EU’s Planned Reforms to Sustainability Reporting: A Step Towards Simplification or a Risk to Accountability?

Introduction

The European Union is making significant changes to its sustainability reporting rules in response to growing concerns from businesses about regulatory complexity. As part of the Omnibus Simplification Package, the EU is revising key directives, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy, to make compliance more manageable while maintaining environmental responsibility.

While these changes are meant to ease the burden on businesses, experts warn that simplifying too much could dilute corporate accountability and reduce transparency. Striking the right balance is essential to ensure that sustainability efforts remain effective without creating unnecessary obstacles for companies.

Why is the EU Reforming Sustainability Reporting?

Sustainability reporting has become a core part of doing business in Europe. Companies are now expected to disclose their environmental and social impact, helping investors, regulators, and consumers make informed decisions. However, many businesses—especially mid-sized firms—have struggled with the sheer scale and complexity of these reporting obligations.

Under current rules, the Corporate Sustainability Reporting Directive (CSRD) applies to companies with more than 250 employees and an annual turnover exceeding €40 million, meaning around 49,000 companies are subject to strict sustainability disclosures. However, the proposed reforms raise this threshold to companies with over 1,000 employees and a turnover above €450 million, which will significantly reduce the number of businesses required to comply.

The EU’s plan aims to strike a balance between ensuring corporate transparency and making compliance practical for businesses. The proposed changes include:

• Lighter reporting obligations for mid-sized firms, allowing them to focus on their core business while still maintaining sustainability commitments.
• Extended compliance deadlines, giving companies more time to adapt to the evolving sustainability regulations.
• Simplified definitions and sustainability criteria under the EU Taxonomy, helping businesses understand exactly what qualifies as sustainable activity.
  Elimination of sector-specific reporting requirements, creating a more standardised framework that avoids excessive complexity.

These reforms reflect growing recognition that businesses need clarity and flexibility to implement sustainable practices effectively. However, concerns remain about how these changes might impact transparency and accountability.

Key Challenges and Uncertainties

While most businesses welcome efforts to reduce bureaucracy, some experts argue that simplifying sustainability reporting too much could have unintended consequences.

1. Will Reduced Reporting Mean Less Accountability?

One of the biggest concerns is whether reducing reporting requirements could lead to a decline in corporate accountability. Sustainability reporting was introduced to ensure companies take responsibility for their environmental and social impact, and any weakening of these rules could mean less transparency for investors, consumers, and regulators.

For example, under the proposed changes, some mid-sized companies may no longer have to disclose detailed sustainability information, making it harder for investors to assess their environmental impact. This could be problematic at a time when there is growing pressure on businesses to demonstrate strong environmental, social, and governance (ESG) credentials.

Furthermore, the Corporate Sustainability Due Diligence Directive (CSDDD), which aims to ensure companies take responsibility for human rights and environmental risks in their supply chains, may also see relaxed requirements. This raises concerns that companies might have less oversight of unethical or unsustainable practices within their supply chains, reducing accountability.

 
2. Could Supply Chain Transparency Be Weakened?

One of the most challenging aspects of sustainability reporting is tracking the environmental and social impact of supply chains. Many European companies rely on global suppliers, making it difficult to ensure that materials and labour practices meet sustainability standards.

If reporting obligations are reduced too much, businesses may struggle to verify their supply chain data accurately, leading to potential greenwashing—where companies make misleading claims about their sustainability efforts.

At the same time, businesses argue that supply chain reporting needs to be practical and achievable. Smaller companies, in particular, have limited resources to track every supplier’s carbon footprint or ethical labour practices. The challenge for the EU is finding a middle ground that maintains transparency without placing an excessive burden on businesses.

 
3. The Impact on Investors and Consumer Trust

Sustainability reporting has become a key factor in investment decisions, with many investors looking for companies that can demonstrate strong ESG performance. However, some investors managing trillions of euros in assets have warned that loosening reporting rules could make it harder to assess which companies are genuinely committed to sustainability.

There is also concern that consumer trust in sustainability claims could be undermined. Many consumers actively seek out businesses with strong environmental commitments, and weakening sustainability disclosures could lead to scepticism about whether companies are truly sustainable.

At the same time, there is a growing investment gap in the EU’s sustainability agenda, with €800 billion per year needed to fund green transitions. If sustainability disclosures become less transparent, there is a risk that investors will struggle to direct funds towards truly sustainable projects, slowing down Europe’s progress towards its climate and sustainability goals.

What Do These Changes Mean for Businesses?

The EU’s planned reforms offer businesses a mixed bag—less red tape but continued pressure to demonstrate sustainability. While reducing reporting obligations frees up time and resources, companies must still meet high expectations from investors, consumers, and regulators.

For mid-sized firms, the proposed increase in reporting thresholds could mean escaping the complex and costly compliance currently affecting around 49,000 companies. This could save millions in administrative costs, allowing businesses to focus on real sustainability efforts rather than paperwork.

However, scaling back reporting doesn’t mean businesses can relax. Investors are increasingly prioritising ESG performance, with over €6.6 trillion managed under sustainability criteria. Consumers, too, expect transparency, with 81% wanting companies to be open about their environmental impact. Failing to show strong sustainability leadership could mean losing investment, customer trust, and business opportunities.

How Can Businesses Stay Ahead?

To navigate these changes, companies should:

1. Stay informed – Regulations are evolving, and businesses must be ready for future compliance shifts.
2. Invest in sustainability – Going beyond legal requirements can cut costs and enhance competitiveness.
3. Engage with investors and stakeholders – Clear communication builds trust and strengthens reputation.
4. Adopt voluntary standards – Many clients and supply chain partners will still require sustainability disclosures.

A Strategic Opportunity

While these reforms ease the compliance burden, sustainability expectations aren’t going away. Companies that proactively embrace sustainability will attract investment, strengthen their brand, and future-proof their business. The key isn’t just following regulations—it’s leading the way.

Conclusion

The EU’s sustainability reporting reforms aim to ease bureaucracy without weakening corporate accountability. For mid-sized businesses, fewer reporting requirements mean lower costs and more flexibility, allowing them to focus on genuine sustainability efforts rather than excessive paperwork.

However, transparency expectations aren’t disappearing. Investors, regulators, and consumers still expect businesses to prove their ESG commitments, and those that fall behind risk losing investment and customer trust.

Rather than just ticking compliance boxes, companies should stay proactive, engage with stakeholders, and adopt strong sustainability practices. Sustainability isn’t just about meeting regulations—it’s about future-proofing businesses, protecting reputations, and staying competitive in a rapidly evolving market.

*By Anne Hayden MSc., Founder, The Informed Farmer Consultancy.