September 2025 update: First-wave companies reporting under European Sustainability Reporting Standards (ESRS) can continue applying phase-in reliefs until FY27 and delay application of four standards (ESRS E4 Biodiversity and ecosystems, S2 Workers in the value chain, S3 Water and marine resources and S4 Consumers and end-users) under the European Commission’s quick fix amendments.
Additionally, the Commission has recommended for companies outside the scope of the CSRD1 to apply a voluntary reporting standard, VSME2.
This article was published on 27 February 2025. It was last updated on 2 October 2025 to reflect these changes.
Highlights
The European Commission has released an Omnibus package of proposals to reduce sustainability reporting and due diligence requirements.
As part of this Omnibus package only the largest companies would report under ESRS; a subset of those companies would continue to report under the EU Taxonomy. These changes would need to be approved by the European Parliament and the Council of the EU, and transposed into national law, to become effective.
This process is ongoing and an agreement is expected at the earliest in late 2025.
To allow for time to agree these changes, the EU has postponed mandatory ESRS reporting for second- and third-wave companies by two years under its ‘Stop the clock’ directive.
Reducing the number of companies in scope
Under the proposed ‘Content directive’, only large3 companies with more than 1,000 employees would be in scope of the CSRD and therefore required to report under ESRS. The Commission estimates this would decrease the number of companies in scope by approximately 80 percent.
The final threshold will not be known until the amendments have been agreed.
Simplifying ESRS
Alongside communicating its first Omnibus package, the Commission mandated EFRAG4 to amend ESRS to substantially reduce the volume of disclosures. EFRAG released an exposure draft for public consultation on 31 July. Read our guide on the proposed changes and KPMG’s response to the consultation.
Under the proposals, the Commission no longer plans to adopt sector-specific standards.
Limiting the scope and amending the content of the EU Taxonomy
The Commission proposes making the EU Taxonomy mandatory for only a subset of large companies – i.e. those with:
- more than 1,000 employees; and
- a net turnover of more than EUR 450 million.
In contrast, companies wanting to claim voluntarily that their activities are taxonomy-aligned would, as a minimum, need to disclose KPIs on turnover and capital expenditure.
Additionally, the Commission is working to simplify the EU Taxonomy, including introducing a materiality threshold, simplifying the ‘Do No Significant Harm’ criteria on pollution and revising the reporting templates. These changes would apply initially in FY25 for reporting in 2026. Read more in our article.
What other key changes are proposed?
The Commission proposes changing the CSRD to protect smaller companies (up to 1,000 employees) by limiting the ‘trickle-down effect’. Requests for value chain information could not exceed what would be reported under an amended voluntary reporting standard for SMEs.
The CSRD would still require limited assurance, but the Commission no longer intends to move to reasonable assurance. In addition, the deadline for a European limited assurance standard would be removed.
On the CSDDD5, the Commission proposes significant changes to reduce the compliance burden on companies. The proposals include delaying initial application by one year, reducing the number of business partners and stakeholders to consider, and less frequent assessments.
How can companies prepare for the changes?
With the EU due process ongoing, now is a good time for companies to identify any ‘no-regret moves’ that they can focus on, such as:
- revisiting CSRD scoping to understand how the proposed changes in thresholds might influence reporting;
- reprioritising efforts and focusing on strategic actions that go beyond compliance, for example:
- transition planning;
- materiality assessment; and
- a focus on the data that is relied on for strategic decision making.
- continuing dialogue with stakeholders around policies, actions and targets across material topics and clarifying sustainability-related messaging; and
- with reporting under IFRS® Sustainability Disclosure Standards from the ISSB5 on the horizon in various major jurisdictions outside the EU, considering moving forward on climate, particularly preparing Scope 1, 2 and 3 greenhouse gas emissions inventory and identifying and mitigating climate-related risks.
What's next?
The proposed Content directive could be subject to change as it progresses through the European Parliament and the Council of the EU. It would need to be transposed into national law before it becomes effective. We’ll continue to monitor the developments – follow KPMG IFRS on LinkedIn for further updates.
1 Corporate Sustainability Reporting Directive.
2 Voluntary sustainability reporting standard for non-listed small and medium-sized entities (SMEs), developed by the European Financial Reporting Advisory Group (EFRAG).
3 Large companies are those that, on the balance sheet date, meet two out of the following three criteria: 250 employees, net revenue of EUR 50 million, and EUR 25 million in total assets.
4 The advisory body to the EU on corporate reporting.
5 The Corporate Sustainability Due Diligence Directive.
6 International Sustainability Standards Board.
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