CSRD and ESRS: Sustainability Reporting Obligation with New Omnibus Simplifications

In today’s business world, it is no longer sufficient to be successful only financially. Companies are increasingly under pressure to make their impacts on the environment and society transparent. The EU has responded to this by introducing the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). These new regulations usher in a new era of sustainability reporting , with recent developments like the Omnibus Simplification Package bringing significant changes.

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Updated Timeline for Introduction and Implementation

Sustainability Reporting

• Only companies with at least 1,000 employees and revenues of 450 million euros are required to submit sustainability statements.
• No sector-specific standard anymore through delegated acts to limit the number of reportable data points.

Changes in the EU Supply Chain Law (CSDDD)

• Limitation of due diligence obligations to:
  • Own operational activities of the company.
  • Subsidiaries and direct business partners.
• No longer required to terminate a supply relationship in the event of environmental or labor law violations. Instead:
  • „Suspension“ of the business relationship with negotiations.
• Stakeholder engagement only for directly affected parties, e.g., residents.
• Review of due diligence measures only every five years instead of annually.

Relaxations in Liability Law

• Elimination of the regulation that fines must be proportionate to revenue.
• No unified EU liability regime – instead, national regulations.
• No more review clause for expanding due diligence obligations to financial service providers.

The CSRD is the overarching EU directive setting the legal framework for sustainability reporting. The ESRS are the detailed standards specifying how exactly this reporting should look. You can think of the CSRD as the „Why“ and the ESRS as the „How“ of sustainability reporting.

Omnibus Simplification Package

The Omnibus Package planned for February 2025 aims to reduce the reporting burden:

• Targeted reduction of reporting burden by at least 25% for all companies and 35% for SMEs
• Simplification of reporting in sustainable finance, sustainability due diligence, and taxonomy
• Possible introduction of a new category for small and medium-sized capital companies with adjusted requirements
• Potential delay of certain CSRD reporting obligations

Impact on Different Company Sizes and Types

The new regulations affect not only large corporations, with the Omnibus Package providing relief:

• Large Companies: Must report comprehensively according to ESRS but can benefit from simplifications
• SMEs: Listed SMEs must report according to simplified standards, with the option to defer until 2029. Non-listed SMEs are initially exempt
• Non-EU Companies: Obligation to report from 2029 if they have significant EU revenues and at least one EU subsidiary or branch

Comparison with International Standards

The ESRS are designed to be compatible with other international standards, further promoted by the Omnibus Package:

• Global Reporting Initiative (GRI): The ESRS are based on GRI standards and are largely compatible
• International Sustainability Standards Board (ISSB): The EU is working closely with the ISSB to achieve global harmonization
• Task Force on Climate-related Financial Disclosures (TCFD): The ESRS integrate TCFD recommendations

Core Elements of ESRS and Omnibus Adjustments

1. Double Materiality: Remains, but could be simplified
2. Sector-specific standards: Postponed by two years to 2026
3. Future orientation: Still important, possibly with reduced scope
4. Value Chain: Revision of supply chain reporting with potential exceptions for smaller suppliers

Challenges and Opportunities

The implementation of new standards brings challenges partially mitigated by the Omnibus Package:

• Data availability and quality: Still important, but possibly with reduced scope
• Expertise: Companies need to adapt, but potentially with less effort
• Costs: Implementation costs could decrease through simplifications

Opportunities remain and may be enhanced by the Omnibus Package:

• Improved decision-making: Through more focused reporting
• Risk management: More efficient ESG risk analysis
• Competitive advantage: Companies that effectively integrate sustainability can stand out positively
• Investor attraction: Transparent and efficient sustainability reports can attract sustainability-oriented investors

Conclusion

The ESRS and CSRD, combined with the Omnibus Simplification Package, mark a turning point in corporate reporting. They compel companies to view sustainability as an integral part of their business strategy while also seeking to optimize the reporting burden. As an entrepreneur, you should see this development as an opportunity to make your business model more efficient and sustainable. The simplifications provide an opportunity to focus on the most critical aspects of sustainability while efficiently meeting regulatory requirements.