Businesses must take stock as sustainability reporting changes take effect across EU

In February, the European Commission published the so-called Omnibus Simplification Package to cut red tape and simplify EU rules on corporate sustainability reporting obligations. The proposal (23 pages/ 285KB) put forward changes to the CSRD as well as the Corporate Sustainability Due Diligence Directive (CSDDD) and EU Taxonomy in response to calls from EU heads of state in November 2024 for a “clear, simple and smart regulatory framework for businesses”.

Representing a dramatic U-turn in the Commission’s policy goals – the Green Deal previously being at its heart – the first part of the package, Omnibus I, focused on Green Deal instruments regulating sustainability reporting, supply chain due diligence and carbon pricing. A second part, Omnibus II, addressed mobilising investments to boost competitiveness and unlock investment capacity in the EU, most notably by amending the InvestEU regulation.

The CSRD was written into EU law in 2022 and the first wave of CSRD-compliant reports have already begun to be published. The central aim of the proposal is to simplify reporting procedures, reduce the reporting burden and limit the trickle-down obligations of the CSRD on smaller companies. In practice, the proposal delays the implementation of the CSRD for the second and third waves of companies.

The delay will not apply to large, listed EU companies that are already in scope of the CSRD’s sustainability reporting requirements. However, following approval by the European Parliament in April, the delay will apply to other large companies that were due to publish their first reports in 2026.

The scope of the CSRD’s application will also be narrowed as part of the proposal’s overarching goal to reduce the impact on SMEs. This would involve a revised definition of “large undertaking”. Previously, to be considered a “large undertaking” two of the following three criteria needed to be satisfied: an undertaking must have 250 employees; a net turnover of €50 million; or a balance sheet total of €25 million.

However, under the proposed revision a “large undertaking” must have 1,000 employees and either a net turnover of €50 million or a balance sheet total of €25 million.

This 1,000-employee threshold will result in an estimated 75%-82% reduction in the number of companies in scope of the CSRD. The Commission estimates that the proposed changes will result in savings of over €6 billion for undertakings.

Annually the undertakings removed from the scope of CSRD will collectively save €3.2 billion, alongside the initial €1.6 billion extra they would have spent in the first year of reporting. While these savings are significant, the European Central Bank has warned they may present a long-term cost to investors and economic policy experts, who will continue to face challenges “with the availability, quality and granularity” of sustainability data.

Stop the Clock Directive

In April, the Commission’s Council of Ministers adopted the so-called Stop-the-Clock Directive, which is designed to postpone reporting obligations under the CSRD and the CS3D. The directive was adopted under a fast-track procedure, which means proposals can go directly to plenary without a committee vote. The measure, which must be transposed into all members states’ domestic laws by 31 December 2025, will delay the application of CSRD reporting requirements for the following:

Wave 2 companies: large EU undertakings with more than 250 employees

• Original start date: 1 January 2025 (covering the financial year, with reports due in 2026)
• New start date: 1 January 2027 (covering the financial year, with reports due in 2028)

  Wave 3 companies: listed SMEs

• Original start date: 1 January 2026 (covering the financial year, with reports due 2028)
• New start date: 1 January 2028 (covering the financial year, with reports due 2029)

As stated above, the directive will have no impact on the first wave of undertakings. The delay will give additional time to prepare for compliance with the European Sustainability Reporting Standards (ESRS), particularly in light of the ongoing revisions to the standards and broader efforts to reduce the complexity of the CSRD.

There will be no additional sector-specific standards, but the halting of these standards does not necessarily impact how much data will need to be reported.

While the ESRS has 1,200 data points, undertakings are only expected to report on sustainability matters with regards to how their operations impact people externally – ‘inside out’ – and how sustainability issues impact their business – ‘outside in’. As companies were only ever required to report material data points, the loss of sector-specific standards will not significantly impact the data they will report. The main changes for business will come from the changes made to streamline the ESRS by reducing the administrative burden on businesses by 25%.

‘Quick fix’ Delegated Act

On 11 July 2025, the Commission adopted the ‘Quick Fix’ Delegated Act to adjust and delay certain reporting obligations under the CSRD. The ‘quick fix’ was to ease the burden on any Wave 1 companies not captured by the Stop the Clock Directive that were already conducting corporate sustainability reporting for the 2024 financial year.

There are several elements to the Delegated Act. Firstly, it imposes a two-year deferral of certain additional reporting requirements under appendix C of ESRS 1, meaning that Wave 1 companies will now have more time before they must comply with several disclosures that were originally scheduled to apply in their second and third reporting years. These include detailed value chain data, specific financial and impact metrics, and additional disclosures on risk management processes.

There will also be a wider application of the existing phase-in provisions. Previously some phase-in measures applied only to companies with fewer than 750 employees. These will now apply to all Wave 1 companies, including the phase-in provisions for ESRS E4 – biodiversity and ecosystems; ESRS S2 – workers in the value chain; ESRS S3 – affected communities; and ESRS S4 – consumers and end users.

