Sustainability / ESG

Ready for a new era in sustainability reporting? Sustainability data and disclosures are becoming increasingly important for investors and stakeholders, since they would like to understand how a company generates value for itself and for society.

The Corporate Sustainability Reporting Directive (CSRD) entered into force on 5 January 2023, expected to increase transparency and reliability in non-financial reporting and to end the two-tier system between financial and non-financial reporting. The directive obligates companies to report on their Environment, Social and Governance (ESG) aspects based on the ESRS (European Sustainability Reporting Standards), ensuring comparability and consistency in non-financial reporting.

Next to targets and key figures, companies are required to disclose information on their sustainability governance, how sustainability effects, risks and opportunities affect the companies and which guidelines and action plans to counter these aspects are available. Moreover, this information is to be audited by external third parties.

The CSRD, as amended, applies to companies subject to NFRD as of 2024, other large companies as of 2025 and capital market-oriented small and medium-sized companies (SMEs) as of 2026.  

• Final standards on sustainability reporting

• CSRD adopted by EU parliament

Omnibus update: the Omnibus amendment entails significant amendments to the CSRD – if it enters into force as stipulated in the draft legislation. The scope is limited to companies employing a minimum of 1,000 employees and reporting yearly revenues of EUR 50 million or a balance sheet total of EUR 25 million.

Additionally, the application date for the second wave (large corporations) is postponed by 2 years to 2027, granting them a longer preparation period. The previous third wave (listed SMEs and certain financial institutions) is not in scope of CSRD anymore.  

Moreover, the European Sustainability Reporting Standards (ESRS) will be amended six months after the Omnibus amendment entered into force, in order to reduce the number of data points required to be disclosed and simplify the materiality assessment. The originally planned sector-specific standards will not be introduced. Moreover, voluntary reporting standards will be developed for companies, which in future are not subject to CSRD anymore.

These amendments aim at specifying the scope of CSRD and simplifying reporting requirements to relieve small companies.

The EU Taxonomy Regulation is a classification system for sustainable economic activities accompanied by disclosure requirements. The regulation aims at directing investments towards sustainability by promoting cross-sector transparency and comparability, thus supporting the transition to a carbon dioxide-reduced and resource-saving economy. 

The regulation classifies economic activities into “taxonomy-eligible” and “taxonomy-aligned” activities. Taxonomy-eligible refers to economic activities included in the EU Taxonomy’s criteria catalogue regarding the six EU environmental objectives. Taxonomy-aligned refers to economic activities making a significant contribution to at least one of the environmental objectives based on fixed technical criteria without doing any significant harm to any of the other objectives.

In doing so, the taxonomy provides for clear and uniform criteria for the definition of sustainable economic activities. The taxonomy entered into force on 1 July 2020 and applies to financial market participants, all companies subject to the non-financial reporting requirement, as well as to EU member states and the EU itself.

Omnibus update: If the Omnibus amendment is adopted, the scope of application of the EU taxonomy will shrink: Companies employing over 1,000 employees and reporting EUR 450 million in revenues are required to provide disclosures pursuant to the EU taxonomy, but simplifications will be introduced for companies reporting revenues below EUR 450 million. Additionally, there will be the opportunity to report voluntarily on “limited” taxonomy-alignment, allowing companies to report on activities only partly meeting the criteria. The reporting templates for industry companies, banks and insurance companies as well as the technical screening criteria and DNSH (Do No Significant Harm) criteria will be comprehensively assessed and simplified. 

The EU has introduced the Corporate Sustainability Due Diligence Directive (CSDDD) to extend the companies’ due diligence obligations to the total value chain and combat social ills such as child labour and environmental pollution. Companies are obligated to prevent human rights violations and environmental damages as well as to contribute to the 1.5 degree goal of the Paris Agreement.

The due diligence requirements include corporate policy and risk management, analysis of human rights risks, prevention and mitigation measures, complaint opportunities, stakeholder integration, monitoring and reporting.

The Omnibus amendment will introduce simplifications of the CSDDD as well. For example, the due diligence obligations will apply only for direct suppliers including further simplifications regarding information from suppliers with less than 500 employees. Furthermore, the due diligence is to be carried out only every 5 years instead of every year. Originally, the directive had to be transposed into national law by 26 July 2026, however, the Omnibus amendment will postpone the application date until 2028. Moreover, there will be relives regarding the creation of a transformation plan and harmonisation with the CSRD requirements. In case of non-compliance, companies will be imposed severe penalties, however, Omnibus provides for relives regarding civil liability.

More on CSDDD 

The EU’s Carbon Border Adjustment Mechanism (CBAM) imposes a carbon price on imported goods with high emission values, in order to prevent carbon transfer and ensure fair competition. This applies to goods such as cement, steel, aluminium, fertilisers, electricity and hydrogen and complements the EU emissions trading system.

The directive to introduce a carbon border adjustment mechanism is a core component of the Green Deal aiming at rendering the EU climate-neutral by 2050. It obligates companies to do business sustainably and to adapt to a changing regulatory and economic landscape.

CBAM entered into force in 2023, the first report was due at the beginning of 2024. Cost allocation of greenhouse gas emissions will start in 2026 and is gradually introduced until 2034. Since mechanisms such as CBAM will be increasingly widespread, companies will have to be innovative and flexible. By adhering to these rules, companies are not only complying with international sustainability standards, but they will be competitive in a low-carbon economy. 

Omnibus update: According to the Omnibus amendment draft, small importers will not be subject to CBAM. The limit will be set at 50 tonnes of imported goods per importer. The current regulations will be simplified and workarounds addressed by targeted rules.

The EU Deforestation Regulation obligates companies to reduce their global deforestation and account for the forestation status of cultivated land in their value chain to be allowed to sell certain commodities and products (coffee, cocoa, cattle, palm oil, soy, rubber and wood and products made therefrom) in the EU.

These obligations include collecting information, risk assessment and risk mitigation measures. Moreover, companies are obligated to submit a due diligence statement prior to placing these products on the market.

Transparency and data availability are decisive to reach compliance and identify risks in the supply chain. In case of non-compliance, penalties such as fines or prohibition from placing these goods on the market are imposed. The regulation enters into force for non-SME operators and traders as of 2025, the term for SME operators is extended until 30 June 2025.

The Omnibus amendment does not apply to the EUDR.

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