Update on sustainability reporting in Europe

Since CSRD initially came into force in the European Union (EU) on 1 January 2023, there have been increasing demands to streamline the requirements and reduce the reporting burden associated with sustainability reporting.

The Omnibus package was launched in February 2025 to meet this demand for simplification, resulting in significant changes to sustainability reporting in Europe. These changes include both the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), as well as the European Sustainability Reporting Standards (ESRS) and EU taxonomy. This alert summarises the status in Europe and the implications for 2026 sustainability reporting.

Changes to the scope of CSRD and CSDDD

In December 2025, the European Parliament and European Council reached a provisional agreement to simplify corporate sustainability reporting and due diligence requirements. The agreement includes changes to the CSRD and CSDDD. The key changes include:

CSRD

• Reduction in scope – new thresholds of greater than 1,000 FTE employees and net turnover of €450 million for EU entities to be in scope for CSRD. This will greatly reduce the number of entities required to report. A threshold of over €450 million in net turnover generated in the EU is also proposed for non-EU entities to be included in the CSRD scope, with no employee threshold.
• Limiting information request – the information that large entities will be able to request from smaller entities within their value chain, who are not in the scope of CSRD, will be limited to information required by voluntary standards.
• Exemptions – the proposal includes an exemption for financial holding entities, and a transition exemption for Wave 1 entities that fall out of the updated scope for 2025 and 2026.
• Future review – the proposal includes a review clause allowing for possible extension of the scope of CSRD in the future.

CSDDD

• Reduction in scope – new thresholds of 5,000 employees and over €1.5 billion in revenue will greatly reduce the number of entities in scope for CSDDD
• Risk-based approach – entities will only be required to ask for necessary information where there is a reasonable expectation of an adverse impact to their business
• No EU-wide liability – consequences of breaches of requirements will be dealt with under national laws. Penalties will also be capped at 3% of net worldwide turnover
• Delay – the deadline for transposition of the CSDDD will be delayed to 26 July 2028 with compliance required by July 2029.

For more details of the changes please refer to our Sustainability Alert 2025-20.

The final text of this updated legislation is expected to be published in the Official Journal of the EU by the end of March 2026, with the next step then being transposition into national law by EU member states.

Updates to ESRS

In December 2025, the European Financial Reporting Advisory Group (EFRAG) submitted its technical advice to the European Commission on the proposed simplification of the ESRS.

The amendments proposed by EFRAG are wide ranging and cover all current ESRS. Some of the key topics that were focused on were:

• Simplification of the double materiality assessment (DMA)
• Improving readability/conciseness of the sustainability statements, and better integration within corporate reporting as a whole
• Addressing overlap between mandatory datapoints in the topical standards and minimum disclosure requirements for policies, actions and targets in ESRS 2 ‘General Disclosures’
• Improving the understandability and clarity of the Standards
• Introducing burden-reduction reliefs
• Further enhancing interoperability

For more details, refer to our Sustainability Alert 2025-19.

At the end of December, EFRAG also published the updated Basis for Conclusions to accompany the revised ESRS. There is currently not a set timeline for finalising the new Standards, but we are expecting the final versions of the revised Standards to be published by the European Commission mid-2026.

Revised EU Taxonomy Delegated Act

On 8 January 2026, the revised Delegated Act (DA), which was adopted in July 2025 to amend the requirements of the EU Taxonomy, was published in the Official Journal of the EU and therefore officially came into effect.

The key changes include:

• A new materiality principle – activities that cumulatively make up less than 10% of turnover, CapEx or OpEx can be excluded from the KPI calculations as not financial material. The entire OpEx KPI can also now be excluded from reporting when OpEx is not material to an entities business model.
• Simplifications for financial firms – Financial entities can now exclude exposures to entities who are not required to report under the Taxonomy, reporting of certain KPIs can be delayed until 2028, and reporting of detailed templates can be delayed until the end of 2027 if the entity does not make any claims of Taxonomy alignment in their activities.
• Simplified templates and fewer datapoints – a new summary template for the KPIs of non-financial entities, removal of the specific templates for nuclear and gas activities, and a general reduction in the number of datapoints required to be reported for all entities.
• Simplification of the Do No Significant Harm (DNSH) criteria – focus is now on substances listed as very high concern for authorisation by the European Chemicals Agency.

For more details, refer to our Sustainability Alert 2025-12, and the full text of the new DA.

Now that the DA has been published in the official journal it is available for reporting entities to apply immediately, for all retrospective reporting covering 2025 financial years. Although, the DA does give entities the option to still apply the existing requirements for the 2025 financial year, and defer using the new requirements until reporting the financial year ended 2026.

Alongside the revised DA, the European Commission has also released a new set of FAQs responding to a number of questions of application and transition to the revised requirements. These are still in draft but provide useful insight into how the European Commission intends entities to interpret the requirements.

Timeline looking forward

The combination of new legislation, amended delegated acts and reporting standards, along with the ‘stop-the-clock’ legislation that was passed earlier in 2025 means that the landscape for reporting on the 2025 financial year has changed significantly.

The phase-in approach for EU sustainability reporting was initially split into 3 waves: 

• Wave 1 – large public interest entities (PIEs)
• Wave 2 – large private entities, and
• Wave 3 – listed small and medium entities (SMEs).

Wave 1 entities are already reporting under CSRD, including ESRS sustainability reports and EU Taxonomy. Wave 2 was originally planned to begin reporting in 2026 for the 2025 financial year. However, with the introduction of ‘stop the clock’, Wave 2 reporting has been delayed by two years. The entities that would have initially met the Wave 3 criteria will no longer be in scope of the new thresholds.

Who will be reporting in 2026 (Financial year ended 2025)

Wave 1 entities are still required to report in 2026. Although the revised thresholds for CSRD reporting are expected to result in fewer entities being in scope, these thresholds are not legally applicable until they are published in the Official Journal of the EU, and then transposed into national law by EU member states. So, depending on when entities are planning to report, the new thresholds may or may not apply. Enforcement of the original requirements and scoping will be up to national regulators until the revised thresholds are published in the official journal in 2026.

What is required to be reported?

Original ESRS – until the revised ESRS are officially adopted, the Standards as currently written are still applicable.

EU Taxonomy – reporting entities are now able to use the new templates and apply the materiality threshold if they choose. However, they also have the option to report using the original templates, to give more time to prepare to report under the new requirements for their financial year ending in 2026.

Supporting alerts

We have published several alerts related to the Omnibus package in 2025. For more information, click here: 

• Sustainability Alert 2025-20: Agreement to simplify sustainability reporting and due diligence requirements
• Sustainability Alert 2025-19: EFRAG provides its technical advice on the simplified ESRS to the Commission
• Sustainability Alert 2025-18: Further updates on EU Parliament negotiations regarding reduced sustainability reporting and diligence requirements
• Sustainability Alert 2025-17: EU Parliament continues negotiations on reduced sustainability reporting requirements
• Sustainability Alert 2025-15: EFRAG releases revised ESRS Exposure Drafts
• Sustainability Alert 2025-14: European Commission adopts ‘quick fix’ amendments to ESRS for Wave 1 entities
• Sustainability Alert 2025-12: The European Commission adopts a new Delegated Act to Simplify EU Taxonomy reporting requirements
• Sustainability Alert 2025-08: Omnibus package stop-the-clock proposal adopted by European Parliament
• Sustainability Alert 2025-05: The Omnibus package – European Commission releases significant proposals to simplify EU.

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