Impact to US entities of EU sustainability proposals

The Corporate Sustainability Reporting Directive (CSRD), which requires in-scope entities to report on environmental, social, and governance (ESG) activities and obtain assurance over this reporting, may create reporting obligations for U.S. parent entities with operations in the EU at both a consolidated parent and EU subsidiary level. On February 26, 2025, the European Commission released two proposals that impact the CRSD. The first or “stop the clock” proposal seeks to postpone by two years all reporting requirements for undertakings due to report under the CRSD in 2026 and 2027 (that is, wave 2 and wave 3 reporting entities). The second proposal outlines detailed amendments to the CSRD and may potentially reduce the number of entities in scope for CSRD reporting by approximately 80%. 

Omnibus proposed changes

Summaries of the proposed revisions to the CSRD and other changes included within the Omnibus proposals are discussed below.

Entities subject to CSRD reporting requirements and implementation timelines

The proposed changes would update reporting requirements to apply to those EU undertakings or groups with more than 1,000 employees on average during the financial year and either net turnover in excess of €50 million or a balance-sheet total in excess of €25 million.

Non-EU parent undertakings with a net turnover exceeding €450 million derived from operations in the EU for the last two consecutive financial years and with either at least one EU subsidiary with more than 1,000 employees (including holding companies that collectively have 1,000 employees) or an EU branch with net turnover of at least €50 million would also be within the scope of the CSRD under the proposed changes.

In addition, the proposed changes would postpone reporting timelines for many entities by two years, as shown in the following table.

Value chain

The CSRD and the proposed changes maintain reporting requirements for entities to include activities in their upstream and downstream value chains. However, the proposed changes include a limit to information that can be requested from entities that do not meet reporting criteria. This limit is expected to be based on the Voluntary reporting standards for SMEs (VSME) prepared by EFRAG and is expected to substantially reduce the trickle-down effect on entities without a CSRD reporting requirement.

European sustainability reporting standards

The CSRD required the development of European Sustainability Reporting Standards (ESRS) by EFRAG (refer to the Appendix for additional information on ESRS). The proposed Omnibus changes include revisions of existing ESRS that aim to reduce the number of data points, clarify unclear provisions, focus on quantitative data points, and improve consistency with other sustainability regulations, such as the Corporate Sustainability Due Diligence Directive (CSDDD).

The Omnibus proposals would maintain the requirement for reporting entities to perform a double materiality assessment over their sustainability reporting.

Sector-specific standards

The proposed changes clarify that no sector-specific sustainability standards would be introduced.

Assurance requirement

The CSRD currently contains a requirement for entities with CSRD reporting requirements to obtain independent assurance over their reporting. This requirement begins with limited assurance in initial reporting periods and contemplates a potential update to reasonable assurance in future reporting periods.

Under the proposed changes, reporting entities would be required to obtain limited assurance only, with no requirement to move to reasonable assurance in future reporting periods.

In addition, the proposed changes would remove an obligation for the European Commission to adopt standards for sustainability assurance by 2026. Instead, the Omnibus proposals indicate that the European Commission would issue targeted assurance guidelines by 2026.

EU Taxonomy regulation

The CSRD currently contains requirements for reporting key performance indicators that are aligned with the EU Taxonomy, which is a classification system that assists in the identification of environmentally sustainable economic activities.

The EU Taxonomy reporting obligation would remain applicable for entities exceeding the thresholds noted above.

The proposed changes introduce an “opt-in” regime for the EU Taxonomy reporting obligation for undertakings or parent undertakings with less than 1,000 employees and a net turnover not exceeding €450 million. The “opt-in” requirement is triggered by entities meeting these thresholds who claim that their activities are aligned or partially aligned with the EU Taxonomy. These entities would be required to disclose their turnover and capital expenditure key performance indicators (CapEx KPIs) and may optionally disclose their operating expense key performance indicators (OpEx KPIs).

Additionally, the proposed changes would allow for more flexibility by allowing qualifying undertakings to report on activities that meet some, but not all, Taxonomy technical screening criteria. This reporting on partial alignment would allow for a gradual transition of activities over time.

Next steps

The Omnibus proposals will now progress to the European Parliament and the EU Council for review of potential changes. The final directives must then be incorporated into legislation at each EU member state level.

While the timelines for the changes included in the Omnibus proposals are uncertain, it is expected that the “stop the clock” proposal will be approved with urgency at the member state level, which will then provide additional time for debating the remaining detailed changes in the second proposal before final approval. 

Appendix: Existing ESRS requirements and accommodations

The CSRD, as currently approved, has resulted in the development of European Sustainability Reporting Standards (ESRS) by EFRAG, which were finalized and adopted by the European Commission as of July 2023. The ESRS aim to utilize leading existing international sustainability frameworks, such as those developed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI), but they significantly expand the scope of reported ESG information. This appendix provides important context for consideration in conjunction with the proposed changes included in the Omnibus proposals.

General disclosure requirements

Entities required to follow the ESRS are subject to ESRS 1, General requirements, and ESRS 2, General disclosures. These “cross-cutting” standards apply to all in-scope entities and include such topics as policies and targets, governance in relation to sustainability, and an entity’s assessment of material sustainability impacts, risks, and opportunities.

The ESRS also include 10 topical standards related to an entity’s ESG impact that will apply based on an entity’s consideration of double materiality. Under this double materiality concept, entities are required to consider the following factors:

• Impacts of the entity’s activities on the environment and society; and
• How sustainability matters impact the entity’s business

Entities are also required to consider each materiality perspective individually, disclosing information material to both materiality perspectives and information that may be material from only one of the materiality perspectives.