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Requirements concerning disclosing “sustainability information” in corporate reporting, so-called ESG, have affected two “groups of interest”, besides the business itself: a) active investors (e.g. asset and insurance managers), and b) civil society’s actors, wishing to hold businesses accountable for their impacts on environment, climate and sustainability. However, the process of “optimizing ESG” is constantly evolving trying to cope with modern challenges and social requirements.
Background
Although in existence for about two decades, the environmental, social and governance concepts, i.e. the so-called ESG, have gained importance only recently in national-regional political economy, governance and corporate spheres.
The ESG vitality has been also instigated by the lack of sufficient progress in the UN Agenda-2030, with its SDG implementation process; hence, the ESG-triangle has been following most urgent global challenges (such as sustainability, climate mitigation, digitalisation, etc.); hence, the ESG concept goes beyond “purely” environmental connotation and stresses social, regulatory and corporate management issues.
The so-called voluntary ESG standard for SMEs (so-called VSME, actively discussed presently) was developed by EFRAG, the Commission’s technical advisory body, for an “instrument” covering all entities- both corporate and institutional- through the sustainability reporting. The Commission’s aim is encouraging large companies and financial institutions that seek sustainability information from SMEs to base their requests on a voluntary standard, as far as possible. The SMEs may also wish to voluntarily report sustainability’s effective information to improve their access to sustainable finance and better “socially monitoring” their own sustainability performance, thereby improving their resilience, competitiveness and social status.
Reference to: https://finance.ec.europa.eu/publications/commission-presents-voluntary-sustainability-reporting-standard-ease-burden-smes_en
The VSME’s issues are so huge and complicated that a special Commission’s service is “coordinating” them through the Directorate-General for Financial Stability, Financial Services, and Capital Markets Union (DG FISMA) in order to foster a resilient and stable financial system that supports economic growth and aligns with the EU’s strategic priorities, including long-term competitiveness, security and the EU-wide digital and green transitions.
To achieve this, the FISMA focuses on enabling corporate entities and individual households to saving resources, fostering capital for innovation, unlocking digital and sustainable finance, as well as enhancing the competitiveness of the financial sector. Moreover, it also strives to combat market misconduct and financial crime, and imposes sanctions to prevent conflicts and/or respond to crises in non-EU countries when necessary.
More in: https://commission.europa.eu/about/departments-and-executive-agencies/financial-stability-financial-services-and-capital-markets-union_en
Recent legislative efforts
In the beginning of 2025, the Commission adopted the so-called Omnibus I simplification package, which proposed to limit mandatory sustainability reporting under the corporate sustainability reporting directive (CSRD) to large companies with more than 1,000 employees. For companies with up to 1,000 employees, the Commission proposed a voluntary reporting standard which will be adopted soon by the Commission, based on the presently recommended draft.
As to the companies affected, the sustainable reporting standards (ESRS) apply to all EU companies that fall under the CSRD’s reporting obligation divided into two groups – large companies and SMEs: a) large companies that fulfill at least two of the following three criteria – balance sheet total of over €25 million, net sales of over €50 million, and more than 250 employees; b) capital market-oriented SMEs stating from 2026 (with the option to defer until 2028).
More in: https://csrtools-zwiiccwrtu.live-website.com/en/blog-en/create-a-materiality-analysis-according-to-csrd-in-4-steps/
The mentioned proposals are expected to reduce complexity of EU requirements for all businesses, notably SMEs and small mid-caps (SMCs), and focusing the EU-wide regulatory framework on the largest companies which are likely to have a move “regulated impact” on the climate mitigation and environment quality, while still enabling companies to access sustainable finance for their clean transition’s impetus.
Thus, the final future of the voluntary reporting standard will also act as a “value-chain cap” to protect SMEs and other companies (not subject to mandatory reporting under the CSRD) from excessive information requests used by their value chain partners (so-called “regulated provision”).
Present Commission’s recommendation is seen by most reviewers as “an intermediary solution” to address market demands until the delegated act on a voluntary standard is formally adopted; so that the basic content of the delegated act could vary compared to present draft recommendation.
The timing of adoption will depend on the pace and conclusion of negotiations between the EU co-legislators on the Omnibus I proposal.
Omnibus package: progressing sustainability reporting
Commission adopted a package of proposals to simplify EU rules and boost competitiveness and unlock additional investment capacity in February 2025; it was a “major step forward in creating a more favorable business environment to help EU companies grow, innovate and create quality jobs”, as was noted in the Commission press release.
