The European Commission Reduces ESG Reporting Requirements: Review of Coverage and Simplification of Regulation

The European Commission is taking steps to simplify ESG reporting by reducing the number of companies required to disclose detailed data. This move aims to lessen the administrative burden on businesses while still fostering sustainability. The proposed changes include raising the thresholds for mandatory reporting and streamlining regulations to focus on key business relationships, offering companies more flexibility and reducing complexity in reporting requirements.

The European Commission has proposed reducing the number of companies required to disclose ESG data as part of a strategy to ease the bureaucratic burden on businesses — a move that aligns with broader regulatory reforms aimed at increasing the competitiveness of the European economy. This initiative, which seeks to simplify reporting requirements, will support businesses by offering a more predictable and manageable regulatory framework.

Brussels is set to present the so-called “omnibus” proposal — a comprehensive package that will update key sustainability-related regulations, including the CSRD (Corporate Sustainability Reporting Directive) and the CSDDD (Corporate Sustainability Due Diligence Directive). The aim is to harmonise ESG reporting requirements across Europe, reducing the administrative pressure on businesses and ensuring consistency in the application of sustainability standards.

Review of Thresholds for Mandatory Reporting

A key element of the proposed reform is a review of the thresholds for mandatory ESG disclosure. Under the new proposal, only large companies — those with more than 1,000 employees and an annual turnover exceeding €450 million — would be subject to mandatory reporting. This marks a significant shift from the current regulations, where companies with 250 employees and €40 million in revenue must already disclose ESG data. This change is expected to exempt a large proportion of medium-sized businesses, offering them relief from the costly and time-consuming process of preparing detailed ESG reports.

Abandonment of Sector-Specific ESG Reporting Standards

Another major change is the abandonment of sector-specific ESG reporting standards that were due to be introduced in 2026. The European Commission proposes scrapping this requirement to avoid adding additional layers of complexity for businesses. By focusing on more general reporting standards that apply across sectors, companies will be able to streamline their efforts and avoid the need to adapt to specific industry requirements, making compliance simpler and more cost-effective.

Easing Due Diligence Requirements (CSDDD)

The proposed reforms also impact the Corporate Sustainability Due Diligence Directive (CSDDD). Under the new framework, companies will only be required to assess and disclose ESG risks within their direct business relationships — specifically, their subsidiaries and immediate partners.

This revision narrows the scope of the due diligence requirements and removes the obligation to monitor second- and third-tier suppliers. While this move is expected to ease the burden on businesses in managing their supply chains, it may reduce transparency in areas further removed from direct corporate operations, potentially complicating efforts to achieve comprehensive supply chain visibility.

Political Debate: A Balancing Act Between Business Interests and Sustainable Development

The proposed reforms have sparked significant debate among EU member states. Countries like Germany and France support the easing of requirements, arguing that it will allow European businesses to remain competitive in the global market. In contrast, Spain and several other nations have voiced concerns, warning that simplifying regulations too much could undermine high reporting standards that protect the environment and human rights. The debate highlights the ongoing tension between fostering business growth and ensuring that sustainability remains at the forefront of corporate strategies.

Global Context: The EU and the US

The proposed changes to EU ESG regulations are part of a broader global trend, where different regions adopt distinct approaches to sustainability frameworks. In the US, the regulatory landscape has historically been more flexible, particularly under the Trump administration, which actively rolled back numerous environmental regulations.

This approach prioritised economic growth over stringent ESG obligations, particularly by reducing corporate responsibilities related to climate risk and environmental impact. Although the Biden administration has since reintroduced some of these regulations, the overall US ESG framework remains less demanding compared to the EU’s comprehensive directives like the CSRD and CSDDD. This divergence underscores the challenges of achieving a unified global standard for ESG reporting.

The Future of ESG Reporting in Europe

The future of ESG reporting in Europe is set to evolve, with regulatory simplifications that may reduce administrative burdens on businesses. However, this could also affect the consistency and comparability of ESG data across different sectors. Larger corporations are likely to continue adhering to higher voluntary standards, driven by investor demand for transparency on sustainability risks and governance. As the regulatory environment shifts, companies are expected to increasingly rely on advanced technologies to improve the quality of their ESG reporting, providing more accurate and real-time data while balancing regulatory compliance with market expectations for robust sustainability disclosures.