The changing landscape: The evolution of CSRD and sustainability reporting

Background

The Corporate Sustainability Reporting Directive (CSRD) was developed with noble intentions to provide investors and other stakeholders with useful information in relation to an entity’s sustainability impacts, risks and opportunities. While it was acknowledged that the drafting of these disclosures would require significant effort, a year into the process and with the first sustainability statements published, the reality of implementation is now much clearer. The challenges faced by companies in scope, a changing political landscape and the development of the EU’s Competitiveness Compass have led to the introduction of a number of Omnibus proposals.

During a press conference November 8, 2024, the president of the European Commission, Ursula von der Leyen, noted that an “omnibus” will be introduced to support the reduction of the reporting burden currently understood to be contained through the EU Taxonomy Regulation (EU Taxonomy), the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

During this press conference it was noted that the president stated:

“We will look, for example, at the triangle of taxonomy, CSRD, CSDDD. What is important is – this is something we agreed at the informal Council here today, the content of the laws is good. We want to maintain it and we will maintain it. But the way we get there, the questions we are asking, the data points we are collecting – thousands of them – is too much. It is often redundant and often overlapping. So, it is our task to reduce this bureaucratic burden without changing the correct content of the law that we all want.”

Since then, we have seen the publication of A Competitiveness Compass for the EU on January 29, 2025 and the Commission work programme 2025 on February 11. Naturally, these publications, closed-door meetings and continuous speculation has created uncertainty and questions in the market.

A competitiveness compass for the EU (the Compass)

The Compass outlined key aspects of importance in relation to one of the horizontal enablers which is “Simplification”.

These key aspects are:

• An unprecedented simplification effort to reduce the reporting burden with 25% overall and 35% for small and medium-sized enterprises (SMEs) is key area of focus. It is notable that this focus does not only extend to the reporting burden itself but also to the cost of the administrative burdens.
• The first omnibus package in a series of simplification omnibus packages, is noted in the field of sustainable finance reporting, sustainability due diligence and taxonomy. It is of particular interest to note that obligations proportionate to the scale of activities of companies and the unintended trickle-down effect to smaller companies and the supply chain will be addressed. We note a proposal for a new definition of small mid-caps is introduced and that for smaller market players a simplification of the Carbon Border Adjustment mechanism is being prepared.

Actions to take while uncertainty remains

While this simplification may be welcomed by some quarters, those companies due to report under CSRD in the second wave, (Year 2 reporters), now face uncertainty in how to prepare for a disclosure that may change from the current version. Here we look at some of the elements of the CSRD and the related ‘no regrets’ actions business can take now.

Companies in scope

As part of the Competitiveness Compass, a new definition of small mid-caps is being developed by the European Commission with the intention that these companies “will benefit from tailored regulatory simplification in the same spirit as SMEs”. The Commission work programme 2025, indicated that this topic will be introduced through the third Omnibus package, expected in quarter 2 of 2025.

Double materiality assessment (DMA)

The DMA is one of the core concepts of ESRS, designed to identify the material risks and opportunities a business is exposed to, as well as the material impacts an entity has on people and the planet. The exercise involves documenting a company’s value chain, considering insights from stakeholders both internal and external to the business, and integrating existing documentation like risk registers and strategic plans.

While the outputs of a DMA are similar at a sector level, they are as unique as each business, reflecting their ethos, goals and geographical footprint. In our experience, the DMA has provided clients with new insights into their business, facilitating engagements across departments and in some cases producing an holistic view of a business for the first time. It seems unlikely that this fundamental element of CSRD will be removed completely, but regardless the DMA itself and its outputs are valuable in their own right and can be considered a strategic tool.

Disclosure requirements

The European Sustainability Reporting Standards (ESRS) contain two main types of disclosures standards; ESRS 2 General Requirements, mandatory for all entities in scope, and the Topical Standards, whose applicability is determined by the outputs of the DMA.

An exercise to streamline and remove this repetition would facilitate easier disclosure drafting, and more concise sustainability statements for the reader. It would also align with the target set out in the Competitiveness Compass of cutting by at least 25% the administrative burden for firms and by at least 35% for SMEs.

Data collection

Data collection and data quality are key aspects to consider for sustainability reporting. It is important to remember that the term ‘datapoints’ as used in the ESRS includes both quantitative and qualitative data.

While companies may face uncertainty about which data points they may need to collect, some data is likely to be core and serve purposes beyond regulatory disclosures. GHG Emissions data represents perhaps the most onerous data collection in relation to CSRD but given demands from customers, financial institutions and as part of internal goal setting, gathering information about scope 1, 2 and 3 emissions data is not likely to be a wasted exercise.

No regret actions

As it stands, there has been no change to the CSRD, or it’s transposition into Irish law. Complying with the current legislation takes consideration, time, resources and planning. We would encourage companies not to delay the process in the hope that there will be significant legislative changes made in the immediate term.

1. Conduct a DMA – this is core to the ESRS and provides valuable strategic insights.
2. Understand your data – Beyond any requirements, data relevant to the organisation, in specific GHG data, is becoming necessary for business-as-usual operations
3. Keep a watching brief – Monitor developments in relation to sustainable finance reporting, the Omnibus packages and build flexibility into your preparations.

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