Sustainability update

• European Commission de-prioritises certain delegated acts
• European Commission delivers on ITS and RTS under Green Bond Regulation
• Council endorses agreement on EU carbon leakage mechanism
• Ministers discuss 2040 climate target
• ESMA’s letter on EFRAG’s revised ESRS

JURI Committee reaches a compromise agreement on the Omnibus proposal

After intense negotiations, the European Parliament (EP) Legal Affairs (JURI) Committee reached an agreement on the Omnibus proposal amending certain sustainability reporting and due diligence rules.

The JURI Committee is set to vote on its position on 13 October followed by the EP plenary vote on 20 October.

Key elements of the compromise text

Corporate Sustainability Reporting Directive (CSRD)

• Scope: undertakings and parent undertakings of large groups exceeding 1000 employees (on average during the financial year) and EUR 450 million in net turnover
• Public interest entities (PIEs) can benefit from reporting exemption if they are included in consolidated sustainability reporting by a parent undertaking
• Climate transition plans must be disclosed, if available
• Undertakings must not require information from their value chain companies (those that do not exceed 1000 employees and EUR 450 million net turnover thresholds) information beyond voluntary reporting standards, except for commonly shared sector data
• Obligation to adopt a voluntary sustainability reporting standard for companies falling outside of the scope; the standard to be based on the EC’s recommendation on VSME
• Provisions on optional taxonomy reporting for certain undertakings have been deleted
• Obligation to develop voluntary sector-specific guidelines for materiality assessments
• Obligation to adopt a limited assurance standard no later than 1 October 2026
• Thresholds applicable to non-EU companies’ subsidiaries and branches have been revised
  • Subsidiary established in an EU Member State and exceeding EUR 450 million net turnover

Corporate Sustainability Due Diligence Directive (CSDDD)

• Scope: companies exceeding 5000 employees and EUR 1.5 billion net worldwide turnover; non-EU companies generating over EUR 1.5 billion in the EU in the preceding year
• Obligation to adopt a transition plan is kept but the requirement to put them into effect is deleted
• No EU wide liability regime, but EU must assess effectiveness of enforcement and penalties, and whether additional civil liability rules are needed in future
• Harmonisation rules prohibiting MS from diverging from due diligence obligations in core Articles (6 to 16)
• Companies must adopt a risk-based approach, considering geographical, sectoral, product, service, and partner-related risk factors
• Companies must review due diligence processes every 4 years or sooner if significant changes or new risks arise
• Supervisory authorities gain broad investigative powers and must monitor compliance with the climate transition plans
• Maximum penalties must be set at 5% of net worldwide turnover (or consolidated turnover for groups)

European Commission de-prioritises certain delegated acts

The European Commission (EC) announced the de-prioritisation of 115 non-essential Level 2 acts in financial services legislation to streamline regulation and focus on key priorities. The EC will not adopt those acts before 1 October 2027 and will propose to remove an obligation to adopt an act within a specific deadline if necessary. Sustainability-related delegated acts (DAs) that will be affected include:

• ten acts under the Sustainable Finance Disclosure Regulation (SFDR), several linked to the EU Taxonomy
• seven acts linked to the Accounting Directive, such as:
  • DAs on LSME European Sustainability Reporting Standards
  • DA on sector-specific European Sustainability Reporting Standards (ESRS) and its amending DA
  • DA on ESRS for certain third country undertakings
  • DA on amending the first set of ESRS
• DAs under the Audit Directive on limited and reasonable assurance standards.

Other affected DAs are linked to the Transparency Directive, ESG ratings regulation, and the EGBR.

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Commission delivers on ITS and RTS under Green Bond Regulation

The EC has adopted a delegated regulation with Implementing Technical Standards (ITS) and Regulatory Technical Standards (RTS) for external reviewers under the European Green Bond Regulation (EGBR).

The EC mandated the European Securities and Markets Authority (ESMA) to develop these standards. ESMA consulted stakeholders until June 2024, and Accountancy Europe provided its response.

While the ITS are not yet public, the RTS are already available. The RTS cover:

• senior management and board requirements
• staff capacity and training
• sound management and conflict-of-interest rules
• outsourcing conditions with ESMA oversight

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EU proposes second delay to anti-deforestation rules

The EC is set to postpone, for a second time, the enforcement of its landmark anti-deforestation regulation (EUDR) by one year.

