On 8 November 2024, the European Commission announced plans to merge the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD) and EU Taxonomy, aiming to streamline environmental, social and governance (ESG) reporting and reduce bureaucracy for businesses. However, this opens the door for all three regulations to be revised, raising concerns of potential scaling back and bringing uncertainty for business as reporting deadlines approach.

Let’s recap

First, let’s look at the three regulations under scrutiny to understand how they fit together.

• EU taxonomy for sustainable activities: A classification system adopted in 2020 establishing a list of environmentally sustainable economic activities with the aim of encouraging sustainable investment by giving companies, investors and policymakers appropriate definitions about what is considered sustainable.
• Corporate Sustainability Reporting Directive (CSRD): A European directive that came into effect in 2023 requiring companies in the EU – as well as some global companies operating in the region – to ensure that sustainability and financial information have ‘comparable status’ in their annual reports.
• Corporate Sustainability Due Diligence Directive (CSDDD): A European directive adopted in 2024 requiring in-scope EU and non-EU companies to address the adverse human rights and environmental impacts in their value chain through due diligence and Paris Agreement-aligned targets.

These regulations were created as part of the European Green Deal – the comprehensive strategy to make the EU climate neutral by 2050. All three regulations aim to promote transparent, sustainable business practices and investment, encourage companies to address climate change and adverse human and environmental impacts, and align with the goals of the Paris Agreement – to reach net zero greenhouse gas emissions by 2050. However, they don’t dovetail neatly, raising questions of how the proposed consolidation will work in practice.

What is being proposed?

News of the potential merger was announced at a press conference by European Commission President Ursula von der Leyen, following a meeting with EU heads of state in Budapest. The announcement comes after the European Commission’s recent drive towards increasing competitiveness in Europe by simplifying regulatory frameworks.

Von der Leyen is proposing an ‘omnibus’ legislation to “reduce bureaucracy [and] reduce reporting burdens”. An omnibus is a legal tool that allows a series of laws to be consolidated into a single legislation. Combined, the three regulations collect thousands of data points on individual companies that the Commission President argues is “too much, often redundant, often overlapping”. However, she also stressed that “the content of the laws is good” and will be maintained by the proposed legislation. The focus of the proposal is on changing the way companies report through “the questions we are asking [and] the data points we are collecting”.

The bottom line of this announcement is that the EU suggests that the fundamental content of the laws won’t change (although some of the details might), but unnecessary overlap and inefficiencies could be alleviated by consolidating them.

What does this mean for businesses?

With the idea of new legislation on the horizon, there is concern that the omnibus could create an opportunity for all three regulations to be revised or watered down. As the deadline for in-scope companies to adopt and start reporting against CSRD and CSDDD gets closer (the first phase of reporting for CSRD will begin in 2025 and in 2027 for CSDDD), most businesses are already spending a significant amount of time and resources putting processes in place to assess their readiness, identify gaps and take steps to ensure they comply with incoming legislation. The possibility of further changes and general lack of detail on the full content and timeline of the legislation will likely increase uncertainty in the reporting landscape.

However, if the proposed legislation goes ahead and the EU is true to its word, the overall content of these three regulations should remain largely unchanged, meaning that the focus on advancing ESG reporting and progress continues. With the European Commission’s omnibus, it hopes to reduce some of the reporting burden and bureaucracy – which hopefully means more streamlined reporting processes, freeing up more time and resource to making impact. A big win for business.

Need help to prepare for upcoming ESG reporting legislation? Get in touch with us at info@flag.co.uk.