“Stop the Clock” – why responsible companies will look beyond a changing regulatory landscape
Nowadays companies routinely engage in activities that, while not legally required, are nevertheless considered essential for effective management and long-term success. Standard practices include developing comprehensive business strategies, defining corporate social responsibility, formulating multi-year plans, maintaining risk registers, and implementing cybersecurity measures. These initiatives assure shareholders, financial partners, customers and employees that the company is well managed.
Today’s Omnibus announcement, proposing to provide substantial simplification in the field of sustainability and EU investment programmes includes amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy amongst others. Of crucial significance is the redefinition of a large undertaking to be one that has >1,000 employees, up from the previous threshold of 250, which at a stroke will see the number of companies required to report under CSRD reduced by around 80%. And with a “Stop the Clock” adjustment, companies who had been due to report in 2026 or 2027 will now be pushed back to 2028.
However, throughout today’s EU press conference the audience was reminded of the difference between mandatory and voluntary reporting, with a strong sense that the EU is certain that many companies will continue to report and will therefore welcome today’s simplification of the burdensome reporting processes. So where does this confidence come from?
Beyond Compliance – the essence of Sustainable Business
The relaxation of CSRD reporting requirements does not signify a diminished commitment to managing environmental and social impacts at a company level. Companies naturally strive to anticipate and navigate short, medium, and long-term risks and opportunities. This proactivity is not a reaction to regulatory pressures but a fundamental foundation of business management, essential for longevity and profitability. Regulations such as CSRD can provide frameworks for sustainability reporting, allowing companies that voluntarily adopt global standards to present information in a standardised format that can meet investor and stakeholder expectations. Investors and stakeholders will continue to expect transparency, regardless of whether reporting mandates are relaxed.
The Role of Voluntary Standards and Investor Expectations
The Omnibus proposals may reduce mandatory reporting, but the Commission was keen to emphasise the role of voluntary sustainability reporting by out-of-scope companies, facilitated in the EU through the CSRD voluntary SME sustainability reporting standards (VSME). Globally, this is reflected in the interest and adoption of the International Sustainability Standards Board (ISSB) standards. The ISSB, established in 2021, seeks to create a global baseline for sustainability reporting, consolidating various Environmental, Social, and Governance (ESG) frameworks. Adopting voluntary standards is not merely a matter of compliance; it is a strategic move to enhance transparency, manage material risks, and seize opportunities related to sustainability. The market increasingly rewards companies that demonstrate a genuine commitment to responsible practices. Transparent sustainability reporting enhances a company’s reputation, attracts investment, and builds consumer trust. In a recent article on the Omnibus in the context of Aircraft Leasing, it was discussed that ahead of any CSRD reporting mandate, lessors were already viewing “carbon accounting” as an important risk factor in determining future asset value. Long term investment assets where age is a primary driver of asset value must consider future concerns from environmental scrutiny and the genuine risk of stranded assets that might not meet emissions standards.
Today’s announcements also outlined the continuing requirement for mandated companies to include disclosures on their immediate supply chains. This continues to include immediate upstream suppliers and immediate downstream customers, which means that many of the companies that will now be outside the Omnibus mandated threshold will nevertheless continue to be required to report carbon emissions data to their contracted partners.
What next?
Simplified CSRD reporting will not remove the need for financiers to understand their facilitated emissions independent of reporting them as Scope 3, and so continuous emissions monitoring will enable stakeholders to adapt to further financial and regulatory changes, safeguarding asset value and enhancing investor confidence. The relaxation of reporting requirements through the Omnibus will not launch a retreat from sustainability. Rather than stopping the clock, responsible businesses will accelerate proactive management of impacts, risks, and opportunities as ongoing investment in their sustainable operations.
Author:
 | David Lowe
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