus Simplification Package to reduce the impact of the CSRD and the CSDDD. To give time for the package to be debated, the EU passed a “stop the clock” directive delaying the implementation of the CSRD and CSDDD for most companies. An additional delay is being considered for some European Sustainability Reporting Standards that were not covered under the original “stop the clock” directive.
Why the Parliament holds public debates over the proposal, the Council is privately debating their position. The only glimpses into the progress of the debate comes from leaked documents, public comments by member states, and meetings of the Council’s Committee of Permanent Representatives, known as COREPER.
The issue of the Omnibus Simplification Package was addressed that the May 23 COREPER meeting. During the meeting, the Polish Presidency, the term referring to the rotating leadership designation currently held by Poland, circulated a guidance document outlining the current debate and recommendations.
The guidance document addressed both the CSRD and the CSDDD. The document indicates that the Council is mostly aligned with the Commission’s simplification proposals for the CSRD. However, the Council appears to be taking a different approach on the CSDDD, opting for the original risk approach.
Corporate Sustainability Reporting Directive
Adopted in 2022, the CSRD imposed sustainability reporting requirements on businesses operating in the EU. Reporting requirements are set to go into effect in waves, starting with large publicly traded companies, then expanding annually to eventually including all companies with €50-plus million in net turnover, €25-plus million in assets, or 250-plus employees.
The Commission’s proposal amends the CSRD to raise the standard to only include companies with over 1,000 employees. This aligns it with the existing standards of the CSDDD and will remove 80% of companies from the CSRD reporting requirement.
The Council’s guidance document addressed the proposed changes to the CSRD by stating:
“While some delegations called for further limiting the CSRD scope by adding the turnover threshold of over EUR 450 million net turnover, thus equating the key thresholds use to define the CSRD and CS3D scopes, some others sought to widen the scope in comparison to the Commission proposal, proposing to subject to sustainability reporting obligations all large undertakings over 500 employees or all large undertakings, without imposing a minimum employee threshold.
“In light of the above, the Presidency considers that the Commission’s proposal offers a balanced approach, preserving the policy objective of answering the market demand for sustainability information while significantly alleviating the reporting burden on undertakings..”
Corporate Sustainability Due Diligence Directive
Adopted in 2024, the CSDDD created additional reporting requirements, as well as legal liability, for companies in relation to their supply chain. The intent is to not only regulate the direct actions of a company, but also assure their suppliers comply with climate and human rights goals. However, the CSDDD faced significant push back during the final stages. Only finding approval after significant changes that reduced the scope.
The Council’s guidance document addressed the CSDDD by stating:
“Several delegations pointed out that the proposed entity-based approach, despite the tier-1 limitation, might be in fact more burdensome for companies and lead to a misallocation of their resources. This is because these provisions require companies to focus their efforts on identifying and assessing actual and potential adverse impacts on all direct business partners, even if such impacts are unlikely to occur at that level. Some delegations also raised concerns over the clarity of the new concept of “plausible information”, which may add further uncertainty for companies (i.e. a risk of misinterpretation). On this basis, some delegations called for a return to focusing identification and assessment of actual and potential adverse impacts on areas where these impacts are most likely to occur (the so-called “risk-based approach”). Specifically, these delegations proposed that companies should no longer be required to carry out a comprehensive mapping exercise (entity-level analysis), but instead,
conduct a more general scoping exercise, which would cover also indirect business partners.
“… it would better align the CS3D requirements with relevant international standards, such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines) and the UN Guiding Principles on Business and Human Rights. The Presidency proposes to agree on this approach as the way forward.”
While the document is not official or final, it provides valuable insight into the direction the Council is headed. The future of sustainability reporting and sustainability due diligence in the EU is uncertain. However, it appears all parties are agreeing on significant reductions.
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