Environment Commissioner Jessika Roswall has cited technical constraints, especially the risks of overloading the IT systems used to verify supply chains. The regulation targets import like palm oil, soy, timber and cocoa produced on recently deforested land.

Originally planned for 2024, the EUDR has already been delayed once. If approved by the EP and the Council, the new timeline would give affected businesses more time to comply. However, several NGOs have criticised the postponement as a weak excuse, with WWF likening it to claiming that “my dog ate my homework.” They warn that the delay could weaken the regulation.

A group of MEPs has sent a letter to the EC, urging it to explore every possible solution to the IT issues without reopening the law for further postponement.

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ECON and ENVI Committees holds scrutiny session on EU Taxonomy DA with Commissioner Albuquerque

The EP Economic and Monetary Affairs (ECON) and Environment, Public Health and Food Safety (ENVI) Committees exchanged views with Commissioner Maria Luís Albuquerque on the European Commission’s Delegated Act (DA) aimed at simplifying the EU Taxonomy framework. The DA is currently under scrutiny by the co-legislators.

Key takeaways:

• the EP has extended the scrutiny period until 5 January 2026
• Commissioner Albuquerque called for swift approval to ensure legal certainty for 2026 reporting. She also announced that the review of the Climate and Environmental DAs’ technical screening criteria is underway and to be finalised by mid-2026
• the EPP group supported swift adoption, while the S&D expressed concerns over the potential weakening of environmental safeguards. The Greens warned of risks from the 10% materiality threshold and transitional exemptions, and the Renew Group voiced moderate criticism, calling for clarification on reporting obligations
• the Left Group announced its intention to table an objection

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JURI Committee votes on new Chair of EFRAG SRB

Candidates for the position of Chair at EFRAG’s Sustainability Reporting Board (SRB) appeared before the EP JURI Committee meeting to present their vision ahead of the vote held later that afternoon.

• Mrs Chiara del Prete, Chair of EFRAG Sustainability Reporting Technical Expert Group (TEG), focused on reducing the complexity of reporting requirements while keeping them workable for companies and auditors.
• Mrs Kerstin Lopatta, Vice Chair of EFRAG Sustainability Reporting Board and Professor of Accounting, Auditing and Sustainability at the University of Hamburg, stressed the importance of continuity in the standard-setting process, building trust, and strengthening cooperation with European and global partners.
• Mr Adam Pradela, CFO Corporate Sustainability at DHL Group, highlighted the need for standards that are practical for businesses to apply across large groups while ensuring comparability.

All three candidates pointed to Europe’s ambition, the role of digital tools, and the challenges faced by SMEs. A closed-door vote took place on the same day, with the results due in October.

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EU ministers discuss 2040 climate target

EU ministers discussed the EC’s proposal for a regulation amending the European Climate Law to include a formal 2040 climate target. The target aims for a 90% net reduction in greenhouse gas emissions compared with 1990 levels.

On 18 September, the Environment Council debated the proposal, assessing progress and priorities. Key highlights include:

• France and Germany backed high climate ambitions but stressed the need to ensure competitiveness
• Spain emphasised solidarity and equitable funding for a just transition
• Italy highlighted the need to support low-carbon solutions

At the Competitiveness Council on 29 September, discussions focused on aligning climate ambition with industrial priorities. Key highlights include:

• France framed the 2040 target as both a climate and economic strategy
• Italy and Germany sought safeguards and affordable energy, and
• Spain supported a 90% emission reduction to ensure predictability for investors.

Council endorses agreement on EU carbon leakage mechanism

The Competitiveness Council reviewed progress on the Omnibus proposal on sustainability, which amends certain sustainability reporting and due diligence rules. Ministers reaffirmed their commitment to reach an agreement with the EP before the end of the year.

On the same day, the Council approved the regulation simplifying and strengthening the EU’s carbon border adjustment mechanism (CBAM), part of the Omnibus I package. The amendments aim to:

• reduce regulatory and administrative burdens
• lower compliance costs for EU companies, particularly SMEs, while maintaining the climate ambition, covering around 99% of embedded emissions in imported CBAM goods

Key changes include:

• a new de minimis threshold exempting imports up to 50 tonnes per year
• provisions allowing imports pending CBAM registration in early 2026, and
• simplifications to authorisation, data collection, emissions calculation, verification, financial liability, penalties, and indirect customs representation.

