Simplification of CSRD , CSDDD, and CBAM

The European Commission has recently presented a series of proposals to simplify the CSRD (Corporate Sustainability Reporting Directive), CSDDD (Corporate Sustainability Due Diligence Directive), EU Taxonomy, and CBAM (Carbon Border Adjustment Mechanism).

The main objective of these proposals is to reduce the complexity of EU requirements for all businesses, with a particular focus on SMEs and smaller large companies. The new regulatory framework will concentrate on larger companies, which have a greater impact on the climate and the environment, while ensuring that all businesses have access to sustainable financing for their decarbonization transition.

CSRD: Scope Reduction and Greater Flexibility

1. Reduction in the Number of Companies Required to Report

One of the main changes concerns the 80% reduction in companies subject to reporting obligations. Only large companies with more than 1,000 employees and with a turnover exceeding €50 million or a balance sheet total of more than €25 million will be required to report sustainability information.

Companies that are no longer subject to CSRD can adopt the VSME, the voluntary sustainability standard for SMEs and smaller large companies developed by EFRAG. This will allow small and medium-sized enterprises to choose a reporting approach that is proportionate to their size and operational capacity.

2. Elimination of Sector-Specific Standards

To avoid an excessive burden of mandatory data, the Commission has decided not to introduce additional sector-specific standards, thus simplifying the reporting process and reducing compliance costs.

3. No “Reasonable” Audit Review, Only Limited Assurance

To contain verification costs, only limited assurance will be required, without the possibility of an increase to a “reasonable” review in the future. This significantly reduces financial burdens for businesses.

4. Reduction of Mandatory Data Points in ESRS

The European Sustainability Reporting Standards (ESRS) will be simplified with fewer mandatory data points, greater emphasis on quantitative data, and less descriptive narrative.

5. Possible Postponement of the Second and Third Implementation Waves

To avoid unnecessary costs, the Commission has proposed to postpone the entry into force of the second and third waves of CSRD by two years, allowing companies more time to adapt.

• The obligations will now start in 2028 for financial periods beginning on January 1, 2027.

• Companies may still start voluntary reporting from 2026.

6. Limitations on Value Chain Reporting

Companies subject to CSRD will no longer be required to request extensive sustainability data from suppliers and partners in their value chain. Instead, they will be limited to collecting only essential and relevant information, avoiding disproportionate requests that could burden SMEs within their supply chains.

Greater Flexibility in the Use of the EU Taxonomy

The obligation to report under the EU Taxonomy becomes optional for companies with more than 1,000 employees and a turnover below €450 million. This further reduces compliance costs for many businesses and allows for greater autonomy in managing reporting.

• Materiality Threshold: If an activity represents less than 10% of a financial parameter (e.g., turnover), it will be considered irrelevant and will not be subject to taxonomy assessment.
• Refined Do No Significant Harm (DNSH): Compliance is facilitated in areas such as pollution and chemical use.

CSDDD: Reduction of the Burden on Businesses

1. Reduced Frequency of Periodic Monitoring

Companies subject to CSDDD will have to conduct less frequent monitoring, reducing complexity and compliance costs.

• Risk assessments every five years instead of annually.

• Clearer guidelines by mid-2026.

2. More Targeted Obligations for Indirect Business Partners

Companies will need to focus due diligence on direct business partners, while obligations toward indirect suppliers will only apply if there is evidence of adverse impacts.

Carbon Border Adjustment Mechanism (CBAM): Greater Simplification

Exemptions for Small Importers: Importers who bring in less than 50 metric tons of regulated goods per year will be exempt from CBAM. This excludes about 90% of companies, while still covering 99% of targeted emissions.

Simplified Compliance: Reduced CBAM costs for imports from countries with existing CO2 pricing mechanisms.

New Anti-Abuse Measures: Coordinated strategies with national authorities will be introduced to prevent fraud and misuse of CBAM.

CBAM Review: A comprehensive review is planned by the end of the year, with the possibility of extending the mechanism to other ETS sectors, processed goods, and indirect emissions.

Support for Exporters at Risk of Carbon Leakage: Measures will be studied to protect European companies exporting CBAM products to markets where the risk of carbon leakage is high.

New Legislative Proposals: In 2026, the Commission will present further regulatory updates to make CBAM more effective and targeted.

Impact on SMEs and Benefits of Simplification

The changes to CSRD and CSDDD significantly reduce the risk of a “trickle-down effect” on SMEs. Smaller businesses, which are no longer subject to reporting obligations, will be able to:

• Use the VSME standard to voluntarily provide sustainability information.
• Avoid excessive data requests from large clients, thanks to regulatory protections against disproportionate obligations.
• Benefit from greater competitiveness, avoiding excessive compliance costs and focusing on growth and innovation.

Conclusions

The new proposals from the European Commission represent an important step towards regulatory simplification for European businesses. However, EU competitiveness does not depend solely on reducing bureaucracy but also on strong support for innovation and investment in strategic sectors such as artificial intelligence and venture capital.

While it is essential to simplify procedures for startups and foster a dynamic market, it is equally crucial to maintain sustainability standards to ensure balanced and responsible growth. The green transition and transparency in environmental data are key elements for the future of European businesses, allowing the creation of a competitive system based on innovation and sustainability.

Europe must continue investing in its core values: high quality of life, excellent public healthcare, advanced education, and collaboration between diverse markets. The future of the EU depends on its ability to balance economic growth with environmental responsibility, without sacrificing its leadership in the decarbonization transition.

AI-generated image.

Sources: 161070f0-aca7-4b44-b20a-52bd879575bc_en, CBAM: new Commission proposal will simplify and strengthen – European Commission