The European Parliament has voted to postpone the application dates for European Union laws on due diligence and sustainability reporting requirements.
With 531 votes for, 69 against and 17 abstentions, MEPs supported the European Commission’s so called “Omnibus” proposals designed to “simplify EU rules, boost competitiveness, and unlock additional investment capacity.”
Speaking at a recent Association of the European Self-Care Industry (AESGP) webinar, sustainability expert Onur Durmus called the proposals a “positive development” for the European consumer health industry.
“We need to recognize these economically difficult times for industry,” insisted Durmus, who is partner and EMEA service lead for sustainable operations at sustainability consultancy ERM.
“Yes, decarbonization is important. Sustainability credentials and performance of companies are important. But currently, the economic situation is more pressing.”
Nevertheless, the proposals – which still need to be supported by the European Council to come into force – should not hold companies back from sustainable business objectives, he added.
“It’s not going away,” Durmus warned. “Sustainability reporting is here to stay as is the ambition to make it on par with financial reporting. The future will show that sustainability performance will definitely have an impact on financial performance.”
CSRD Delayed
With regards to the Corporate Sustainability Reporting Directive (CSRD), large companies with more than 250 employees will be required to report on their social and environmental measures for the first time in 2028, according to the proposals, rather than 2026 as the directive currently states. Small and medium-sized enterprises have an additional year on top of this.
As well as delaying reporting, the Omnibus – which must still be endorsed by the European Council before it can come into force – also proposes to increase the threshold at which point companies are subject to CSRD from 250 EU employees to 1,000 EU employees.
“So, we will be looking at roughly 10,000 companies falling under scope of the CSRD, rather than 50,000,” Durmus explained.
For companies now falling out of the CSRD’s scope, this means reconsidering whether to already start work on CSRD-related reporting.
Either way, Durmus suggested that these companies look at the companies within their value chain. “Will they have to comply with CSRD? Will they be demanding data from you?”
CSDDD Also Delayed
Member states will also have an extra year – until 26 July 2027 – to transpose the Corporate Sustainability Due Diligence Directive (CSDDD) into national legislation.
The one-year extension will also apply to the first wave of affected businesses, namely EU companies with over 5,000 employees and net turnover higher than €1.5bn, and non-EU companies with a turnover above this threshold in the EU. These companies will only have to apply the rules from 2028.
The date of application will be the same for the second wave of companies: those in the EU with over 3,000 employees and net turnover higher than €900m, and non-EU companies with turnover above that threshold in the EU.
Less Frequent Reporting
Perhaps more significant is the proposal to reduce the frequency of CSDDD reporting, Durmus suggested. Under new proposals, affected companies will only have to report every five years, instead of annually.
“This means a huge reduction in burden,” Durmus said. Running annual supply chain audits is a “costly, burdensome process,” he continued, but only doing it once every five years immediately reduces costs by 80%.
The Omnibus package also promises to narrow the scope of supply chains. “The new definition proposes to apply CSDDD to all operations, subsidiaries and direct suppliers, but not suppliers of your suppliers and their suppliers,” Durmus explained.
“This was creating difficulties for companies, because supply chains tend to be quite long,” he added. “This is a positive way to reduce the burden of the CSDDD.”
Good For Business
Irrespective of whether the Omnibus is implemented, Durmus suggested that companies start work on compliance. “Where can you make improvements? Where can you take action that can improve your company’s business performance?”
“I think many companies still see these rules as just box-ticking exercises. It’s not like that. Companies that start work on compliance will benefit in the long run.”
The EU reporting framework is “state of the art,” he pointed out, and reporting-related processes like running a “double materiality assessment” will show companies the different impacts and opportunities within their value chains.
“It will help companies set a clear direction and will spark new business ideas. It may encourage companies to improve or start up new business or services, as well as maybe divest of some of those that are unsustainable. So, it’s key to look at it from that perspective.”