The first so-called “Omnibus packages” (aka complex and cross-sectoral) is bringing together proposals in a number of related legislative fields, covering a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence, EU Taxonomy, carbon border adjustment mechanism and European investment programs.
Source: https://finance.ec.europa.eu/publications/omnibus-i-package-commission-simplifies-rules-sustainability-and-eu-investments-delivering-over-eu6_en
In November 2024, the European Commission announced the amendments to the Omnibus-I package, which included two legal instruments: a) the CSRD Omnibus proposal, published on February 26, 2025 and intended to better align it with the Corporate Sustainability Due Diligence Directive (CSDDD), and b) the EU taxonomy rules in order to simplify reporting obligations for companies and reduce bureaucratic hurdles; hence the omnibus notion).
It was proposed in the omnibus implementation’s deadlines some “adjusting” clausal on the thresholds that determine which companies are subject to “reporting”. However, according to the omnibus proposal, only the following companies would have to report: from 2024 – large, capital market-oriented companies with more than 500 employees that are already affected by the NFRD; then, from 2027 – all companies with more than 1,000 employees, which have either a balance sheet of at least €25 million, and/or generate a turnover of more than €50 million.
Corporate sustainability reporting: basics
EU law requires companies above a certain size to disclose information on what they regard as the risks and opportunities arising from social and environmental issues, as well as on the impact of their activities on societies, nature diversity and the environment. This would help investors, civil society organisations, consumers and other stakeholders to evaluate the sustainability performance of companies. The latter is part of the European green deal, which was adopted by the European Commission through a set of proposals to make the EU-wide climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels.
More in a number of EII’s publications, e.g.: = https://www.integrin.dk/2023/10/20/european-green-deal-concept-and-perspectives/; = https://www.integrin.dk/2021/08/30/european-green-deal-and-climate-regulations-effects-for-the-member-states/; = https://www.integrin.dk/2023/12/05/european-green-deal-and-clean-transition-in-energy-sector/
Generally, as the corporate sustainability reporting directive notes, that “the Green Deal is the new growth strategy of the Union, which aims to transform the Union into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases, GHG by 2050. It also aims to protect, conserve and enhance the Union’s natural capital, and protect the health and well-being of Union citizens from environment-related risks and impacts”.
Consequently, the green deal, it says, “aims to decouple economic growth from resource use, and ensure that all regions and Union citizens participate in a socially just transition to a sustainable economic system whereby no person and no place is left behind”.
Such approach, in continues, would “contribute to the objective of building an economy that works for the people, strengthening the Union’s social market economy, helping to ensure that it is ready for the future and that it delivers stability, jobs, growth and sustainable investment”.
More on greed deal in: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en. General reference to CSR Directive (December 2022) in: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464
The first companies subject to the Corporate Sustainability Reporting Directive, CSRD have had to apply the new rules for the first time in the 2024 financial year, for the reports will be available to the public and published in 2025.
Thus, companies subject to the CSRD’s requirements, have to report according to European Sustainability Reporting Standards, ESRS. The standards are developed by the EFRAG, previously known as the European Financial Reporting Advisory Group, as an independent body bringing together various different stakeholders to provide a framework for companies to report on their environmental, social and governance (ESG) impacts, as well as risks and opportunities.
In essence, the ESRS are the practical tools that companies use to fulfill the sustainability reporting requirements mandated by the CSRD. The ESRS would help to ensure that companies are transparent about their sustainability performance, to enabling stakeholders to make informed decisions and contributing to the EU’s sustainability goals.
Some close connections have to be mentioned between the ESRS and CSRD: thus, the latter specifies which companies must report on sustainability, while the former defines what exactly must be reported and how. This means that the CSRD obliges companies to report on sustainability, which replaces the previous Non-Financial Reporting Directive (NFRD) and significantly expands the group of companies required to report.
Reference to: https://csr-tools.com/en/esrs/
The whole “evolutionary process” concerning the European Sustainability Reporting Standards, is turning the concrete reporting standards onto a compulsory path: i.e. companies must use the ESRS to fulfill the CSRD requirements, and ensure that sustainability information is “officially recorded” in a detailed, standardized and comparable manner.
Bottomline: the CSRD is actually turning a mandatory-type ESG reporting compulsory, as well as specifying which companies are affected; besides, the ESRS provide the framework for the reporting content and methodology.
More in: https://csrtools-zwiiccwrtu.live-website.com/en/blog-en/create-a-materiality-analysis-according-to-csrd-in-4-steps/