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Shutters are being pulled down. Many suppliers to major EU companies, which had previously been required to disclose on issues like nature, greenhouse gas emissions and workforce, can now put reporting on hold. This means that large corporations will stay silent on the matter, leaving investors financing them in the dark. These disclosures had formed the core of the Corporate Social Reporting Directive (CSRD), which took effect in 2023.
Following the political shift to the right in the 2024 EU elections, these radical transparency rules have come under pressure through an initiative known as the Omnibus package. Covering environmental, social and governance (ESG) corporate disclosures, as well as due diligence by companies, it was launched in February 2025. “We have to be frank. This is an attempt to slow down the [climate] transition by aligning legislation with the laggards,” says Julia Otten, senior policy officer at Frank Bold, an NGO in Brussels.
Otten is particularly concerned about a European Parliament proposal to delete mandatory climate transition plans from another component of the package, the Corporate Sustainability Due Diligence Directive (CSDDD). Along with transition plans, it requires companies to identify, prevent and mitigate adverse human rights and environmental impacts in their operations and value chains.
The intensity of the strike against transparency varies according to each proposal to limit mandatory requirements. Efforts to lower the numbers of companies obliged to report in the CSRD on a range of ESG topics, or to reduce the strictness of criteria for reported data, define the seriousness of the damage that could be inflicted.
For example, the European Commission Omnibus package proposed to raise the minimum CSRD scope to companies with more than 1,000 employees and €50m turnover. Later, a Parliament report from the European People’s Party (EPP) proposed companies with a minimum of 3,000 employees and a turnover of €450m. In another variant, the European Council suggested a minimum of 1,000 employees but echoed the EPP’s plan for €450m turnover (see table, right).
All these contrast with the original CSRD, which demanded disclosures from companies with 250 employees or more. According to data provider ISS, the Commission proposed amendment to the law reduces the number of companies required to report by around 80% from over 45,000 to approximately 9,000.
At the same time, an estimate by Accountancy Europe indicates that the EU Parliament suggestion would leave one-third of member states with fewer than 10 companies reporting. The European Council’s position on the CSDDD this summer was even more draconian than on the CSRD, limiting scope to a minimum of 5,000 employees and €1.5bn turnover. The other institutions retained the same scope for both directives.
The breadth of companies disclosing makes a major impact on ESG integration into the EU economy through the CSRD and CSDDD. Another concern is the stringency of reporting requirements. Smaller enterprises, which do not need to disclose under the CSRD, would apply the Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME). However, the VSME is not compatible with the mandatory reporting standards for the CSRD used by larger companies.
In the Commission proposal, the information needed by companies with more than 1,000 employees from smaller corporate subsidiaries and actors in the value chain is lacking. “This is messing around with business-to-business information that prevents large companies from being able to disclose accurate good data. We need a better targeted standard for this mid-cap category,” says Otten.
On value chain greenhouse gas emissions, for instance, some of the data expected in the VSME is too vaguely defined, creating confusion. “The VSME is not very clear in terms of scope 3. That means that either you need to create exceptions for that or that the larger companies won’t be able to make calculations conforming to their own standards system.” Due diligence rules are also not specific enough and the CSRD can be overlooked, she states. “The VSME is optional, not mandatory. SMEs can use it but they don’t have to.”
If the CSRD scope were broader, fewer smaller enterprises would be excluded. Hence, opponents to the changes argue that the final CSRD disclosures generate superficial information.
Eurosif, a forum representing sustainable investors, says suggestions made by the Commission are too weak. “We believe that the CSRD should maintain a scope that makes sense and that companies that have to report do so against standards that are credible,” says Pierre Garrault, Eurosif senior policy adviser. At 1,000 employees, he considers the minimum too high. “This doesn’t necessarily mean investors will stop investing sustainably but it will mean that it becomes more difficult for them to do so,” he says.
One question is the scope that works to embed ESG transparency and climate change considerations into the economy through corporate reporting and due diligence. According to the European Central Bank (ECB), a minimum of 500 employees is a good number for CSRD reporting. In an August announcement, it said that the proposed reduction would weaken the European banking system’s ability to make granular assessments of climate-related financial risks on its balance sheet and in its collateral framework.
“Descoping 80%-94% of companies from the CSRD does not strike the right balance – to the contrary, it creates long-term risks for the European economy,” says Christine Lagarde, ECB president.
The core of sustainability reporting in the EU risks being lost. Should decisions align with the most extreme suggestions, the clock would turn back 10 years to before the introduction of mandatory non-financial reporting. “We have already reached a critical threshold with the proposals,” says Otten.
If they are accepted, the corporate story on climate and nature impacts and risks, as well as labour conditions, may not get past the first page. The first CSRD disclosures have only been published this year. Garrault says: “The next wave of companies is beginning to prepare reporting but hasn’t reported yet. CSDDD was supposed to report from 2027. It’s difficult to assess the benefits of rolling these back before they are implemented.”
Politicians proposing that cancellation may be working against some market sentiment. A large proportion of investors say that they support much of the original CSRD and CSDDD. This summer, 110 investment organisations and financial institutions, along with 55 companies, came out in favour of the wider scope (more than 500 employees) in a Eurosif statement.
The outcome of battles in EU institutions will not be known until the end of this year, however, “We will see how this is going to be carved out,” says Otten.
Elisabeth Jeffries is a freelance ESG writer and editor
