On 26 February 2025, the European Commission announced the first Omnibus Proposal on sustainability reporting. If adopted, it would introduce significant changes to the Corporate Sustainability Reporting Directive (CSRD). The proposed revisions aim to reduce administrative burdens while maintaining the CSRD’s requirements for transparency and accountability. However, as this is only a proposal, businesses should monitor developments closely and prepare for potential adjustments to compliance requirements.
This article explores the CSRD’s background, the proposed changes, and how businesses—both within and outside the EU—can prepare for compliance if the proposal is adopted.
What is the CSRD? A recap
The Corporate Sustainability Reporting Directive (CSRD) was introduced to enhance and expand the existing Non-Financial Reporting Directive (NFRD). Adopted in 2022, the CSRD requires companies to report on their sustainability performance, including environmental, social, and governance (ESG) factors.
The NFRD established initial reporting principles but ultimately failed to meet the information needs of stakeholders. This shortfall motivated the EU to develop the CSRD to enhance accountability and transparency in sustainability disclosures. The directive aims to improve the quality and consistency of sustainability reporting across the EU, enabling investors, stakeholders, and regulators to make informed decisions.
The ESRS reporting framework
The European Sustainability Reporting Standards (ESRS) framework is a comprehensive set of standards developed by the European Financial Reporting Advisory Group (EFRAG) to support the implementation of the CSRD. This framework provides a structured approach to sustainability reporting, enabling companies to disclose relevant information on their ESG performance in a transparent and comparable manner.
Link to other standards and regulations
The CSRD and ESRS framework are closely linked to other sustainability reporting standards and regulations, including the Sustainable Finance Disclosure Regulation (SFDR), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD). This alignment ensures that companies can integrate their sustainability reporting efforts across different frameworks, promoting a more cohesive and comprehensive approach.
History of the CSRD
- 2014: The NFRD was introduced, requiring large public-interest companies and other large companies to disclose non-financial information.
- 2022: The CSRD was adopted to replace the NFRD, significantly expanding the scope and depth of sustainability reporting.
- 2023-2024: The ESRS was developed to guide companies in meeting CSRD reporting requirements.
- 2025: The European Commission proposed the Omnibus changes, which include adjustments to scope, compliance timelines, and specific obligations.
What are the key proposed changes?
The Omnibus Proposal includes several potential adjustments to the CSRD. The table below summarizes the key proposals:
| Change | Details |
|---|---|
| Scope narrowing | The CSRD would apply only to companies with more than 1,000 employees and a net turnover of €450m. |
| Delayed implementation | The compliance deadline would be extended by one year. |
| Sector-specific ESRS standards suspended | Industry-specific sustainability reporting requirements would be put on hold. |
| Due diligence monitoring relaxed | Companies would need to assess their supply chains every five years instead of annually. |
| EU Taxonomy compliance made voluntary | Companies could choose whether to align their sustainability reports with the EU Taxonomy. |
| Reduced liability and penalties | Financial penalties and termination of non-compliant supplier contracts would no longer be mandatory. |
What remains unchanged?
Despite the proposed changes, several fundamental aspects of the CSRD would remain intact:
- Core sustainability reporting obligations: Companies must continue to disclose their sustainability performance in line with the ESRS. Additionally, companies would still be required to report their financial and sustainability information within specific sections of their management reports and annual reports.
- Reporting requirements for listed companies: Listed companies within the scope of the CSRD must still publish sustainability reports alongside their annual financial statements.
- Assurance requirements: Sustainability reports must undergo external assurance to ensure reliability.
- Digital tagging: A company report must include digital tags for sustainability data to comply with the digital reporting requirements of the CSRD.
Double materiality remains a key principle
The double materiality concept would remain unchanged. This principle requires companies to assess and report both:
- Financial materiality – how sustainability risks and opportunities affect the company’s financial performance.
- Impact materiality – how the company’s operations impact the environment and society.
By maintaining double materiality, the CSRD ensures a comprehensive approach to sustainability reporting, balancing corporate risk assessment with broader ESG responsibilities.
What companies would fall under the revised scope of the CSRD?
Under the proposed reporting changes, the CSRD would apply to:
- Companies with more than 1,000 employees and a net turnover of €450m (previously, the threshold was lower).
- All listed companies on EU-regulated markets, including non-EU parent companies of EU subsidiaries.
- Certain large non-listed companies that meet the financial and employee thresholds.
Smaller businesses that previously fell under the CSRD may now be exempt, reducing the compliance burden for many small and medium enterprises (SMEs).
What do non-EU companies need to know?
Non-EU companies with significant operations in Europe would need to comply with CSRD requirements if they:
- Generate a net turnover of €450m within the EU.
- Have an EU subsidiary or branch that meets the reporting criteria.
- Are listed on an EU-regulated market.
These companies would need to align their sustainability reporting with the ESRS and ensure they meet EU reporting requirements.
Sustainability reporting requirements
What should be reported under the CSRD?
Under the CSRD, companies would be required to provide detailed reports on their sustainability performance and their impact on society and the environment. The reporting requirements would encompass a wide range of information, including:
Environmental information
Companies must disclose data on their greenhouse gas emissions, energy consumption, water usage, and waste management practices.
Social information
Companies must report on their labor practices, human rights policies, and community engagement activities, including working conditions and diversity initiatives.
Governance information
Companies must provide details about their governance structure, risk management practices, and compliance with relevant laws and regulations.
These reporting requirements ensure that companies provide a holistic view of their sustainability performance, enabling stakeholders to make informed decisions.
How can in-scope companies comply?
If the Omnibus Proposal is adopted, companies should take the following steps to comply with the new CSRD requirements:
Conduct a gap analysis – Identify areas where current reporting does not align with ESRS and the latest CSRD proposals.
Establish robust data collection processes – Ensure accurate tracking of ESG data, including carbon emissions, social impact, and governance practices.
Align with double materiality – Assess both financial and impact materiality when determining which sustainability topics to disclose.
Engage stakeholders – Work with investors, regulators, and industry bodies to ensure compliance with evolving sustainability standards.
Implement external assurance – Partner with third-party auditors to validate sustainability reporting accuracy.
Report format
Companies must report their sustainability information annually, using a digital tagging system. The reporting process must be transparent and verifiable, with companies providing clear and concise information on their ESG performance. This annual reporting cycle ensures that stakeholders have access to up-to-date and reliable sustainability information, enabling informed decision-making and promoting sustainable investments.
How can the right ESG software help with the compliance process?
Investing in ESG software can significantly ease the compliance process by:
- Automating data collection to reduce manual errors and ensure consistent reporting.
- Ensuring alignment with ESRS through built-in templates that comply with the CSRD.
- Facilitating supply chain tracking to help businesses assess risks and sustainability impacts.
- Generating audit-ready reports to ensure external assurance requirements are met efficiently.
The path forward for CSRD compliance
The Omnibus Proposal introduces notable modifications to the CSRD that, if adopted, could make compliance more manageable for many businesses. However, companies must still prioritize sustainability reporting and prepare for evolving regulatory requirements. By leveraging ESG software, engaging stakeholders, and ensuring robust data governance, businesses can not only achieve compliance but also enhance their sustainability performance in a rapidly changing regulatory landscape.
