EU Parliament votes to delay the CSDDD & CSRD by up to two years

The EU has announced that businesses will be given more time to meet their obligations for both the Corporate Sustainability Due Diligence Directive (CSDDD), and the Corporate Sustainability Reporting Directive (CSRD). It follows publication of the ‘Omnibus Simplification Package’ earlier this year which aims to boost the EU’s competitiveness.

The CSDDD is regulation which will impose sustainability and human rights due diligence standards on firms operating within the EU, and the CSRD will require businesses in the EU to disclose their environmental and social impacts.

Now, in a vote held last week (3^rd April) MEPs overwhelmingly voted to support delays to the above pieces of sustainability legislation. It means that the deadline for EU countries to enact the CSRD into national law will be pushed back by a further year, moving the deadline to July 2027. Subsequently the deadline for compliance for companies currently under the directive’s scope will also be pushed back.

As a result, EU companies with more than 5,000 employees and net turnover higher than €1.5 billion, as well as non-EU companies with a turnover above this threshold who operate within the EU, will be granted until 2028 to comply, while SMEs will be required to submit sustainability reporting in 2029.

Further, the CSDDD has been given a one-year extension, providing EU member states with additional time to transpose and apply the directive into national law.

European Commission outlines Omnibus Specification package

Earlier this year the European Commission revealed the details of its Omnibus Specification package with the release of Omnibus I and II on February 26^th[i]. The proposals target key sustainability due diligence and reporting requirements, with the EU seeking to reduce the burden on businesses, enhance productivity & competitiveness, and improve consistency with other pieces of legislation. The package covers the following directives:

·         Corporate Sustainability Due Diligence Directive (CSDDD)

·         Corporate Sustainability Reporting Directive (CSRD)

·         Carbon Border Adjustment Mechanism (CBAM)

·         The EU green taxonomy - a cornerstone of the EU’s sustainable finance framework which defines criteria for economic activities that are aligned with a net zero trajectory by 2050, as well as broader environmental goals[ii].

Amongst proposals for the CSDDD and the CSRD were:

CSDDD

·         Limiting the scope of the directive from the entire value chain to just “direct business partners”.

·         Reduce the frequency of assessments from annual to every five years (ad-hoc assessments conducted as necessary).

·         Limits to the amount of information large companies can request from smaller companies during value chain mapping.

·         Delay the application of sustainability due diligence requirements for the largest companies by one year, moving the deadline back to July 2028.

·         Companies will continue to be required to compensate victims for harm caused by non-compliance, however civil liability conditions will be removed to protect businesses from over-compensation under the civil liability regimes of Member States.

·         Rather than the current requirement to sever a contract with a supplier in breach of obligations, companies will now only need to suspend contracts.

·         EU Civil Liability Removed: 5% minimum fine requirement is removed, and EU-wide liability is replaced by national enforcement under domestic legal frameworks.

CSRD

·         Delay reporting requirements for companies that were set to comply in 2026 or 2027, with the deadline pushed back to 2028.

·         Application of the directive to firms with more than 1,000 employees meaning that an estimated 80% of the companies initially covered by the rules will now be excluded. The CSRD is currently designed to cover around 50,000 companies with more than 250 employees.

·         The same exemption will be applied to the EU's Green Taxonomy, which defines what can be considered climate-friendly investments. Therefore, only companies with more than 1,000 employees will be required to report on their business's alignment with taxonomy criteria.

·         Substantial reduction of the number of European Sustainability Reporting Standards (ESRS) data points, focusing on quantitative over qualitative disclosures.

·         Sector-specific ESRS requirements have been removed.

 You can read our previous insight which outlines all of the major proposed changes here.

References

[i] Omnibus I - European Commission

[ii] EU taxonomy for sustainable activities - European Commission

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