The European Commission has heeded the pleas of both France and Germany, by delaying flagship non-financial reporting rules for as long as to two years.

Implementation of the CSRD (Corporate Sustainability Reporting Directive) has been postponed for two years for those companies that haven’t already included it in their annual reporting calendar.

Meanwhile, the CSDDD (the Corporate Sustainability Due Diligence Directive) has been delayed a year. Both Germany and France had written to EC president Ursula von der Leyen early in the new year, requesting postponements.

The decision—in what is known as the “omnibus” project to simplify EU sustainability reporting—has met with a storm of disapproval from campaign groups keen to see the CSRD and CSDDD retain their essential features.

Other decisions made by the commission include reducing the scope of the new rules so that the number of companies affected will be reduced by about 80%. The decision removes mid-cap companies from reporting obligations.

Additionally, the human rights and due diligence obligations contained in the CSDDD have been constrained to first level suppliers only.

However, the commission has retained the “double materiality” principle that distinguished its reporting framework from others.

‘Counter to UN guidelines’

Richard Howitt, a former MEP and now a sustainability adviser, says the reduction in scope of the rule means the EU risks “turning back on all the advances in sustainable business for over a decade”.

Changes to the due diligence requirements, he says, appear to be counter to the UN’s “guiding principles” on business and human rights.

“The European Commission cannot disguise the fact that its omnibus, rather than simplifying requirements for business, opens them up for being renegotiated in a febrile political atmosphere and potentially severely weakening the requirements altogether.”

Filip Gregor, of Brussels-based campaigning law firm Frank Bold, says the proposals released today are a reversal of sustainability policy.

“With the omnibus proposals, the EU commission not only proposes a step backwards but it also undermines Europe’s competitive advantage in the green transition.”

In a press conference on Wednesday, EU commissioner Valdis Dombrovskis said the EU had to cut red tape to be able to “build a more competitive Europe”.

He linked the changes directly to the US’s decision to back away from supporting the EU and its refusal to vote in support of a recent UN resolution condemning Russia for its invasion of Ukraine. He said geopolitical events were a “call to action” to strengthen the EU “economic base” through competitiveness.

“Simplification is about making sure the EU rules help deliver—rather than impede—the achievement of our economic, social, environmental and security goals,” said Dombrovskis.

“It is about achieving those goals in a smarter and less burdensome way.

“Less bureaucracy means more innovation and investment that will secure our long-term prosperity.”

Additional measures from Dombrovskis include switching to a lighter-touch assurance responsibility by retaining the need for only “limited” assurance.

A review has also been ordered of the European Reporting Standards, to reduce the number of non-financial metrics to be reported.

A burden to handle

The CSRD and CSDDD have been in the works for several years but over the past 12 months, they came under fire in many quarters of the EU for increasing the cost and burden of regulation.

However, the opposition appeared to crystallise last year in a report on EU competitiveness from Mario Draghi, the former president of the European Central Bank, who was scathing about the EU sustainability reporting rules, dubbing them a “major source of regulatory burden.”

In a recent Financial Times editorial, Draghi described the EU’s internal rules as having a worse impact on competitiveness than potential US tariffs.

In the US, Republican politicians have also turned on the CSRD and CSDDD and its extra-territorial effect. Andy Barr, a member of the House of Representatives, declared CSRD an “example of a foreign regulation that puts America last”.

There was some speculation that Brussels laws could become bargaining chips in any trade spat between the EU and US.

Just as in the UK, EU policymakers have switched to increasing competitiveness through watering down regulation. In retrospect, the CSRD and CSDDD, given their ambition and scope, were obvious targets. And Valdis Dombrovskis makes clear regulation is now part of a larger move to adapt to a dramatically altered geopolitical landscape. The changes will go through. The EU has started its process of competing in a new era of uncertainty.