Mid-market Private equity firms will benefit of the Omnibus directive that the EU executive recently released. The Corporate Sustainability Reporting Directive (CSRD) will not involve 80% of companies
The European Commission adopted an Omnibus package of proposals covering far-reaching simplification in the areas of sustainable financial reporting, sustainability due diligence, EU taxonomy, the Carbon Border Adjustment Mechanism (CBAM), and of the European Investment programmes (see here the press release).
The Corporate Sustainability Reporting Directive (CSRD) will no longer matter for 80% of the European firms. The European Commission pointed out that the new norms will not either create indirect obligations for SMEs, e.g. through the transparency obligations of the companies on top of the supply chains.
These proposals will reduce the complexity of EU requirements for all enterprises, especially for SMEs and small to mid-capitalisation companies, and focus the regulatory framework on larger firms whose impact on the climate and the environment is larger. This regulation will also enable companies to access sustainable financing for their clean transition.
By the end of this term, the European Commission aims to reduce by at least 25% administrative burdens for all the businesses and by at least 35% for SMEs. Such proposals may generate total annual administrative cost savings in the region of 6.3 billion euros and mobilise an additional public and private investment capacity of 50 billion.
Ursula von der Leyen, the chairwoman of the EU Commission, said: ‘Simplification promised, simplification delivered! We present our first major proposal. EU companies will benefit from lean rules on sustainable financial reporting, sustainability due diligence and taxonomy. This will make life easier for our companies, while ensuring that we remain firmly on track towards our decarbonisation goals. And more simplifications are on the way’.
CSRD and EU tassonomy will change as follows:
- Removing around 80% of companies from the scope of CSRD, concentrating sustainability reporting obligations on larger firms who have a larger impact on people and the environment;
- Modulating the key performance indicator for banks based on the taxonomy, the Green Asset Ratio (GAR): lenders will be able to exclude from the GAR denominator exposures related to companies that do not fall within the future scope of CSRD (e.g. companies with less than 1,000 employees and 50 million in turnover);
- Ensuring that sustainability reporting obligations for large companies do not burden smaller companies in their value chain;
- postpone by two years (until 2028) the reporting obligations for companies that currently fall under CSRD and are required to report from 2026 or 2027;
- Reduction of the reporting burden of the EU Taxonomy and limit it to the larger companies (corresponding to the scope of the Corporate Sustainability Due Diligence Directive or CSDD), while maintaining the possibility of voluntary reporting for the other big caps that fall under the future scope of CSRD; this may generate significant cost savings for smaller firms, while allowing those wishing to access sustainable finance to continue reporting;
- Introduction of the option of reporting activities partially aligned with the EU taxonomy, encouraging a gradual environmental transition of activities over time, in line with the objective of increasing transition funding to help companies on their path to sustainability;
- Introduction of a financial materiality threshold for taxonomy reporting and reduce reporting templates by approximately 70 per cent;
- Introduction of a financial materiality threshold for taxonomy reporting and reduce reporting templates by approximately 70%;
- A first step towards the revision and simplification of the most complex criteria Do no Significant harm (DNSH) for the prevention and control of pollution related to the use and presence of chemicals, which apply horizontally to all economic sectors within the EU Taxonomy.
The European Commission will now submit legislative proposals to the European Parliament and the Council for consideration and adoption. The CSRD, CSDD and CBAM amendments will enter into force once all bodies have reached agreement on the proposals and after publication in the Official Journal of the EU.
- ensure that sustainability reporting obligations for large companies do not burden smaller companies in their value chain;
- postpone by two years (until 2028) the reporting obligations for companies that currently fall under CSRD and are required to report from 2026 or 2027;
