The tradeoffs of EU proposals to simplify sustainability reporting

As proposed, the European Commission’s Omnibus Simplification Package would lessen the reporting burden for smaller companies but reduce availability of granular data for investors.

Published: April 29, 2025

Highlights

The European Commission’s Omnibus Simplification Package proposes simplifying key sustainability reporting rules to reduce burdens for smaller companies.

Under the proposals, S&P Global data shows that the number of companies required to report under the Corporate Sustainability Reporting Directive (CSRD) would drop dramatically, with some sectors more impacted than others.

In our analysis, the number of financial firms subject to CSRD would drop by about 71%, while coverage of the energy sector would decrease 66%.

Removing small and medium-sized enterprises from reporting under the CSRD and due diligence rules could be a meaningful change for many companies. Our analysis shows that smaller companies lag large companies in making disclosures relevant to CSRD and the Corporate Sustainability Due Diligence Directive (CSDDD).

Authors
Jennifer Laidlaw | Senior Researcher, Regulations and Standards, S&P Global Sustainable1
Henna Viinikka | Head of Regulatory Methodologies, S&P Global Sustainable1
Alexie Duncker | Sustainability Analyst, S&P Global Sustainable1

n a bid to enhance the EU’s economic competitiveness, the European Commission has proposed an Omnibus Simplification Package that would drastically reduce the number of companies subject to the bloc’s sustainability reporting requirements. The move would lower the reporting burden for small and medium-sized enterprises (SMEs) in particular. However, simplification could also shrink the amount of sustainability information available to the market, even as investors continue to pressure companies for consistent, comparable sustainability disclosures.

The Commission aims to reduce the overall reporting burden for companies by at least 25% and for SMEs by at least 35% by the end of the Commission’s current mandate in 2029. The proposals would both reduce the number of companies in scope of the rules and cut the number of datapoints that companies would have to report. Part of the reporting burden that the EU hopes to relieve for SMEs is the “excessive” information requests they receive from larger companies in their value chain, according to the Commission.

In this paper, we explore the three sustainability reporting rules the Omnibus Simplification Package proposes to alter:

the Corporate Sustainability Reporting Directive (CSRD)
the Corporate Sustainability Due Diligence Directive (CSDDD)
the EU Taxonomy

We then use the latest data available in the S&P Global Corporate Sustainability Assessment (CSA) as a proxy to understand how companies of different sizes and in different sectors stand to be impacted by the proposed changes. We also look ahead to the next steps for the proposals as they wend their way through the EU rulemaking process.

Overall, we find that simplification as proposed would result in a significant reduction in scope for CSRD reporting in the financial sector, lowering the amount of company-reported sustainability data available to the market. SMEs lag far behind larger firms when it comes to climate and supply chain-related disclosures, and the proposals to exclude these smaller companies from mandatory reporting requirements could reduce their future reporting burden.

CSRD

The CSRD requires companies to publish reports on environmental and social impacts, risks and opportunities and uses a set of disclosure standards called the European Sustainability Reporting Standards (ESRS). Large publicly traded EU companies and non-EU companies publicly traded in the EU with more than 250 employees and revenues of more than €50 million or assets of more than €25 million were required to start reporting as of Jan. 1, 2025, for the financial year 2024. A pause in the implementation of CSRD was finalized on April 14 (see “The rulemaking process” below).

Under the proposals, the employee threshold would shift to 1,000 workers, which would dramatically reduce the number of companies reporting under the rules. The number of companies subject to reporting requirements from Jan. 1, 2025, based on the 2024 financial year, would be more than halved. The European Commission has said the proposals would remove about 80% of companies from the scope of CSRD.

Reduction in scope will affect the financial sector more

Reducing the number of companies reporting could have consequences for monitoring and measuring what steps sectors are taking to address climate and other sustainability risks. Based on our analysis, there are considerable differences in how various sectors would be affected.

The financial sector would face a steep reduction in companies reporting of about 71%, based on analysis of the S&P Capital IQ Pro corporate database. Financial firms generally have lower emissions from their own operations, but higher emissions throughout their value chains, including the greenhouse gases (GHGs) emitted by businesses or projects they finance, invest in or underwrite. The scale of these Scope 3 emissions, and the financial sector’s role as the engine of private sector business activity, means that banks, asset managers and insurers wield significant influence in encouraging other sectors to decarbonize. A reduction in the number of companies reporting would result in less data about banks’ lending portfolios or asset managers’ investments.

In our analysis, the real estate sector would be the most impacted, with an 87% drop in the number of companies reporting under the CSRD. Energy, a high-emitting sector, would see a reduction in scope of 66%. Out of the 11 GICS sectors, only industrials would see a reduction of less than 50%.

