Simplifying EU Sustainability Reporting: Reducing Administrative Burdens
The EU Commission aims to reduce administrative burdens, simplify sustainability reporting, and make it easier for companies to access sustainable finance. As such, the EU Commission has pledged a 25% reduction in administrative burdens for all businesses and a 35% reduction for small and medium-sized enterprises (SMEs) by the end of its mandate in 2029.
Impact on CSRD
The Corporate Sustainability Reporting Directive (CSRD) was adopted in May 2024, requiring companies to report on their environmental, social, and sustainability-related impacts. Initially, the directive applied to large public-interest companies with over 500 employees, with the first reports due in 2025. The scope was set to expand to companies with more than 250 employees or €50 million in revenue in 2026, and listed SMEs in 2027.
Under the new proposal, only companies with more than 1,000 employees and either revenue greater than €50 million or a balance sheet above €25 million will be included in the scope of the CSRD. This change would exempt an estimated 80% of smaller companies from the sustainability reporting requirements, effectively pausing the requirements for companies that were set to start reporting in 2026 or 2027.
Impact on EU Taxonomy
The European Commission has also proposed changes to the EU Taxonomy, a system that classifies economic activities as sustainable or not. Under the new proposal, only large companies with revenues over €450 million will be required to use the Taxonomy, while smaller companies can choose to do so voluntarily if they want to access sustainable finance. The Commission is also placing more emphasis on "transition finance," which allows companies to report on how they are working towards sustainability, even if they are not yet fully aligned.
The Commission is also simplifying the Taxonomy by reducing the number of data points required by nearly 70%. This will make it easier for companies to report on their sustainability efforts. Additionally, the Commission is exempting companies from assessing the sustainability of certain activities that are not financially significant to their business. The EU Taxonomy was established to help direct investment towards sustainable activities and support the transition to a more environmentally friendly economy. It focuses on six key environmental objectives, including reducing climate change, protecting water and marine resources, and preserving biodiversity.
