The "Stop-the-Clock" proposal to delay sustainability reporting under the Corporate Sustainability Reporting Directive ("CSRD") and due diligence obligations under the Corporate Sustainability Due Diligence Directive ("CS3D") was approved by the European Parliament on 3 April, with immediate consequences for many large companies preparing CSRD reports.
Delays to reporting
The main impact of the Directive is to introduce a two year delay to sustainability reporting obligations for "wave 2" companies – "large" non-listed undertakings and groups which were expecting to have to report in 2026 on data relating to the 2025 financial year. Many such companies were advanced in their preparations and some are expected to voluntarily report despite the lifting of the regulatory requirement to do so.
Small and medium-sized public interest entities (mostly those with equity or debt listed on an EU regulated market) will also benefit from a two year delay in their own reporting obligations, which shift from a requirement to report in 2027 to 2029.
There is no relief for large public interest entities with more than 500 employees – those already reporting under NFRD – who will still have to comply with CSRD this year and in future years until further changes are made, via the main substantive proposal to change the scope and reporting requirements. Similarly, there is no change to the intended timelines for reporting by non-EU groups (first reports due in 2029).
Longer runway for due diligence obligations
In addition, the Stop-the-Clock directive will provide EU Member States with an additional one year to implement CS3D and remove the first compliance deadline which would have entailed the very largest companies having to comply by July 2027 – these companies will now need to comply with the "second wave" companies, by July 2028.
A harbinger of difficult negotiations ahead
Although sufficient consensus was reached to enable the Stop-the-Clock directive to proceed quickly, the procedure in the European Parliament revealed vast differences in the views of the various political parties, giving an indication of just how difficult negotiation of the substantive directive to amend CSRD and CS3D is likely to be.
Between 1 April when the Parliament voted to use its urgent procedure for the Stop-the-Clock directive, and 3 April when it voted to approve it, MEPs were able to submit amendments to the draft text. At one end of the spectrum, The Left Group proposed to simply reject the Commission proposal in its entirety, referring to a dismantling of core pieces of legislation contributing "to the erosion of citizens' trust in EU institutions". By contrast the ECR Group submitted an amendment which would have added a new recital to the Directive, referring to "[t]he socio-economic and praxeological inefficiency of the Green Deal, which turns out to be a purely ideological axiom for the changes implemented so far, rather than the result of an analysis of economic reality" and proposing to delay both CSRD and CS3D until 2040. The Patriots for Europe (PfE) group proposed a new recital which would urgently require the Commission to remove up to 90% of the ESRS, move reporting to once every three years, and further raise the thresholds for application of CSRD. The Commission text was approved without any amendments, with 531 out of 617 votes in favour.
The Commission still aims to move the substantive proposal for amending CSRD and CS3D through the institutions swiftly, but how it will achieve this in light of the clearly polarised positions is not clear.
Next steps
As the Council already endorsed the Commission's proposed text on 26 March, the final steps to bring the Directive into force are the Council's formal approval and the Directive's publication in the Official Journal. According to the draft text, the Directive will enter into force the day after its publication (rather than the more usual 20 days). Member States of the EU then have until 31 December 2025 to amend their existing laws (at least, those which have implemented CSRD) to make the reporting delays effective. Ireland could be a frontrunner in doing so, as the Irish government indicated at the end of March that it will shortly amend the national reporting regulations to clarify certain scoping provisions which were seen as inadvertently broader than required by CSRD, as well as quickly making changes to the timetable for reporting.
What should business do now?
The Stop-the-Clock directive will be welcomed by many businesses relieved of the burden of reporting next year, particularly those expecting to be below the proposed thresholds for reporting in the future. Many companies are, however, expected to continue with well-progressed preparations to report in the short term, but they will have more flexibility to step outside the strict confines of the ESRS and potentially even dispense with assurance by publishing their report separately from the management report, should they so choose. Those companies will, however, need to be very aware of greenwashing risks – their reports will no doubt be scrutinised by NGOs and it will be important that any data and claims are robustly checked before publication. Other companies may opt to redirect their energy and resources to sustainability action rather than sustainability reporting.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
