Malcolm BrysonMalcolm Bryson, BDO Luxembourg’s Sustainability Officer highlights that, “Whilst undoubtedly reinforcing the EU’s ambition to place the region in a world-leading position in corporate sustainability terms, it has also placed new pressures on businesses across its member states, and beyond. In addition to the significant resource and upskilling needs associated with successfully navigating the various steps required in generating the data mandated under the new legislative regime, this changed landscape represents a paradigm shift for many organisations - and one often characterised by substantial complexity and cross-disciplinary working”.
Fani Xylouri
Fani Xylouri, our Head of Sustainability Advisory Services, continues, “This has not been an easy step for many, and the application of the Corporate Sustainability Reporting Directive requirements (expanding the scope and requirements of NFRD) to the second tranche of in-scope companies, alongside preparations for the impending introduction of the CSDDD has brought the scale of the challenge into focus. Recognising the scale of the task facing the EU’s business community, and the potential risks to efficiency and competitiveness in a changing economic landscape, the EU Commission has decided to rethink its approach. Such discussions had been ongoing through 2024, however in January this year, the EC announced that it would be publishing the “EU Omnibus Proposal”, aimed at better integrating, streamlining and reducing the reporting burden associated with existing and forthcoming sustainability requirements – looking specifically at CSDDD, CSRD and the EU Taxonomy Regulation”.
Last week they announced further details on what this revised framework will look like.
Changes to CSRD
Scope
Only companies with over 1000 employees and either a turnover in excess of EUR 50 million or a balance sheet in excess of EUR 25 million will now be in scope, reducing the number of applicable undertakings by around 80%. Similar adjustments have been made to the application of requirements to third-country undertakings with EU operations, reducing the turnover threshold from EUR 150 million to EUR 450 million and from EUR 40 million to EUR 50 million for EU branches. In terms of obtaining data from members of a company’s value chain, this will be restricted to protect companies with fewer than 1000 employees. New voluntary disclosure standards will be produced by EFRAG for companies no longer falling within the scope of mandatory reporting, based on the voluntary SME Standard.
Assurance Requirements
Where companies were previously required to obtain limited and possibly reasonable assurance in the future for their CSRD disclosures, in-scope firms will now only be required to seek limited assurance. The EC will also now issue targeted assurance guidelines by 2026 rather than adopting more rigid formal standards.
Technical Requirements
Sector-specific European Sustainability Reporting Standards (ESRS) will now no longer be developed, while the requirement for in-scope firms to undertake a double-materiality assessment will be retained. European Sustainability Reporting Standards (ESRS) will also be revised to:
- Substantially reduce the number of mandatory data points
- Prioritise quantitative data points
- Clarify provisions that have been identified as being unclear
- Provide clearer instructions on the application of the materiality principle
- Improve and simplify their presentation and structure
- Enhance interoperability with other standards
Timelines
Reporting requirements for firms due to report in 2026 and 2027 will be postponed by two years.
Changes to CSDDD
Scope
Where previously CSDDD was intended to consider an organisation’s full value chain, this will now be limited to direct suppliers (with the qualification that in depth assessment be carried out where there is evidence to suggest adverse effects beyond tier 1), likewise periodic monitoring exercises on the adequacy of due diligence activities will now only have to be undertaken every five years (previously annual).
Technical Requirements The proposed revisions remove previous requirements relating to the termination of contracts for non-compliant suppliers and the application of a uniform civil liability regime. Where in-scope companies were previously required to “adopt and put into effect” a transition plan for climate change, this has now been amended to simply “adopt”, with the qualification that plans should include implementation actions planned and taken.
Timelines
The transposition deadline has been postponed by a year, and the first application wave has been removed.
Changes to EU Taxonomy
For EU Taxonomy, changes are limited in the proposal to the introduction of an opt-in regime for large undertakings (with more than 1000 employees and a net turnover below EUR450 million). Where such entities claim that their activities are aligned or partially aligned with EU Taxonomy, they are required to report on their turnover and CapEx KPIs (and can report their OpEx KPI). This obviously allows for similarly sized organisations which make no such claims to opt out of the disclosure requirements.
BDO Luxembourg’s Perspective
Despite what many perceive as an over-simplifcation of sustainability commitments by the European Commission, the correlation between financial success and the corporate sustainability activity of a business will always remain. BDO Luxembourg has seen first-hand the value that processes such as double-materiality assessment can add in ensuring organisations have a complete and data-driven understanding of their impacts, risks and opportunities. Such organisations will find themselves better placed to generate actionable insight and use it to plan for, and adapt to change. Likewise, organisations’ stakeholders (the public, investors, policy-makers and many others) will continue to demand and value robust assurance of businesses sustainability credentials – something that can only achieved through ordered, systematic and data-focused analysis of impacts, risks and opportunities.
Benoit WtterwulgheBDO’s Partner, Benoit Wtterwulghe explains, "Here at BDO we continue to encourage new and existing clients, whether they lie within the scope of the regulatory framework or not, to engage with the corporate sustainability agenda and support them in developing real, tangible strategies that deliver social, environmental and economic value. Despite much of the focus of the current regulatory landscape in the sustainability space being on reporting, the real underlying aim has always been improvement in the actual sustainability performance of EU businesses. By reducing much of the administrative burden, we think that this omnibus proposal arguably creates more space for more operational action on sustainability issues”.
