EU Delays Key Sustainability Directives

What It Means for Businesses and the Future of ESG Reporting

In a significant move earlier this year, the European Parliament voted to approve the European Commission’s proposal to delay the application of two key sustainability regulations: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). This decision, which follows months of discussions and consultations, is part of the broader effort to simplify the EU’s ESG reporting regime and boost the competitiveness of European businesses.

The delays are expected to provide companies with much-needed breathing room to prepare for these complex and far-reaching regulations. However, they also raise important questions about the future of corporate sustainability in the EU and whether the current regulatory approach is the best path forward.

The CSRD and CSDDD: Key Regulations Under the Spotlight

The CSRD and CSDDD represent two pillars of the EU’s ambitious green agenda, aiming to hold companies accountable for their environmental and social impacts.

1. Corporate Sustainability Reporting Directive (CSRD): Initially adopted in November 2022, the CSRD requires large companies to disclose detailed information about their environmental, social, and governance activities, in a format that is comparable and digitally accessible for investors. The directive aims to integrate sustainability into financial reporting, ensuring that companies are transparent about their impacts on society and the planet.

Under the new timeline, the EU will delay the application of the CSRD for many companies. Large businesses (those with more than 250 employees), originally set to begin reporting in 2026, will now receive an additional two years and start reporting in 2028. Listed SMEs will begin reporting a year later, in 2029. These extensions give companies more time to strengthen their sustainability data infrastructure and refine their reporting capabilities, ensuring they are fully compliant when the regulations take effect.

2. Corporate Sustainability Due Diligence Directive (CSDDD): This directive mandates that companies actively prevent, mitigate, or address any adverse impacts their operations have on human rights and the environment, including issues such as forced labor, child labor, and biodiversity loss. It applies to EU companies with more than 1,000 employees and a turnover exceeding €450 million, as well as non-EU companies with significant business operations within the EU.

Under the revised schedule, the first wave of companies impacted by the CSDDD will now apply the rules starting in 2028, an additional year after the original deadline. This will give companies more time to align their business practices with the climate goals of the Paris Agreement and ensure that their due diligence processes are robust and effective.

The Omnibus Package: A Step Towards Simplification

The delays are part of the EU’s broader “Omnibus I” package, which aims to reduce regulatory burdens, particularly for SMEs, while still maintaining the EU’s commitment to sustainability. The package also proposes changes to the Taxonomy Regulation and the Carbon Border Adjustment Mechanism (CBAM), aiming to create a more business-friendly environment in the EU.

One of the most significant aspects of the package is the “stop-the-clock” mechanism, which suspends the deadlines for certain obligations under the CSRD and CSDDD. The goal is to give businesses additional time to prepare for these complex regulations and provide clarity on the standards they must meet. The European Commission has tasked the European Financial Reporting Advisory Group (EFRAG) with updating the technical standards for the CSRD, ensuring they are more aligned with business needs and practical implementation.

What Does This Mean for Businesses?

The delays will provide companies, especially those in the second and third waves of CSRD application, with extra time to prepare. This reprieve allows businesses to assess and enhance their sustainability data systems, governance frameworks, and reporting practices.

However, while many welcome the extra time, they should not treat it as an excuse to delay sustainability efforts. Companies should use this extension strategically, taking advantage of the additional time to develop their sustainability strategies and improve data collection processes. As Maura Hodge, KPMG US Sustainability Leader, points out, businesses must leverage this window to ensure they position themselves to meet the requirements when they take effect in 2028.

The Road Ahead: Challenges and Criticism

Despite the delay, there are concerns that the simplifications might water down the very goals these directives are meant to achieve. Some argue that the reduced scope and fewer reporting requirements could result in less transparency, ultimately making it harder for investors and stakeholders to assess a company’s sustainability performance.

Environmental and human rights organizations, such as Global Witness and others, have voiced concerns that the changes could undermine the impact of the regulations. They argue that simplifying the rules may compromise the core principles of climate action, human rights, and corporate accountability that these directives were designed to enforce. The Green Party in the European Parliament, for example, acknowledged the need for simplification but emphasized that the integrity of the law must be preserved to ensure meaningful climate action and corporate responsibility.

Moreover, there is ongoing debate over the inclusion of smaller companies within the scope of these directives. The Commission’s revisions propose increasing the employee threshold for CSRD reporting from 250 to 1,000 employees, effectively reducing the number of companies subject to the regulation. This has sparked concerns that the regulations might fail to address the full scope of corporate responsibility, especially for smaller businesses that still play a critical role in global supply chains.

The Future of Corporate Sustainability in the EU

The delays in the CSRD and CSDDD implementation mark an important moment in the EU’s regulatory journey. While the extra time is a pragmatic solution to the challenges businesses face, it also highlights the ongoing tension between ambitious sustainability goals and the economic realities faced by companies.

As the European Commission and Parliament continue to negotiate the final details of these regulations, businesses should remain vigilant and proactive in their sustainability efforts. The ultimate goal remains clear: to ensure that companies contribute to the green transition while respecting human rights and minimizing their environmental impact.

The coming months will be crucial as the EU works to finalize these laws and create a regulatory landscape that balances sustainability with economic growth. Companies should prepare for continued changes and stay informed on the final provisions of the CSRD and CSDDD to ensure they are ready for compliance when the time comes.

The postponements give businesses some relief, but the pressure to meet sustainability standards will not disappear. In fact, as the green transition accelerates, companies that proactively take steps now will better position themselves to navigate future regulations and capitalize on the growing demand for sustainable business practices.

Attend our upcoming Europe | Certified Sustainability (ESG) Practitioner Program, Advanced Edition 2025, on June 25-26 & 27 to stay ahead of evolving regulations like the CSRD and CSDDD, ensuring you are prepared for compliance. The training will also provide valuable insights into optimizing sustainability practices and data collection, positioning companies for long-term success.