Amidst unprecedented trade and geopolitical turbulence, the European Union's agenda to increase its competitiveness by simplifying the reporting and due diligence requirements in its sustainability regulations is further taking shape. However, the process has by no means been crystallized.

The specifics of the landmark EU Omnibus proposal, which outlines detailed changes to simplify and reduce the scope of the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive (CSDDD), are still fiercely debated. Over the last few months, there has also been a notable increase in political pressure from some EU member countries to ease the due diligence requirements that companies must apply throughout their supply chains.

The recently approved ‘stop-the-clock' proposal, which delays the application of the current versions of the CSRD and the EU Taxonomy by two years, and the CSDDD by one year, will give all parties some time to reach a final negotiated outcome in the debate about the EU Omnibus and the broader sustainability reporting and due diligence agenda. They will likely need it.

This update covers the latest developments from two angles. The first part will focus on the evolving discussion around due diligence requirements. The second part will do the same for the reporting requirements.

Due diligence requirements – Shifting mood

The world was a different place when the EU first set out to establish sustainability due diligence requirements for companies, resulting in the CSDDD and the inclusion of due diligence elements in the EU Batteries and Deforestation Regulations. However, many EU member countries now deem these requirements too strict and complex. How will this pressure change due diligence compliance, and what will it mean for companies?

Direction of policy changes

  • Among recent developments is the proposal to weaken the EU Batteries Regulation by delaying due diligence obligations, pushing the compliance verification deadline to 18 August 2027, raising the threshold from €40 million to €150 million in global turnover, and reducing the reporting cadence from annual to every three years.
  • The European Commission announced measures to simplify the implementation of the EU Deforestation Regulation (EUDR), which is set to take effect on 30 December 2025 (for more, see our policy alert). Additionally, eleven EU Member States, led by Austria and Luxembourg, are also demanding wide-ranging changes to the EUDR. The proposed changes include creating a new category of very low-risk countries that would be exempt from checks and tracking, as well as a further time extension. Since the EU revealed that only four countries will be categorized as high risk under the EUDR, this means that key countries (like Brazil) will be spared from strict checks.
  • The Corporate Sustainability Due Diligence Directive (CSDDD) is also in the spotlight again, with some of the most powerful EU member states, such as France and Germany, calling for it to be streamlined or even ‘taken off the table’

However, this political pressure is not universal.  Views among EU member states and members of Parliament vary significantly, with some calling for the strengthening of due diligence requirements and better alignment with international standards, such as the UN Guiding Principles on Business and Human Rights and the OECD guidelines.  

Voices from the market

From ERM’s client conversations, it is clear that companies do not expect to return to a pre-human rights and environmental due diligence world. Despite uncertainty regarding the exact regulatory changes that will be made, the direction of travel is set. Companies have largely embraced that proactively identifying and managing environmental and human rights impacts is essential for sustainability and competitiveness. Due diligence leads to reduced risks, increased returns from opportunities, and stronger market positioning.

Most companies are not using the delays as an excuse to push the pause button; instead, they are investing this time wisely to ensure systems are functioning effectively. Companies are still expected to conduct risk-based due diligence, and there is an opportunity now to adjust the approach and think more strategically across the regulations.

What companies should do now

Early preparation enables companies to manage system updates effectively by gaining internal support, prioritizing risks and opportunities, as well as enhancing data management, process controls, and technology. Companies should start building or strengthening their due diligence systems — involving policies, risk assessments, and traceability - now.

It is critical to look beyond compliance and a rapidly shifting regulatory landscape and seek solutions that truly help businesses to perform due diligence in a meaningful way. After all, this is about taking a proactive approach to managing risks for long-term resilience and success.  

Reporting requirements - Tug of war

With the ‘stop-the-clock’ part of the EU Omnibus proposal approved (read our earlier update for more details), EU members have bought some time to overcome their differences and prepare a modified version of the EU Omnibus that can gain final approval before the clock runs out. However, consensus on several contentious issues is not yet in sight.

