European Parliament adopts first omnibus report - CSRD and CSDDD scope significantly reduced, ESRS disclosures reduced by 61%

Board Member, Global Sustainability Standards Board (GSSB)
GHG Protocol Technical Working Group (TWG) Members
Zeroboard Research Institute Director Tomoo Machiba

On December 16, the European Parliament overwhelmingly adopted a provisional agreement with EU member states on the "First Omnibus Package," which aims to simplify Green Deal-related laws with the aim of strengthening Europe's competitiveness. This means that the scope and provisions of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) will be significantly reduced and scaled down.

Prior to this, on December 3rd, the European Financial Reporting Advisory Group (EFRAG) submitted expert advice to the European Commission on simplifying the European Sustainability Reporting Standard (ESRS), which will serve as the implementation guidelines for the CSRD. The overview is as follows:

CSRD

• Applies to European companies with more than 1,000 employees and net sales of more than 450 million euros (a reduction of approximately 90% from the current level and half the number of companies covered under the previous disclosure directive, NFRD).
• It also applies to non-EU companies with total sales of more than 450 million euros and to subsidiaries and branches with domestic sales of more than 200 million euros.
• Companies with fewer than 1,000 employees are not required to provide the above-mentioned applicable companies with information beyond the voluntary disclosure standards for Unlisted small and medium-sized enterprises *2) .
• The simplified ESRS will be applied to non-regional companies as well, starting with the 2027 report (issued in 2028).
• "First wave" companies that have already begun applying the CSRD will follow the current ESRS for reporting in fiscal years 2025 and 2026. However, member countries can grant exemptions to companies that fall outside the new scope.
• The Contents will require limited assurance from a third party. Assurance standards will be adopted by October 1, 2026. *1)

ESRS

• Focus on useful information: Strengthened filters for relevance and fair presentation enable clearer reporting with reduced compliance burden.
• Simplifying materiality assessment: Clarifying guidance on double materiality assessment (DMA), reducing documentation requirements, and improving alignment with audit expectations.
• Reduced pressure on value chain data collection: The priority of direct data acquisition is removed, reducing the burden of data collection.
• Significant mitigation and phase-in: Proportionality mechanisms and transition periods for difficult disclosure matters, consistent with organizational capabilities.
• Strengthening principles-based narrative reporting: Flexibility in reporting on policies, actions and targets. Requires explanations that focus on how sustainability Issue are being managed.
• Simpler, clearer standards: Streamline the ESRS to make it easier to understand and implement.
• Data point reduction: 61% reduction in mandatory disclosures where material, and removal of all voluntary disclosures.
• Improved interoperability with IFRS S standards: Improved consistency in common disclosure items, improved GHG emission amount calculation boundaries, and provisions regarding projected financial impacts. With the simplification of ESRS, some items are now covered by IFRS S standards, so care must be taken when complying with both standards. *3)

CSDDD

• Applies to European companies with more than 5,000 employees and net sales of more than 1.5 billion euros, and to non-European companies with net sales of more than 1.5 billion euros.
• Conduct a scoping exercise regarding actual and potential adverse risks in the chain of activity related to your company. Detailed mapping is not required.
• Removed transition plans on climate change mitigation (still required in CSRD under ESRS E1).
• Companies with fewer than 5,000 employees may submit information only if they require detailed information that is not available elsewhere.
• Even if serious risks are identified with upstream or downstream partner companies, we will not ask them to terminate their contracts.
• Due diligence assessments will be conducted at least every five years, or if a negative impact is identified, as necessary, such as for inclusion in new markets or M&A.
• There will be no civil liability at the EU level for violations, but rather it will be left to the definition of each member state. Fines will be capped at 3% of global net sales. *1)

Both the CSRD and CSDDD include a "review clause" that allows for revision of the scope of application, leaving open the possibility that the number of companies subject to the standard may increase in the future.

Based on the simplification proposal, the European Commission Create a delegated bill for the ESRS, which will be submitted to the European Parliament and the European Council for deliberation. The revised ESRS standards are expected to be completed in mid- to late 2026.

The significant reduction in scope of application of the CSRD compared to the previous regulation has significantly diminished the EU regulation's ability to drive global sustainability initiatives. However, the importance of disclosure based on dual materiality and consideration of human rights and environmental risks in the value chain is well recognized, and even if the regulation does not apply, there is likely to be no major change in the practices of major European companies or the demands of stakeholders. Japanese companies should not be overly concerned with the trend toward disclosure regulations, but should instead make good use of voluntary international frameworks (TCFD, TNFD, GRI, SBTi, RE100, CDPs, etc.) in addition to IFRS S or SSBJ standards, and focus on the Issue that are important to them as they move forward with their initiatives.

*1）European Parliament, Simplified sustainability reporting and due diligence rules for businesses, press release, 16 December 2025. www.europarl.europa.eu/news/en/press-room/20251211IPR32164/simplified-sustainability-reporting-and-due-diligence-rules-for-businesses; LRQA, The EU Omnibus final outcome: Key changes to CSRD and CSDDD and what to do next, December 2025. www.lrqa.com/en/insights/articles/omnibus-update-december-2025　

*2）European Financial Reporting Advisory Group (EFRAG), EFRAG Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME), December 2024. www.efrag.org/sites/default/files/sites/webpublishing/SiteAssets/VSME%20Standard.pdf　 

*3）European Financial Reporting Advisory Group (EFRAG), Draft Simplified ESRS: At a glimpse. November 2025. www.efrag.org/sites/default/files/media/document/2025-12/Simplified%20ESRS%20Factsheets%20%284%29.pdf