So, you’ve likely heard about the major EU sustainability regulations – CSRD and CSDDD. These are essentially the EU’s framework to encourage companies to take significant responsibility for their impact on the environment and society.
CSRD centers on transparency and requires companies to genuinely examine their operations and report clearly on their activities – covering their emissions, workforce practices, environmental impact, and related areas. This is the essential first step for any transformation. Think about it – you can’t effectively address a problem until you understand its scope, right? It’s the same principle in sustainability. You need to know your impact before you can strategically improve it.
Now, you might observe that CSRD directly targets larger companies initially. That’s accurate. But here’s the significant indirect effect: those large companies depend extensively on smaller businesses (SMEs) within their value chains. To fulfill their own CSRD reporting obligations accurately, these larger firms need sustainability data from their SME partners. Consequently, the requirements inevitably begin to cascade down through the supply chain.
This is incredibly important because SMEs vastly outnumber large corporations across Europe. This indirect influence is likely to spark substantial changes well beyond the companies formally covered by the directive. It’s prompting the entire business ecosystem towards greater awareness and, ideally, improved practices.
That’s why the recent discussions about potentially pausing or over-simplifying these rules raise some concerns… The EU Parliament and Council are moving fast on what they call a ‘Stop-the-Clock’ plan. This basically means delaying parts of these rules – pushing back deadlines for specific industry reporting standards under CSRD by two years and the start date for the CSDDD due diligence rules by a year or maybe to 2028.
Why? The official reason is to make things simpler, and reduce the burden on businesses. And, making reporting less of a nightmare isn’t necessarily a bad thing. But I’ve got a nagging feeling about how this simplification might play out, and it reminds me of why strong pushes are sometimes needed.
A Historical Parallel: How Car Rules Sparked Innovation
History offers a compelling example. Consider the air quality crisis in the 1960s. Smog choked major cities, and pollution was rampant. In response, governments like the US enacted tough regulations, such as the The Clean Air Act, demanding drastic cuts in car exhaust pollution. The auto industry initially protested, calling the goals impossible and too costly. Yet, faced with firm legal deadlines, they were forced to innovate. This pressure led directly to the development and widespread adoption of the catalytic converter, significantly cleaning up the air. It’s a clear case where legislation ultimately drove innovation and technological progress.
The Clean Air Act of 1963 was the first federal legislation regarding air pollution control. It established a federal program within the U.S. Public Health Service and authorized research into techniques for monitoring and controlling air pollution.
Is “Simplification” code for lowering ambition?
That’s my worry with the current EU Omnibus package. While the goal is simplification, there’s also a push to make the reporting rules themselves less demanding for many companies, potentially steering those with under 1,000 employees towards the simpler Voluntary SME Standard (VSME) instead of the more detailed European Sustainability Reporting Standards (ESRS) under CSRD.
Now, VSME isn’t bad. It covers important aspects like workforce, business conduct, and human rights, just in less detail than ESRS. And making things proportionate for smaller companies makes sense.
Here’s the “BUT”: My concern is that if we significantly lower the bar or reduce the number of companies facing the full pressure of detailed reporting and due diligence, we risk slowing down the overall pace of sustainable innovation. We need everyone – big and medium-sized companies included – feeling the push to really dig deep and innovate. We need new business models, truly fair supply chains, breakthroughs in materials, real cuts in pollution, and serious action on biodiversity and deforestation.
If the main driver for change gets diluted for a large chunk of the economy in the name of “simplification,” does that collective push weaken? I think it might. And honestly, given the climate and biodiversity crises, we don’t have time to slow down. Simplification is welcome, but if it means fewer companies feel the pressure to innovate, we’re hitting the brakes when we need to accelerate.
Navigating the Confusion
On top of the delays, the EU body EFRAG is now tasked with figuring out how to simplify the main ESRS standards by late 2025. This adds another layer of uncertainty. Companies are trying to adapt to rules, and now the rules might change again? It makes sustainability feel like a moving target, potentially dropping it down the priority list when things feel unstable.
So, What Now? Focus on the ‘Why’
Despite the regulatory back-and-forth, the fundamental first step I always talk about remains crucial: Know your impact. Whether you’re using ESRS, VSME, or something else, understanding where your business affects the environment and people is non-negotiable for making real change.
Sustainability data reporting must be manageable. But let’s not confuse simplification with lowering ambition or scope. The pressure from rules like CSRD and CSDDD, much like the Clean Air Act decades ago, can be a powerful force for the kind of broad, necessary innovation we need. Delaying deadlines and potentially reducing the scope of who needs to act decisively feels like a step in the wrong direction when the clock is ticking so loudly on climate and nature.
We need to keep the pressure on, for everyone’s sake.