Less mandatory reporting could make it more difficult for investors to gather climate data from all but the largest companies. At the same time, there is demand for consistent sustainability disclosure frameworks around the world among certain stakeholders, as adoption of the International Sustainability Standards Board (ISSB) standards gains traction in some jurisdictions.

Disclosure rates for SMEs are low

The trade-off for this decrease in information available to the market is reducing the cost and burden of gathering and reporting it. The European Commission estimates that if the proposals were adopted now as written, they would save companies around €6.3 billion in administrative costs annually.

Currently, disclosure on climate, human rights and labor topics — several of the main aspects of the CSRD — varies widely between large companies with more resources to dedicate toward regulatory reporting tasks and smaller ones.

S&P Global data shows that large European companies are better prepared than European SMEs on disclosing information included in the ESRS and Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME), demonstrating that smaller companies would benefit from a looser regulatory framework on sustainability reporting.

Throughout this analysis, large companies refer to those with more than 1,000 employees, in line with the threshold of the Omnibus proposals, while SMEs refer to those with 1,000 or fewer.

Our analysis is based on the S&P Global Corporate Sustainability Assessment, an annual evaluation of companies’ sustainability practices and performance that covers more than 12,000 companies globally. The CSA is the process underlying the S&P Global ESG Scores. We find that out of a universe of 1,287 European companies meeting the large company size threshold, between 92% and 99% disclose information related to human rights, occupational health and safety, labor practices, energy consumption and climate strategy — topics common to the ESRS and VSME.

When it comes to European SMEs, a similarly high share of firms discloses information on labor practices (91%). On other topics, however, there is a wide disclosure gap: 63% disclose on human rights, 67% on occupational health and safety, 64% on energy consumption and 65% on climate strategy.

To assess whether a company is prepared to disclose on these topics, this analysis uses a binary approach where preparedness is counted based on whether a company scores more than 0 points on a datapoint or not. This sets an intentionally low bar: For example, an SME would need to disclose only a minimum amount of information on the climate strategy topic to be included in the 65% of small companies counted as disclosing information.

In practice, the share of companies able to disclose the full amount of information to satisfy an ESRS could be smaller. Under the current ESRS, companies are required to disclose material environmental, social and governance impacts and risks within their upstream and downstream value chains — for example, Scope 1, Scope 2 and Scope 3 emissions as well as total GHG emissions. The standards cover impacts on a company’s workforce and workers in its value chain; climate change and pollution; affected communities; and business conduct, among other factors. Non-listed SMEs can report under the VSME, which requires fewer disclosures. The Omnibus changes propose using the VSME as a voluntary standard for all companies falling out of scope for the CSRD.

In its Omnibus proposals, the Commission said it would issue revised ESRS that would remove datapoints deemed less important for general sustainability reporting and would focus on quantitative rather than qualitative data.

A key component of the CSRD is corporate reporting from a double materiality perspective, which considers both a company’s internal value creation and its external impact on the environment and society. This would remain in place under the Omnibus proposals, but the Commission has indicated it plans to provide clearer guidance on materiality assessments so that companies do not spend disproportionate resources on materiality analysis. The double materiality approach is less common among companies of all sizes, according to our analysis. About 57% of large companies take a double materiality view in their reporting, and only 27% of SMEs do so.

CSDDD

The Omnibus proposals also seek to simplify the CSDDD, which sets out a due diligence duty for companies to prevent, end or mitigate their adverse impact on human rights and the environment across their upstream and downstream “chain of activities,” including supply, production and distribution.

The proposed changes include making due diligence reporting related to direct suppliers only, instead of up and down the value chain. The proposed changes would also reduce the frequency of monitoring and mandatory reporting to five years from one year — unless risks or impacts warrant more frequent review — and remove a harmonized EU-wide civil liability clause and defer to the civil liability regimes of member states.

SMEs lag large firms in supply chain monitoring

CSA data shows that larger companies are better prepared for reporting on information related to their supply chains than smaller ones. Out of a universe of 998 large European companies assessed in the CSA on supply chain management, 89% disclose at least some information related to this topic. Of the 384 European SMEs assessed on supply chain management, 51% disclose information on this topic. Preparedness to disclose on the topic is measured based on whether a company scores more than 0 points on a datapoint or not.

The CSDDD is applicable to large companies and is being phased in depending on the size of a company. However, SMEs could be indirectly subject to the directive if they act as a contractor or subcontractor to a company that is directly in scope. The Commission said its proposed changes to the CSDDD would “reduce burdens and trickle-down effects” for SMEs by limiting the amount of value chain information large companies are required to request of their suppliers.

