CSRD: sustainability reporting ultimately watered down at EU level

The game is over. At least at EU level. On 16 December, a majority of MEPs (mainly from the EPP (right) and ECR (far right) groups) adopted at first reading the compromise reached the previous week in trilogue with representatives of the Member States and the European Commission. This text will be published in the Official Journal of the EU in the coming days and then transposed by the Member States.

The scope of the sustainability report

A single wave within the EU from 2028

Only companies with a net turnover exceeding EUR 450,000,000 and employing an average of more than 1,000 employees during the financial year, at group level (on a consolidated basis) where applicable, will be required to produce a sustainability report from 2028 onwards (report on the 2027 financial year).

Case of holding companies

An exception is provided for financial holding companies, which will have the option of not producing a consolidated sustainability report. This option will only apply when the parent company meets the definition of a financial holding company that is not directly or indirectly involved in the management of its subsidiaries (without prejudice to its rights as a shareholder).

Towards lower thresholds after 2031?

However, European law provides for a review clause. By 30 April 2031, the European Commission must present a report on lowering the thresholds currently in place, to consider best practices and the actual level of preparedness of companies to provide sustainability information. In this context, the Commission could examine the need to establish a simplified reporting regime.

Sustainability report incorporating a third-country parent company

The (limited) information concerning third-country companies must still be included in the sustainability report from 2029 onwards (for the 2028 financial year). However, the thresholds have been revised. The information concerning third-country parent companies to be included in the scope of the consolidated report concerns those:

• those with a turnover exceeding €450 million (net) within the EU;

• and have a subsidiary or branch within the EU with a turnover exceeding €200 million (net).

An exception has also been introduced for parent companies in third countries that are financial holding companies. They may not be required to produce a consolidated sustainability report.

What about companies in wave 1?

Companies that are currently required to produce a sustainability report (listed companies with more than 500 employees and a turnover (net) of more than €50 million and/or a balance sheet total of more than €25 million) and that will exceed the thresholds set out above must continue their reporting work in 2026 and 2027. By the end of June 2026, they will benefit from simplified European sustainability reporting standards (or ESRS "set 2") adopted via a delegated act. These standards will have to be complied with for the preparation of reports for 2028 (covering the 2027 financial year) and subsequent years. Companies will be able to choose to comply with them on a voluntary basis for their 2027 reports. The European Commission is also expected to present sector-specific guidelines to illustrate and facilitate the application of ESRS in each sector.

Member States will be able to exempt companies that are currently required to produce a report but will no longer be required to do so in 2028 (listed companies with fewer than 1,000 employees and less than €450 million in net turnover) from publishing such a sustainability statement from 2026 onwards.

What information is likely to be requested from its value chain?

The principle of "value chain cap"

The "value chain cap" principle limits the amount of information that a company subject to sustainability reporting can collect from so-called "protected" companies. The former cannot request more information than that identified in the future standard established for voluntary reporting, except:

• if this information is exchanged voluntarily because it is commonly shared within a sector of activity, for example,

• or if the request for information is made on a legal basis (to ensure due diligence).

Any contractual provision contrary to this principle shall be considered null and void.

Rights of protected companies

Protected companies therefore have the right to refuse to provide information beyond that set out in the voluntary standard in response to a request from a client. They may self-declare themselves as "protected companies". They will benefit from the future voluntary reporting standard, which will be adopted via a delegated act of the European Commission no later than four months after the entry into force of the text adopted on Tuesday.

What is a protected company?

A protected company is one that:

• is part of the value chain of a company subject to sustainability reporting,

• and has fewer than 1,000 employees.

Consequences in terms of sustainability reporting audits

The omnibus package does not introduce any substantial changes regarding the certification of sustainability reports by an OTI or auditor. However, they will have to ensure compliance with the "value chain cap" principle when certifying the information published by a company. Standards on limited assurance of sustainability information will have to be adopted by the European Commission via a delegated act by 1 July 2027 at the latest. Standards on a reasonable level of assurance are no longer planned.

Upcoming information portal

The Commission will set up a dedicated portal enabling companies to access information, guidelines and templates relating to the mandatory and voluntary framework for sustainability reporting. This is a new feature introduced by the omnibus package.