A shift in mandatory reporting requirements for CSRD and CSDDD
The European Parliament and Council reached an informal agreement this week that dramatically reshapes CSRD requirements. Under this agreement, sustainability reporting will now only apply to EU companies with over 1,000 employees AND net annual turnover exceeding €450 million. The EU net turnover threshold for non-EU companies will be €450 million. Previous thresholds were significantly lower.
As next steps, the Parliament’s Legal Affairs Committee votes on the proposal on December 11, with full Parliament voting later in December. These changes represent a massive retreat from the original CSRD ambition, potentially cutting the number of affected companies by more than half. Companies currently preparing for CSRD should reassess whether they still fall within scope under the new thresholds.
As part of the same provisional agreement, due diligence obligations as part of the Corporate Sustainability Due Diligence Directive (CSDDD) will now be restricted to only the largest corporations — those with over 5,000 employees and €1.5 billion in annual revenue.
A draft simplified ESRS with 61% fewer data points
Last week, the European Financial Reporting Advisory Group (EFRAG), the organization mandated by the European Commission to draft the European Sustainability Reporting Standards (ESRS), released the latest draft of the standards. They are dramatically simpler than the previous version. The much-streamlined requirements also cut the reporting burden by: simplifying the materiality assessment, deleting all voluntary disclosures, and removing 61% of the data points originally required for material issues. While this slimming down was expected due to the earlier Omnibus announcements in early 2025, the new draft is a welcome relief for reporting teams ahead of the new season, though some professionals worry that watering down hard-won sustainability disclosures is an overcorrection.
Adding to doubts about the impacts of the changes, the European Ombudsman recently determined “maladministration” in the European Commission’s streamlined process for adopting the Omnibus package of proposals in February 2025. That is, the process that initiated the simplified standards was rushed and could have included more transparency.
Concerns aside, the goal of the simplification was to strip away any requirements that don’t carry their weight as decision-useful information for investors. A lighter burden of reporting should leave more capacity for the essential work of creating positive impacts.
While the draft standards make their way through the bureaucratic process in 2026, Wave 1 reporters as well as eventual Wave 2 and 3 reporters and any company looking to align their disclosures with ESRS should use the draft simplified standards.
Let’s take a deeper look at the differences between the draft original and draft simplified ESRS:
|
Feature/Area |
Original ESRS draft |
Simplified ESRS draft |
So what? |
|
Data points required |
High volume (e.g., 1,073 mandatory, plus voluntary items). |
61% reduction in mandatory data points (if material); all voluntary disclosures eliminated. |
Significant reduction in reporting effort. Focus shifts to collecting and verifying high-value, material data. |
|
Core reporting filter |
Strict application of standards to ensure compliance across all mandates. |
New filter emphasizes 'Usefulness of Information' and 'Fair Presentation.' |
Moves away from exhaustive box-checking; only report what genuinely matters to stakeholders and business strategy. |
|
Materiality assessment |
Highly process-oriented, checklist approach requiring extensive documentation for every IRO (impacts, risks, opportunities). |
Simplified process with clearer guidance, reduced documentation, and top-down strategic focus. |
Saves substantial time in the assessment phase; focuses resources on strategic insights rather than administrative proof points. |
|
Value chain data |
Strong preference for direct data collection from value chain partners. |
Preference for direct data eliminated. Companies can rely more broadly on estimates and secondary data (e.g., industry averages). |
Reduces data collection pressure on the supply chain, particularly in the first years of reporting. |
|
Narrative disclosure |
More granular and prescriptive, especially for Policies, Actions, and Targets (PATs). |
More principles-based and flexible on how PATs are presented, focusing on the management approach. |
Allows for clearer, more coherent storytelling that integrates with corporate communications. |
|
Interoperability (ISSB) |
Alignment present but required companies to add specific ESRS data. |
Enhanced alignment with ISSB Standards (IFRS S1/S2) via common disclosures and adjustments (e.g., GHG boundary, anticipated financial effects). |
Reduces duplication of effort for companies reporting under both EU and international regimes. |
|
Reliefs and phasing-in |
Targeted reliefs (e.g., three years for specific disclosures for Wave 1 reporters). |
Substantial reliefs and proportionality mechanisms extended (e.g., extending the 'undue cost or effort' principle to more metrics). |
Provides greater flexibility and realism for companies in the initial years of CSRD compliance. |
Need help getting started? At thinkPARALLAX, we’ll partner with you to transform this regulatory pivot into a catalyst for long-term growth and resilience. Reach out to discuss how we can support your regulatory readiness.
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