Key takeaways
Main changes to the CSRD
- Revised applicability thresholds
The CSRD scope is significantly narrowed. Companies will only be subject to CSRD requirements if they meet both of the following conditions:
- More than 1,000 employees (previously 250)
- Either EUR 50 million in net turnover or EUR 25 million in balance sheet total
This change reduces the number of in-scope companies up to 80%, easing reporting burdens on smaller entities.
- Delayed reporting obligations
The "stop-the-clock" directive postpones CSRD reporting obligations by two years, shifting the first reporting year from 2025 to 2027.
- Simplification of reporting standards
The European Sustainability Reporting Standards (ESRS) will require less narrative and semi-narrative data, making compliance more manageable for companies.
Main changes in taxonomy
- Aligned applicability thresholds
The CS3D and taxonomy thresholds will be aligned, applying to companies with over 1,000 employees and generating more than EUR 450 million in revenue.
All companies that fall under the current scope of the CSRD are required to include in their reports disclosures about how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation.
For companies anticipated to fall within the future scope of the CSRD (i.e., large companies with more than 1,000 employees) and have a net turnover of up to EUR 450 million, the Omnibus proposal introduces voluntary Taxonomy reporting. This would reduce the number of companies required to disclose their taxonomy alignment.
Furthermore, companies that have made progress toward sustainability targets but only meet certain EU Taxonomy criteria may opt to be aligned, not aligned or aligned only to a certain degree on a voluntary basis for their reporting.
- Streamlined reporting requirements and templates
Entities will be exempt from reporting if taxonomy-eligible activities represent less than 10% of their business. The number of required data points in taxonomy reporting templates will be cut by almost 70%.
A taxonomy-eligible activity is an economic activity that falls within the scope of the EU Taxonomy Regulation and it is covered by the technical screening criteria set out in the taxonomy delegated acts (such as climate change mitigation and adaptation).
- Do no significant harm (DNSH) criteria
The DNSH complex criteria is simplified to address the difficulties presented by the market in its compliance.
The proposed taxonomy changes are open for public consultation until 26 March 2025. Implementation will follow approval by the European Parliament and Council.
Main changes to the CS3D
- Extended implementation timeline
The CS3D enforcement date is postponed by one year to 26 July 2028, providing additional time for compliance.
- Focused due diligence obligations
Due diligence requirements will now focus on direct suppliers (tier 1) instead of the entire value chain. Due diligence plans will also shift from an annual review to a five-year cycle.
- Modification of liability and penalties
Companies will no longer face European civil liability for noncompliance, and financial penalties will be reduced.
Next steps
The Omnibus Simplification Package will undergo review and approval by the European Parliament and Council. The CSRD and CS3D adjustments will take effect following agreement between the co-legislators and publication in the Official Journal of the European Union.
Potential impact on Luxembourg's draft Bill No. 8370
Luxembourg's draft Bill No. 8370, which transposes the CSRD into national law, may require adjustments to reflect these EU-level changes:
If the CSRD's scope is limited to companies with more than 1,000 employees, Luxembourg may need to revise draft Bill No. 8370 to reflect this threshold, thereby exempting smaller companies from the directive's requirements.
- Updated reporting timelines
The two-year delay must be reflected in national reporting deadlines.
- Streamlined reporting obligations
With the anticipated simplification of the ESRS, Luxembourg should consider incorporating these changes into draft Bill No. 8370 to ensure that the reporting framework remains consistent and less burdensome for companies.
Impact on investment funds
- Reduced ESG data availability
The CSRD scope reduction will likely impact the availability and quality of ESG data at the underlying operating portfolio company level — posing challenges notably for private equity and infrastructure funds that rely on granular ESG metrics to be provided by their investee companies which may not be submitted to reporting anymore.
- Challenges in taxonomy alignment and reporting
Private equity funds requiring specific indicators to demonstrate taxonomy alignment may have less reliable data, particularly regarding DNSH criteria deriving by law requirements. A solution may be found in contractual arrangements.
Article 8 and 9 funds under the Sustainable Finance Disclosure Regulation (SFDR) may alternatively increasingly rely on third-party providers to fill ESG data gaps, raising data reliability and cost concerns.
Risk of greenwashing may increase due to inconsistent ESG disclosures across companies.
Institutional investors might reassess fund attractiveness based on the availability of ESG data and the credibility of sustainability claims.