It also extends the safeguard provision for temporary exemptions. Where a company chooses to use a phase-in exemption for a full topical standard, it must still report brief, high-level information if the topic is material. This safeguard now applies across all Wave 1 companies, which the Commission says will promote greater consistency with other pieces of sustainability legislation.

These changes are significant since, without the Delegated Act, companies would have been required to prepare reports in 2025 and 2026 that would be later made redundant by the Commission’s ongoing ESRS review. As part of the omnibus proposal, the Commission stated that it intends to reduce the number of data points required under the ESRS, with the review expected to be completed by the 2027 financial year. Therefore, the ‘quick fix’ aligns with the Commission’s broader aim of making sustainability reporting proportionate and workable for businesses in the short term.

The Delegated Act has been sent to the European Parliament and the Council for review. They have two months to object. If neither institution objects, the act will be published in the Official Journal of the EU and will enter into force three days later. The act will apply to financial years beginning on or after 1 January 2025.

Irish transposition challenges

Ireland, like other EU member states, has been responding to these developments at the EU level. On 7 July 2025, Peter Burke, Ireland’s minister for enterprise, trade and employment, signed into law the European Union (Corporate Sustainability Reporting) Regulations 2025, which transposes the CSRD into Irish law.

Six other member states – Estonia, France, Lithuania, Hungary and Norway – have also adopted legislation implementing the Stop the Clock Directive. Another seven countries – Denmark, Finland, Latvia, Luxembourg, Poland, Slovenia and, most recently, Germany – have introduced, but not yet adopted legislation.  

In Ireland, in practical terms these new regulations amend the Companies Act 2014 and build on earlier domestic measures to transpose the CSRD into Irish law. The latest update addresses a number of issues that had created uncertainty for Irish businesses following the 2024 transposition and also implements the Stop the Clock Directive. The key updates include: CSRD reporting dates postponed in line with the directive; clarification that “ineligible entities” are not automatically large companies; new exemptions for Irish subsidiaries of EU parent companies to avail of the subsidiary exemption; and updated scope and thresholds for third-country undertakings.

One of the most important issues addressed by the 2025 regulation concerns the treatment of “ineligible entities”. Previously, certain types of entities such as insurance undertakings, listed companies and audit firms, were automatically classified as “large” regardless of their actual size. There were concerns that this created disproportionate reporting obligations on some companies in Ireland that were considered large solely on the basis that the Companies Act 2014 did not allow for them to be classified as small or medium.

Furthermore, this classification clearly went against the spirit of the provisions set out in the CSRD which uses number of employees, turnover and balance sheet total as a metric of determining what constitute a large company.

Critically, the amendment makes clear that an affected company cannot be deemed large solely because it is, or is part of, an ineligible entity. This change will be welcome news for SMEs and group companies concerned about being prematurely brought into the scope of the CSRD.

A further improvement is the extension of group reporting exemptions. Under the 2024 rules, Irish subsidiaries could avail of an exemption if their parent company prepared a sustainability report under Irish law. This created duplication for groups headquartered elsewhere in the EU.

The 2025 regulation now allows Irish subsidiaries – or Irish sub-holdings – to rely on a CSRD-compliant group report prepared in another EU member state, provided it meets the requirements under the Accounting Directive articles 29 and 29a. This change therefore removes an unnecessary reporting obligation and brings alignment with the spirit of the CSRD and the Commission’s overarching aim to reduce red tape.

The regulation also refined several definitions relevant to Irish subsidiaries and branches of non-EU – third country – parent companies, including the introduction of a clear definition of unlimited parent undertaking.

The regulation also introduces a revised threshold confirming that third-country groups must exceed €150 million in EU turnover in each of the past two financial years for their subsidiaries to be in scope. There is also now a recognition that Irish branches are covered if the parent meets the reporting conditions. As a result, there is improved legal certainty that Irish branches are covered if the parent meets these conditions.

While the 2025 regulation significantly reduces ambiguity and aligns Irish company law more closely with the CSRD, several uncertainties remain that may affect compliance planning and legal interpretation.

Regarding the scope of application, unlimited companies, schedule 5 companies, and other “applicable companies” may still fall within the scope of the reporting obligations earlier than anticipated, depending on their specific circumstances and structure. Assessment will need to be made on a case-by-case basis.

The group exemption provisions do not apply universally. Subsidiaries within groups that have EU-based intermediary parent companies may still be required to report individually if those parents do not publish CSRD-aligned sustainability reports.

In third-country group structures, subsidiaries of non-EU parent companies may face reporting obligations in Ireland even where a related EU-based entity within the group is already reporting, especially in the absence of a consolidated CSDR-compliant report that includes all relevant entities.

The 2025 regulation brings Ireland’s corporate sustainability reporting framework into closer alignment with the evolving EU rules. As with other EU member states, businesses operating in Ireland – especially those that are part of a complex group structure – should review the latest changes carefully before revisiting their CSRD readiness strategies.

Pinsent Masons has a tool to help businesses check if and when they will be in scope for CSRD reporting.