EU downsizes and delays its climate disclosure policy

The European Union (EU) is undergoing a major reality check regarding its climate disclosure policy for corporations. Its executive arm, the European Commission, has significantly diminished the scope and effect of the climate policy known as the Corporate Social Responsibility Directive (CSRD). This set of rules would require companies to report on their environmental, social, and governance (ESG) activities across 12 disclosure categories.

The European Parliament recently voted to delay the implementation of the CSRD and its companion law, the Corporate Sustainability Due Diligence Directive (CS3D). As a result, both mandates will be simplified, and the reporting start date has been postponed by several years for large enterprises and parent firms. Additionally, small- and medium-sized enterprises will not begin reporting until 2029, rather than the original 2027 date.

On top of that, the European Commission has proposed an omnibus bill that would impose drastic reductions in the scope of regulations going forward. Eighty percent of the thousands of firms originally targeted, for example, will now be exempted from compliance. This is done by raising the compliance threshold to firms employing 1,000 or more employees, rather than the 250 minimum. This means that 40,000 of the original 50,000 companies will get a pass from the sustainability directive, including many US-based firms with operations in Europe.

This would mark a significant and welcome downsizing of what has been widely viewed as an overly burdensome and invasive mandate. While the majority of these 40,000 firms were based in European countries, thousands of these enterprises were satellite firms or subsidiaries of big US conglomerates. These include Lockheed Martin, SpaceX, Apple, Microsoft, Facebook, and Amazon.

The primary focus of the CSRD is to compel firms to reveal their sustainability activities and carbon footprints. This would be achieved via highly invasive and incriminating reporting requirements. Despite the seemingly noble efforts to promote environmental transparency across Europe, the grim reality is that the compliance costs of the CSRD far outweigh the ostensible benefits.

According to my recent CEI report, the EU’s CSRD comes with a massive price tag of $8.09 billion (€7.45 billion) in compliance costs for the 50,000 reporting firms. This is more than two-and-a-half times greater than the implementation costs of California’s climate disclosure laws at $3.6 billion.

The EU’s mandate is also about 13 times more expensive than the Securities and Exchange Commission’s (SEC) climate disclosure rule, which is nothing to sneeze at. Notably, the SEC was pressured by an array of GOP-led states and interest groups to reduce the original costs of the rule by roughly 90 percent before publishing its final draft. Responding to the sheer unworkability, intense opposition, and implementation woes, it seems that the EU may be moving in a similar direction with its own policy.

Another major issue with the CSRD is that many EU member states have faced difficulties codifying the directive into law. Since the time my CEI report was published in December 2024, only nine EU countries had codified the CSRD into law among the 27 member countries. As of April 2025, this increased to 20 member countries that have codified the CSRD (at least in part) and six countries with pending legislation, marking a notable progression.

Yet, the lingering question is why the policy has not been adopted by all 27 countries. The original deadline for this was last July. Much of this delay stems from the complicated components of the climate rule, chief among these being the Scope 3 mandate and mandatory assurance reporting.

Scope 3 reporting requires companies to reveal all greenhouse gas (GHG) emissions generated by their value chain. Such data is exceedingly difficult to gather or accurately assess, since value chains capture a wide range of product development and services. Attributing GHG emissions to these processes represents a tall task for compliant companies.

While California’s climate disclosure mandate similarly requires Scope 3 reporting, the EU’s version is much more far reaching. The CSRD seeks to capture emissions across the value chains of companies located across 27 different countries and multiple jurisdictions. Many of the primary reporting firms may also collaborate across third-party value chains, requiring a crisscross of overlapping Scope 3 emissions disclosures.

Thankfully, the European Commission’s proposed reduction would mitigate some of the far-reaching effects of the Scope 3 mandate. This includes shielding many large overseas firms conducting business in Europe from compliance. It would also mitigate Scope 3’s “trickle-down effect,” ensuring that “requests for value chain information could not exceed what would be reported under an amended voluntary reporting standard for SMEs [small and medium-sized enterprises].”

The CSRD also goes beyond the SEC and California’s climate policies by imposing mandatory assurance reports. This would require firms to hire independent auditors to conduct costly examinations to verify the validity of their sustainability reports.

By contrast, the SEC’s rule only reserves assurance reporting for a subset of complying firms, namely accelerated filers. Accelerated filers are firms that must periodically disclose their financial information to the SEC within tighter deadlines. Thankfully, the omnibus bill notably reduces the CSRD’s reasonable assurance standard to a lesser, more easily disclosable form known as limited assurance. These are two chief areas in which the EU’s policy adopts a more aggressive approach than its peers.

The European Commission has a golden opportunity to significantly reduce the EU’s mammoth climate disclosure burden. Short of a full repeal, the omnibus bill proposes some noteworthy changes that offer welcome relief for companies. The Commission should follow through and lessen the damage from the CSRD. EU officials should also heed US lawmakers’ growing concerns by exempting US companies from compliance.