Stop-the-Clock Proposal under EU Sustainability Omnibus Proposal approved by the EU institutions

Background

As part of its commitment to simplify EU rules and boost EU competitiveness, the European Commission published its sustainability omnibus proposal (Omnibus Proposal) on 25 February 2025 under which it proposed a significant overhaul of: 

• the Corporate Sustainability Reporting Directive (CSRD);

• delegated acts published under the Taxonomy Regulation; and

• the Corporate Sustainability Due Diligence Directive (CSDDD).

The changes put forward by the European Commission under the Omnibus Proposal include:

• amending the scope of CSRD so that mandatory reporting obligations would only apply to large companies with more than 1000 employees and either a turnover above EUR 50 million or a balance sheet total above EUR 25 million;

• revising and simplifying the existing European Sustainability Reporting Standards (ESRS) sustainability reporting templates which must be used to report information under the CSRD; and

• revising and simplifying due diligence obligations for those EU and non-EU companies which fall within the scope of the CSDDD.

In order to allow the co-legislators adequate time to consider and reach agreement on these reforms, the Omnibus Proposal also incorporated a Stop-the-Clock proposal under which the European Commission proposed that:

• the application date of CSRD for (i) large companies due to start reporting under the CSRD for the first time in 2026 (Wave 2 Companies) and (ii) listed SMEs due to start reporting under the CSRD for the first time in 2027 (Wave 3 Companies) be postponed by two years. We expect that this is to avoid a scenario where such companies incur significant costs in implementing a CSRD-compliant reporting framework only to subsequently fall outside of the scope of the revised reporting obligations; and

• the deadline for EU Member States to transpose CSDDD into national law be postponed by one year to 26 July 2027 and the application of the first phase of due diligence requirements for in-scope companies be delayed by one year to 26 July 2028[1].

What has been approved by the European Parliament and the Council of the EU and what does this mean for Wave 2 Companies and Wave 3 Companies?

Both the Council of the EU[2] and the European Parliament[3] have now approved the Stop-the-Clock proposal. Once formally adopted by the Council of the EU, the relevant legislation will be published in the Official Journal and Member States will be required to transpose this legislation into national law by 31 December 2025.

This should provide Wave 2 Companies and Wave 3 Companies with comfort that they are not required to comply with CSRD reporting obligations in respect of the annual financial statements published by them in 2026/2027 respectively.

The Stop-the-Clock proposal also provides clarity on the “start date” of the obligations imposed on the first wave of companies falling within the scope of the CSDDD.

Domestic implementation of CSRD

In a press release published earlier this week, the Irish Department of Enterprise, Trade and Employment (DETE) committed to implementing the Stop-the-Clock proposal into Irish law as soon as implemented under EU law.

Helpfully, the press release also confirmed that DETE will shortly introduce amending regulations to further clarify and reduce the scope of Irish companies subject to CSRD reporting obligations.

What happens to the other proposals put forward by the European Commission as part of its Omnibus Proposal?

The co-legislators must now consider the more substantive changes to the CSRD and the CSDDD put forward by the European Commission in the Omnibus Proposal. 

Contact Us

If you have any questions arising from this briefing, please get in touch with any of the authors or your usual contact in the Dillon Eustace Asset Management and Investment Funds team.

Footnotes:
[1] A detailed overview of the proposals put forward by the European Commission in its Omnibus Proposal is provided in our briefing on the topic.
[2] Simplification: Council agrees position on the ‘Stop-the-clock’ mechanism to enhance EU competitiveness and provide legal certainty to businesses - Consilium
[3] Sustainability and due diligence: MEPs agree to delay application of new rules | News | European Parliament