CSRD Omnibus Changes Business Impact

Sustainability reporting has emerged as a critical aspect of corporate responsibility and investor decision-making, but navigating its complexities can be a daunting task for businesses. The Corporate Sustainability Reporting Directive (CSRD), launched on January 1, 2024, marked a significant shift in ensuring transparency and consistency in sustainability-related disclosures for large companies across Europe. However, with its ambitious scale came challenges in implementation, especially for smaller businesses. This prompted the European Commission to propose an omnibus Simplification Package in early 2025, introducing pivotal changes to the CSRD framework.

These adjustments, if approved, will redefine the sustainability reporting landscape in Europe, with wide-ranging implications for corporate issuers, investors, and other stakeholders.

Let’s break down what the CSRD entails, the key proposed changes in the CSRD package, and the considerations businesses will have to take into account moving forward.

The CSRD was introduced to address gaps in sustainability disclosures under its predecessor, the Non-Financial Reporting Directive (NFRD). Its goal was to enhance the quality, consistency, comparability, and reliability of sustainability reporting while aligning with global frameworks like the International Sustainability Standards Board (ISSB)’s IFRS S1 and S2 standards. By including both large public-interest entities and certain non-listed companies in its scope, the directive sought to provide investors and stakeholders with decision-useful information about the sustainability performance of target companies, while also imposing consistency, standardization, and third-party assurance on an expanded number of companies, thereby bringing greater certainty for those reporting, their investors and other stakeholders.

With sustainability now a key consideration for market participants, the CSRD marked a step forward in ensuring that sustainability data was not just readily available but also actionable. However, implementing such a comprehensive framework posed significant challenges for businesses, particularly smaller ones. These challenges prompted the European Commission’s Simplification Package, which aims to find a balance between regulatory ambition and practical implementation.

The omnibus package introduces several significant adjustments to the existing CSRD framework. Here’s a closer look at the major changes:

A primary feature of the omnibus proposal is its narrowing of the CSRD’s scope. Previously, the directive applied to companies with 250+ employees and €50 million or more in turnover (or a €40 million balance sheet total). The omnibus changes would redefine eligibility, limiting it to companies with over 1,000 employees and either €50 million in turnover or €25 million in balance sheet total.

For non-EU companies, the original threshold of €150 million turnover with a branch or subsidiary surpassing €40 million turnover within the EU has been revised to €450 million turnover under similar conditions. This reduction in scope could shrink the number of companies subject to CSRD requirements from over 50,000 to fewer than 7,000.

Additionally, the reporting deadlines for the second and third waves of companies have been postponed by two years, pushing compliance timelines back to fiscal years 2025 and 2026, respectively.

For companies still within the CSRD’s ambit, the omnibus proposes less extensive disclosure requirements. Businesses will only need to report simplified data points, reducing the complexity and cost of compliance. A new version of the European Sustainability Reporting Standards (ESRS), set to be published within six months of the omnibus changes, will provide greater clarity.

This streamlined approach offers some relief, particularly to smaller businesses or those that generate limited environmental and social impacts. However, simplicity may come at the cost of detail and specificity in sustainability reporting, perhaps undermining some of the initial purpose of the Directive.

Initially, the CSRD included sector-specific standards to address the unique challenges faced by different industries. Under the omnibus proposal, these tailored requirements would be eliminated, leaving companies to adhere solely to universal standards. Though this reduces complexity, it might result in generic reporting, with some sector-specific risks and opportunities being overlooked.

One of the more transformational changes is the easing of value chain reporting requirements. Previously, companies were obligated to collect sustainability data from their entire supply chain, including smaller, non-CSRD-compliant entities. This obligation has now been waived, reducing the reporting burden for companies and alleviating pressure on small and medium-sized enterprises (SMEs) embedded in these supply chains.

While the omnibus retains the requirement for limited third-party assurance of sustainability disclosures, it removes the stricter reasonable assurance requirements. New assurance standards, which are to be issued by 2026, are expected to provide additional clarity.

While the omnibus adjustments aim to simplify compliance and reduce burdens, they raise complex questions for businesses and investors alike, particularly given that updates and further guidance are pending.

The reduction in scope eases regulatory pressure on companies no longer covered by the CSRD. However, this newfound freedom also requires companies to reevaluate their approach to sustainability. Without the regulatory driver, businesses must decide whether to continue reporting voluntarily and to what extent.

Double materiality assessment becomes more critical in this context. By evaluating both financial materiality (i.e. the impact on the company’s bottom line) and impact materiality (the company’s effect on society and the environment), businesses can strengthen their relationships with stakeholders and identify areas with the potential for value creation. Companies must revisit their strategy by asking questions, such as, “Are we reporting for the sake of compliance, or are we using sustainability reporting as a tool to attain other objectives?”

Investors may face challenges in accessing comparable and reliable sustainability data due to the reduced coverage of companies and the elimination of sector-specific standards. This could exacerbate the risk of “greenhushing,” where companies downplay or obscure their sustainability efforts to avoid scrutiny. Nonetheless, investor expectations remain unchanged, with a continued focus on financially material disclosures.

Regardless of whether a business remains in-scope for CSRD requirements, sustainability will still play a pivotal role in shaping stakeholder relationships, access to capital, and long-term competitiveness. Companies have a strategic opportunity to leverage their sustainability initiatives, identifying the impact on value creation and aligning with global sustainability norms.

The omnibus changes to the CSRD regulations, while not yet approved, signal a shift in the EU sustainability reporting paradigm. However, they do not diminish the importance of credible sustainability disclosures. For businesses and investors alike, the question is not whether to engage in sustainability practices but how to do so effectively, given the evolving regulatory and market landscapes. There are also questions about whether the omnibus package heralds a wholesale shift in EU policy, one that is premised on weaker reporting standards to accommodate the uncertainty facing the global economy and business continuity.

Companies must consider the strategic implications of these adjustments and decide whether voluntary reporting offers a competitive advantage. Engaging with stakeholders, understanding materiality, and ensuring alignment with global standards are all key steps to maintain relevance in a world where sustainability issues remain front and center.

At Shift Critical, we specialize in helping businesses adapt to these changes. From guiding double materiality assessments to streamlining your reporting processes, we provide the expertise you need to align your sustainability strategy with market and regulatory expectations. Visit us at www.shiftcritical.ca to learn how we can help you stay ahead of the curve.

Remember, in the evolving sustainability landscape, preparation isn’t optional – it’s critical. Reach out to Shift Critical today and take the first step toward a stronger, more sustainable future for your business.