CSRD and CSDDD Implementation Pushed Back Under ‘Stop-the-Clock’ Directive

In a significant move aimed at reducing the regulatory burden on businesses, the European Council has approved the European Commission’s ‘stop-the-clock’ directive, delaying key sustainability reporting and due diligence regulations under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

This decision marks the first major step in the Omnibus I package, a set of regulatory adjustments proposed in February to simplify compliance, particularly for small and medium-sized enterprises (SMEs). The package also includes modifications to the Taxonomy Regulation and the Carbon Border Adjustment Mechanism (CBAM), part of broader efforts to streamline Europe’s corporate sustainability obligations.

Key Regulatory Delays and Adjustments

The approved directive delays the CSRD application by two years for companies that have not yet started reporting and postpones the CSDDD’s transposition and application by one year. The Commission had urged a fast-tracked approval process to provide companies with regulatory certainty, preventing a situation where firms begin reporting only to be later exempted.

Adam Szłapka, Poland’s Minister for the European Union, emphasized that reducing administrative burdens is a top priority:

“Simplification is one of the priorities of the Polish presidency. Today’s agreement is a first step on our decisive path to cut red tape and make the EU more competitive.”

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Impact on Businesses and Key Changes to Sustainability Regulations

As part of the EU’s broader effort to boost economic competitiveness, the Omnibus package proposes significant changes to sustainability reporting rules, including:

CSRD Scope Reduction: Only companies with more than 1,000 employees and €50 million in net turnover will be required to report, removing approximately 80% of companies from compliance obligations.
Simplified Reporting Standards: The European Sustainability Reporting Standards (ESRS) will be revised to reduce the number of required data points, easing the compliance burden.
CSDDD Adjustments: Companies will only be required to conduct full due diligence at the level of direct business partners, rather than across their entire supply chains. Additionally, monitoring of due diligence effectiveness will now occur every five years instead of annually.
SME Protections: Large corporations will face new limitations on sustainability-related information requests from SMEs in their supply chains, following voluntary SME sustainability standards (VSME) developed by EFRAG.

Competitiveness vs. Sustainability: A Shift in EU Priorities?

The directive aligns with the recently released EU ‘Competitiveness Compass’, which set a goal of reducing reporting burdens by 25% for all companies and 35% for SMEs. This pro-business shift raises questions about whether the EU is softening its once-rigorous sustainability commitments in favor of economic flexibility and growth.

What’s Next?

With the ‘stop-the-clock’ directive now approved, the EU Council and Parliament will negotiate further changes to the CSRD and CSDDD under the broader Omnibus I package. Businesses can expect continued regulatory shifts as the EU seeks to balance sustainability goals with economic competitiveness.

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