Supply chains are often complicated and can involve many tiers of suppliers. As CSDDD is currently written, a large company directly in scope may need its suppliers to collect information about their own supply chains, cascading the reporting burden through the chain. Revising CSDDD could reduce the potential reporting burden for the companies that have not yet invested in supply chain management.

EU Taxonomy

The Omnibus package also includes plans to simplify reporting under the EU Taxonomy, a classification system of sustainable economic activities and a key component of the EU’s sustainable finance agenda that has been phased in since 2022. Companies reporting under the CSRD must disclose if they align with the EU Taxonomy.

Under the proposed Omnibus changes, EU Taxonomy reporting would become voluntary for companies with less than €450 million in annual revenues. The changes would also give companies the option of reporting on activities that are partially aligned with the EU Taxonomy; introduce a financial materiality threshold of 10% of revenues, capital or operating expenditure for assessing EU Taxonomy eligibility or alignment; and simplify reporting tables for non-financial companies, reducing the number of datapoints to report by about two thirds.

Taxonomy reporting is already high for SMEs

The Commission’s proposals to lighten the reporting requirements related to the EU Taxonomy would benefit SMEs more than large companies. However, the gap between larger and smaller companies is much narrower for taxonomy reporting than for reporting under the CSRD or CSDDD.

Out of a universe of 776 large European companies assessed on taxonomy reporting, 91% disclose information related to taxonomies. Out of a universe of 114 European SMEs assessed on taxonomy reporting, 80% disclose information related to taxonomies.

This CSA topic does not only include the EU Taxonomy; it may include other geographic taxonomies as applicable. The assessed companies are Europe-based and would therefore be subject to EU Taxonomy reporting. Taxonomies have been springing up across the world in geographies as disparate as Brazil and South Korea.

The rulemaking process

Putting the Omnibus Simplification Package into practice is set to be a drawn-out process.

One of the first hurdles was cleared on April 3, when the European Parliament voted in favor of delaying the implementation of CSRD and CSDDD. This “stop the clock” measure was given the final green-light by the Council of the EU, which is made up of government ministers of the 27 member states, on April 14. The Omnibus package was structured in two parts: first, delaying the applicability of CSRD and CSDDD; second, focusing on the detailed changes of simplification.

The proposals to change the CSRD and CSDDD are subject to approval by the European Parliament and the Council of the EU, which could take several months. The Commission has asked legislators to treat this as a priority, which could speed up the process. In a March 20 statement, the Council urged co-legislators to make the Omnibus changes “a matter of priority...with a view to finalizing them as soon as possible in 2025.” The Council agreed on its negotiating position on March 26.

A consultation on the Taxonomy proposals ran from Feb. 26 to March 26, and the proposals are subject to scrutiny by the European Parliament and the Council. They would apply from Jan. 1, 2026.

Tensions over the direction of proposed changes

The simplification package has ignited fierce debate among companies and investors, with some in favor of simplifying rules as a way of slashing red tape, while others have voiced concerns about access to reliable sustainability-related data. In some quarters, the debate is more nuanced, with some investors calling for some form of simplification, but with a different approach such as simplifying standards and providing more guidance on implementation.

Regulators, too, have had their say. A paper published by the European Central Bank on March 14 on the effectiveness of corporate disclosure rules in limiting greenwashing noted that there is “merit” in simplifying EU sustainability reporting rules but added that it is “equally important” to preserve and improve parts of the rules that prevent greenwashing. Greenwashing refers to the practice of making an investment or product sound more sustainable than it really is.

Conclusion

Reporting and disclosure have dominated the sustainability investment conversation over the past few years, amid efforts to create global, consistent and comparable disclosures. The EU has been an early mover in this field; the precursor to the CSRD, the Non-Financial Reporting Directive, was introduced more than a decade ago and required companies to disclose material sustainability-related impacts and risks in their business.

The coming months may bring negotiations and compromises before final outcomes of the EU’s simplification proposals are known. Many companies may find themselves out of the scope of EU sustainability rules, but the largest companies with the biggest weighting in the economy will still be subject to the regulations. The simplification effort appears likely to result in less availability of granular data about the sustainability issues affecting companies.

Many companies have already started reporting under the CSRD and may continue doing so even if they fall out of scope. Companies could choose to disclose voluntarily under other disclosure frameworks such as the standards created by the ISSB. The delay in CSRD and CSDDD implementation approved on April 14 gives many companies some breathing room as they face an uncertain regulatory future.