Balancing Simplification and Ambition: The EU’s Path to Streamlined Sustainability Reporting

Introduction

Over the past few months, phrases like EU Omnibus, simplification package, stop-the-clock, content directive, and quick-fix have dominated industry conversations, making what was intended to be introduced in the spirit of simplification, not so simple to follow.

The Omnibus Simplification Package was intended to align with recommendations of the Draghi report on European Competitiveness, through the EU’s efforts to streamline and simplify intertwined regulations, including the CSRD, the EU Taxonomy, and the planned Corporate Sustainability Due Diligence Directive (CS3D).

The European Commission indicated that these measures would eliminate duplication, reduce compliance costs, and create a more efficient reporting system, while also supporting sustainable competitiveness, all of which would be broadly welcomed and indeed needed.

Competitiveness and Sustainability

Sustainability has grown from a regulatory necessity into a strategic imperative, with sustainable finance as the engine to drive the transition.

The Draghi Report highlights that Europe’s competitiveness relies on mobilising large-scale investment to drive the digital and green transitions. Robust and reliable data remains an essential ingredient to inform investment decisions and accelerate the flow of capital to the low carbon economy, a key challenge that the EU’s sustainability reporting framework was designed to solve.

However, this may be further set back given some of the key Omnibus proposals include:

• Raising the CSRD employee threshold to 1,000, potentially reducing the number of in-scope companies by 80%.

• Raising the CS3D threshold to 5,000 employees.

• Increasing the net turnover threshold for CSRD to EUR 450 million.

• Increasing the net turnover threshold for CS3D to EUR 1.5 billion.

Some companies, including those in high-emission sectors currently covered by the CSRD, may become exempt, reducing access to sustainability data.

Risks of a Data Gap

The widening of the data gap, already a challenge, could hinder investors’ ability to make informed investment decisions and accelerate capital flow, ultimately slowing the much-needed decarbonisation progress made to date.

This is particularly concerning as:

• In 2024, total losses from natural disasters amounted to USD 320 billion, with 93% attributed to weather events.

• The EU faces an annual funding gap estimated between €750bn and €800bn.

The European Central Bank (ECB) has cautioned against significantly limiting reporting obligations, advocating for continued mandatory sustainability reporting for all significant institutions, and at least some requirements for companies with 500–1,000 employees. The ECB warns that a significant reduction could undermine transparency and risk management, hampering broader climate objectives.

These proposals are still under negotiation. The European Parliament is expected to adopt its position by October 2025, with inter-institutional negotiations to follow.

Navigating the Transition of Sustainability Reporting

Beyond scope and timeline adjustments, the EU will also revise the first set of the European Sustainability Reporting Standards (ESRS).

The first CSRD reports, published in 2025, have revealed shortcomings in interpretation, application, and duplication. These should be addressed to reduce complexity, enhance usability and ensure interoperability with international standards.

That said, careful consideration must be given to maintain essential data to support the green transition, especially on climate and biodiversity, as emphasised by the ECB.

The European Financial Reporting Advisory Group is leading the technical simplification of the ESRS, with a public consultation period on ESRS exposure drafts running from end of July to end of September 2025, before submitting their technical advice to the European Commission by November 2025.

Interim Measures: ‘Stop-the-Clock’ and ‘Quick-Fix’

As the sustainability reporting landscape continues to evolve, the European Commission has introduced two key interim measures to ease the transition.

Stop-the-Clock Directive

• Delays CSRD requirements for large companies (‘wave 2’) and listed SMEs (‘wave 3’) by two years.

• Ireland has already transposed these changes, meaning wave 2 and 3 reporting will now begin in 2028 and 2029, respectively, for those that remain within scope.

• The Irish amendments clarify the scope and definition of ‘applicable entities’, align turnover definitions with the EU Accounting Directive, and clarify subsidiary exemptions.

Quick-Fix Delegated Act

• Applies to wave 1 companies, who will continue to report this year.

• Postpones certain ESRS requirements, allowing companies to defer disclosures on anticipated financial effects through 2026.

• Larger firms (over 750 employees) receive transitional exemptions for biodiversity, value chain workers, affected communities, and consumers for two years.

• Existing workforce transitional exemptions, including scope 3 emissions for smaller companies, are also extended by two years.

Though these delays offer temporary relief, they must be carefully managed given rising stakeholder expectations, regulatory scrutiny, and the need for credible data.

The Path Forward

As interim measures unfold, companies should continue to monitor and navigate regulatory developments, adapt their reporting roadmaps, and transform their operating models to ensure long-term readiness.

Their proactive and adaptable approach will be essential in shaping Europe’s green and digital transformation.

If simplification is executed carefully, without compromising the quality and integrity of reported information, the EU can turn sustainability reporting from a compliance burden into an investment catalyst.

This will empower companies and financial markets to foster innovation, create employment, and capture new emerging markets, all while accelerating the sustainable transition.

Source

This article originally appeared at https://www.iodireland.ie/