Direction of policy changes

  • Defining the scope of companies subject to CSRD reporting. Divisions within the European Parliament are substantial. For example, the Committee on Employment and Social Affairs, citing punishment of frontrunners and impacts on jobs, has called the proposed 80 percent reduction of the number of companies covered by the CSRD an ‘unfounded move’. In contrast, the Committee on Economic and Monetary Affairs has called for raising the thresholds even further, to 3,000 employees and €450 million turnover (for the current proposal, read our policy alert). The Legal Affairs Committee, which is leading the Omnibus negotiation for Parliament, is working to facilitate a parliamentary compromise.

Concerns over far-reaching scope reductions are also growing in the banking sector. Their worries are linked to the sector’s obligations under the Capital Requirements Directive and the European Banking Authority’s guidelines on ESG risk. A reduction would mean that fewer companies report according to CSRD requirements, resulting in a decline in the quantity and quality of ESG data. This makes it harder for banks to implement credit risk management and transition planning in line with the EU’s 2050 climate neutrality goal.

  • Breadth and depth of the ESRS disclosures. The European Financial Reporting Advisory Group (EFRAG) has confirmed it plans to deliver a revised draft of the European Sustainability Reporting Standards (ESRS) to the EU Commission by October 31st, 2025, preceded by a public consultation from August to September. EFRAG’s Sustainability Reporting Board will have the unenviable task of translating and integrating various public interests into a set of technical reporting principles and requirements.

Meanwhile, the EU Commission has proposed a Delegated Regulation that would effectively freeze the number of disclosure requirements that Wave 1 companies, which published their first CSRD reports this year, will need to report until at least 2027. Like ‘stop-the-clock’ for Wave 2 and 3 companies, the intent is to temporarily reduce the reporting burden in anticipation of more fundamental changes to CSRD/ESRS.

The Regulation would extend timelines for disclosures related to anticipated financial effects, value chain emissions (‘Scope 3’), biodiversity, and workforce. For the latter three, companies with fewer than 750 employees already had more time to comply. If adopted by the Parliament and Council, the Delegated Regulation will take effect in the second reporting cycle of Wave 1 companies.

Materiality assessment process

One common theme emerging from recent interactions with sustainability and finance professionals is the widespread discontent with what is seen by some as the overly generic way in which the materiality assessment process has been implemented, sometimes resulting in immaterial issues being incorrectly labeled as ‘material’ and triggering unnecessary reporting requirements. This dilution of the materiality concept is causing some senior executives and sustainability teams to doubt the added value of materiality assessments in informing executive decisions or the capital market. Potential inflation of material issues may also raise the costs and resources required to report, such as digital tools, report production, and license and assurance fees.

In our project work, we have observed that specificity pays off when conducting materiality assessments. The litmus test is not how many of the ESRS’ ten topical standards are material, but gaining a precise understanding of the impacts, risks, and opportunities, as well as the fair and quantified appraisal of their likelihood and severity, and what specific disclosure requirements they require.

What companies should do now

Wave 1 companies should monitor the progress on the Delegated Regulation. In cases where they have already exceeded the disclosures required by the Delegated Act or have existing data that would enable them to do so, they should carefully weigh the pros and cons of maintaining or adding disclosures beyond what is demanded.

Regardless of which CSRD implementation wave they are part of, companies should be ready to reassess materiality, focusing on robust impact, risk, and opportunity quantifications. This investment in financial quantification capabilities will be a low-regret decision. It cuts several ways, helping companies prepare for post-EU Omnibus reporting as well as for reporting in accordance with international reporting frameworks such as ISSB.  However, perhaps most crucially, it enables businesses to methodically identify and quantify a commercial business case for sustainability.

Stay informed

ERM will closely track further regulatory developments and provide detailed interpretation and recommendations for companies by our leading experts. For more information on the EU Omnibus, read our earlier update or read our policy alert here, or reach out to our experts.