EU Parliament Strongly Backs CSRD, CSDDD Delay

Support across majority of political spectrum suggests that MEPs are open to reaching compromise on EC’s omnibus proposal.

Members of European Parliament (MEPs) have overwhelmingly voted in favour of the European Commission’s (EC) ‘stop-the-clock’ proposal as part its omnibus agenda, which will see application of the bloc’s flagship sustainability directives postponed.

The Parliament comprises eight parties, which collectively hold 720 seats. The largest party is the centre-right European People’s Party (EPP), while the left-leaning Progressive Alliance of Socialists and Democrats (S&D) is the only other party with more than 100.

Of these, 617 MEPs cast votes on the EC’s ‘stop-the-clock’ proposal, with 531 voting in favour and just 69 voting against. The vast majority of dissenters are on the far-left of the Parliament.

The omnibus, unveiled in late February, looks to reduce the sustainability reporting burden for companies by modifying the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), and the EU’s taxonomy for sustainable activities.

The proposal delays the application of the next two phases of CSRD by two years each. This includes the phase that was supposed to begin at the start this year, and the phase that was supposed to begin in 2026.

Under CSRD, approximately 50,000 companies globally would have been mandated be to track and measure their sustainability performance and report on ESG-related risks to their enterprise value and their ESG-related impacts on society and the environment.

This move to delay the introduction of the new rules will impact large companies that have not yet started reporting, as well as listed SMEs.

The stop-the-clock proposal also pushes back the transposition deadline of the CSDDD and the first phase of its application by one year to 2028. It was originally due to apply from mid-2027.

“While the delay gives businesses and investors certainty on who will be reporting, investors should be worried about these developments,” Andreas Rasche, Professor of Business in Society at the Copenhagen Business School Centre for Sustainability, told ESG Investor. “It essentially means that for the next two years the scope of sustainability reporting in Europe will remain unchanged, which implies that data gaps cannot be filled.”

Last week, the European Council, representing EU member states, reached agreement on the stop-the-clock proposal. It noted that a swift agreement between the co-legislators will provide time to agree on “substantive changes” to the CSRD and CSDDD proposed by the EC as part of its first sustainability-focused omnibus package.

Due diligence deferral

The CSRD’s second phase began on 1 January 2025, extending compliance to large companies not previously covered under the Non-Financial Reporting Directive, specifically including companies with more than 250 employees and turnover exceeding €40 million (US$44 million). These firms were due to report from January 2026.

The third phase, starting in 2026, was due to significantly broadens the scope of CSRD to include listed small and medium-sized enterprises for the first time. In 2028, the fourth phase would have seen full implementation of the CSRD capturing companies with a net turnover exceeding €150 million within the EU and at least one subsidiary or branch meeting specific thresholds.

“It is disappointing when evidence shows that nearly all companies in the first wave were ready to publish reports in full compliance and on time, and that the next wave of businesses have already invested heavily in new systems and processes to do so, that there is such a last minute change to the timetable, which has essentially been driven by political interests,” said Richard Howitt, a strategic advisor on corporate responsibility and former MEP. “From an investor point of view, it simply will mean more cost and burden in bilateral engagement with companies and in more risk where there remain huge data gaps in company reports. This is not an investor-friendly decision.”

The EC, Parliament and Council now need to negotiate the final legal text. This text is likely to be finalised sometime in June. EU member states then have until 31 December to transpose the changes into national law, so that companies which would be subject to CSRD’s second phase do not come into scope of the regulation on 1 January 2026.

“The decision to agree to debate the urgent item on the full European Parliament session this week, demonstrated a traditional left-right divide, with the centre-right EPP willing to use far-right votes to defeat the centre-left,” said Howitt. “Nevertheless, in this vote, the fact that the centre-left chose not to put amendments and ultimately voted to provide a very large majority in favour of the proposal, is an indication that there may still be the will to find a negotiated compromise on the package overall.”

Deregulation divisions

Rasche said the stop-the-clock vote “says little” about whether there will be further push for deregulation by the EPP. “If the EPP are open to negotiating a deal with other centre parties, some of the proposed content in the omnibus may be softened,” he added. “If they accept votes from far-right parties for future omnibus negotiations, then we are likely to see a push to further roll back aspects of the CSRD and CSDDD.”

This iteration of the Parliament is widely regarded as having a right-wing slant, with the Centre for European Policy Studies think tank finding that 24% of MEPs are more right-wing than the EPP. These right-wing parties include the Patriots for Europe.

MEPs from the party put forward an amendment on the CSRD which proposed a 90% reduction of European Sustainability Reporting Standards data points, reporting only every three years, further raising the thresholds for companies, and modifying timelines so that reporting would apply from FY 2030 onwards. It also proposed to delay the implementation of CSDDD until 2040. The amendments were rejected by fellow MEPs.

“This vote is good news in terms of the Parliament’s political approach: the EPP, Renew, S&D and Green political groups agreed to not table any amendments and vote the Commission’s proposal as such,” said Sebastien Godinot, Senior Economist at the WWF European Policy Office. “The counterproductive amendments tabled by the far-right groups have been easily defeated. Today’s vote shows that a delicate balance could be found with the various political groups – EPP, Renew, S&D and Greens – without relying on far-right groups.”

Susanna Arus, EU Public Affairs Manager at law firm Frank Bold branded the amendments as “completely irrational”, which “highlights the disruptive consequences that would arise from aligning with right-wing parties”.

“Today’s vote shows that the right-wing parties in the EU parliament are pushing for irrational proposals and a fully fledged deregulation agenda,” she added. “In doing so, they are siding with some non-EU companies, particularly from the US, which is creating a growing divide.”

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