On February 26, the European Commission released the details of the long-awaited EU Omnibus package, aimed at simplifying EU sustainability reporting requirements. For many in our industry, this proposed change represents a step backwards from long-anticipated advancements in having comparable and standardized data from corporations. Others supportive of such a change see this reframe as a chance to simplify what has been called a regulatory and bureaucratic nightmare. Regardless of where you stand, this proposed change has, in many ways, stopped the clock on CSRD, CSDD, and EU Taxonomy and introduced uncertainty at a time when many were just beginning to collect data and come to terms with reporting expectations.
Below is a breakdown of the key changes and implications for three EU sustainability regulations: the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy.
Corporate Sustainability Reporting Directive (CSRD)
Proposed changes for the CSRD include:
- Raising the thresholds for companies to be in scope of the CSRD to focus on large companies with 1000 FTE and either €50 million turnover or €25 million balance sheet.
- Introducing a voluntary reporting standard for small and medium-sized enterprises. This VSME will include limits on data requests for partners and suppliers.
- Postponing reporting requirements until 2028 for companies due to report in 2026 and 2027.
- Revising the European Sustainability Reporting Standards (ESRS) to reduce mandatory reporting data points. The ESRS currently includes two cross-cutting standards and 10 non-mandatory topical standards with thousands of individual data points. The proposal would also eliminate sector-specific reporting standards.
- Removing the reasonable assurance requirement. In its place, targeted assurance guidelines will be released in 2026.
- Maintaining the double materiality requirement for companies in scope for CSRD.
Corporate Sustainability Due Diligence Directive (CSDDD)
Proposed Omnibus changes for the CSDDD include:
- Extending the implementation period by one year. Sustainability due diligence requirements for large companies would be postponed to 2028, with guidelines being advanced to 2026.
- Simplifying sustainability due diligence requirements by focusing requirements on direct business partners and reducing the frequency of periodic assessments and monitoring from annually to five years.
- Limiting the scope of data requests from SMEs and midcap business partners as part of the value chain mapping by large companies.
EU Taxonomy
Key proposals for the EU Taxonomy include:
- Making reporting voluntary for companies with 1000 FTE and over €450 million turnover. The Taxonomy remains a requirement for smaller organizations.
- Amending key performance indicators for financial institutions, reducing data points and reporting templates.
- Limiting the “Do No Significant Harm” (DNSH) criteria to only pollution prevention and control. In the original taxonomy, DNSH applies to six objectives, including climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
Next Steps
The European Parliament and Council will review these proposals before they are finalized and adopted. While the approval process can typically take months or longer, the Commission has requested that the review of the Omnibus package be “fast-tracked” within six months to alleviate uncertainty.
Until they are finalized and adopted, the changes in the EU Omnibus proposal are introducing uncertainty around sustainability reporting and how companies should move forward in the short term. Here are a few considerations for companies:
- Double materiality remains in scope. Materiality is a key pillar of sustainability reporting and risk management. Understanding the material risks, opportunities, and impacts of the business can help strengthen reporting.
- Greater interoperability can reduce reporting burdens. The proposed changes indicate a potential for greater interoperability between reporting requirements. This can help reduce the burden for companies reporting across multiple regulations and frameworks. While we are optimistic that the EU will make good on its promise to focus on such data points that remain relevant for other standards and frameworks, this will remain to be seen until the final set of ESRS revisions is released.
- Sustainability data can unlock business value. While compliance with regulations is one key aspect of sustainability reporting, a company’s strategy should be aligned to driving measurable business outcomes. Keeping compliance as a byproduct, rather than the main intent of reporting, means that letting strategy and materiality drive data collection keeps value in focus.
Navigating Sustainability Reporting with Novata
At Novata, we continue to monitor changes to the regulatory landscape and are committed to helping businesses navigate the evolving regulatory landscape. Here are three ways we can help:
- With the double materiality still a feature of CSRD, Novata can help simplify a complex process with our streamlined technology and Advisory experts.
- Novata’s flexible reporting solution is built with interoperability in mind and designed to support both mandatory and voluntary requirements, enabling us to adapt as the landscape continues to evolve.
- Novata has the right tools and expertise to collect, benchmark, measure, and report on sustainability metrics, helping to align metrics to measurable business outcomes.
Learn more about Novata’s platform and Advisory services and reach out to speak with an expert about how Novata can support your sustainability compliance efforts.