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Council sets course for EU’s next climate commitment ahead of COP30

The Council has approved a statement of intent in preparation for the EU’s post-2030 Nationally Determined Contribution (NDC) under the Paris Agreement. The statement:

• reaffirms the EU’s commitment to the 1.5°C goal and confirms that the EU is on track for a 55% emissions reduction by 2030
• signals that the upcoming NDC, to be submitted before COP30, is expected to include a 2035 target of 66.25% –72.5% below 1990 levels.

The Danish Presidency and the EC will submit the statement to the UNFCCC Secretariat and the Paris Agreement Implementation and Compliance Committee. The final NDC will ultimately depend on the outcome of negotiations on the amended EU Climate Law and its proposed 2040 target.

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EFRAG’s reports on mapping digital tools, platforms, and initiatives for VSME

EFRAG released two reports to support the application of the Voluntary Sustainability Reporting Standard for SMEs (VSME):

1. the first provides practical support to SMEs that wish to report their GHG emissions based on VSME
2. the second provides an overview of the 223 platforms and initiatives for SMEs reporting.

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EFRAG consults on VSME market acceptance

EFRAG issued a consultation to determine the VSME market acceptance following the EC’s recommendation. The survey:

• aims to assess the current level of awareness and use of the VSME standard
• seeks to understand its acceptance among SMEs as a voluntary reporting tool
• seeks to measure acceptance among users such as financial institutions, business partners, and supply chain actors
• aims to identify barriers and opportunities that could foster broader uptake of the standard across Europe.

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ESMA’s letter on EFRAG’s revised ESRS

The ESMA contributed to EFRAG’s consultation on the revised European Sustainability Reporting Standards (ESRS) and:

• supports the objective but warns about the risks associated with such an overhaul, given the time pressures and limited experience in ESRS application
• recognises the improvements in readability, language and format of the standards, as well as in the volume of the requirements
• acknowledges that the proposals have generally preserved the EU data availability
• disagrees with splitting the 2 aspects of Double Materiality Assessment (DMA) and proposes an alternative approach
• emphasises no material information on Impacts, Risks and Opportunities (IROs) should be lost
• calls for a clear definition of what constitutes a ‘transition plan’
• notes that some proposals have diminished interoperability with ISSB standards

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ESMA sets strategic priorities and supervisory focus for 2026

ESMA has published its work programme for 2026 setting out three strategic priorities:

• fostering effective markets and financial stability
• strengthening supervision of EU financial markets
• financing protection of retail investors

Thematic drivers include enabling sustainable finance and facilitating technological innovation and effective use of data.

ESMA’s supervisory remit will extend notably to cover:

• external reviewers under the European Green Bond Regulation
• external reviewers under the ESG Rating Regulation

On sustainability, ESMA will:

• contribute to ESRS development as an observer at EFRAG
• contribute to the EU Taxonomy framework development through the EU Platform on Sustainable Finance
• advance work on transition finance, drawing on its greenwashing reports and common supervisory actions from 2023–2025
• work on supervisory convergence through digital tools, case discussions, and exchanges on sustainability guidelines, such as fund naming and reporting.

ESMA may also contribute to forthcoming revisions of the EU Taxonomy Regulation.

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New ISSB appointments

Sue Lloyd has been reappointed to the International Sustainability Standards Board (ISSB) for a second four-year term as Vice-Chair, starting on 1 March 2026. Her reappointment comes as the IFRS Foundation updates its membership following the conclusion of several inaugural ISSB members’ terms.

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PwC global sustainability reporting survey: from insights to value

PwC’s latest survey of 496 companies reporting under CSRD or ISSB shows that sustainability reporting delivers value beyond compliance:

• over two-thirds of early reporters said they gained significant or moderate benefits from the data and insights collected
• those seeing high value use sustainability insights to inform decisions on business strategy (38% vs 11%), compliance (48% vs 15%), risk management (38% vs 13%), supply chain (28% vs 7%), finance (22% vs 5%) and workforce transformation (20% vs 5%)
• more than half (56%) of these companies have also increased investment in sustainability reporting
• technology adoption is rising, with over half now using central data storage, carbon calculators and disclosure tools
• looking ahead, 40% of future CSRD reporters plan to delay reporting by two years per the EU’s ‘stop the clock’ directive, while another 40% will continue on schedule — under CSRD, ISSB or GRI

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Impact of the EU-US trade agreement on EU climate objectives

• Question by Marie-Luce Brasier-Clain (PfE/France)
• Reply by Commissioner Maroš Šefčovič