EU Omnibus Package: EU Adopts “Stop-the-Clock” Directive and Begins ESRS Simplification Process

On April 14, 2025, the EU adopted the “Stop-the-Clock” Directive to postpone reporting and due diligence obligations for certain companies under the Corporate Sustainability Reporting Directive (CSRD), the Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive (CS3D). The Council of the European Union (Council) formally approved the “Stop-the-Clock” Directive following endorsement by the European Parliament on April 3, 2025, and the Council on 26 March 2025. The directive will enter force one day after publication in the Official Journal of the EU, and EU member states will have to transpose the directive into national law by December 31, 2025.

The European Commission (Commission) proposed the “Stop-the-Clock” Directive on February 26, 2025, together with substantive proposals (here and here) to simplify reporting and due diligence requirements under CSRD, the Taxonomy Regulation, and CS3D. The European Parliament and Council will now focus their attention on these substantive proposals, with a final agreement not expected before early 2026. For a summary of the Commission’s substantive proposals, see Sidley Update here.

In parallel, the EU has also launched the process to simplify the European Sustainability Reporting Standards (ESRS) under CSRD, with an opportunity for companies and other stakeholders to provide input by May, 6.

We summarize the “Stop-the-Clock” Directive and provide background on the ongoing simplification of the ESRS.

The “Stop-the-Clock” Directive

The “Stop-the-Clock” Directive postpones reporting and due diligence obligations for certain companies under CSRD, the Taxonomy Regulation, and CS3D, while the substantive revision of these laws, including of their scope and obligations, is still underway.

• CSRD and Taxonomy: Delay by two years for large undertakings that have not yet started reporting (Wave 2) as well as for listed small and medium-size enterprises (SMEs) (Wave 3):

• Wave 1 (large public-interest entities and issuers on an EU-regulated market with more than 500 employees): no delay under Stop-the-Clock Directive. CSRD currently requires these companies to report for the first time in 2025 for FY 2024 (although some EU Member States have failed to implement this requirement in national law).
• Wave 2 (other large undertakings): the Stop-the-Clock Directive delays reporting by two years. Under the revised CSRD, these companies must report in 2028 for FY 2027. Under the proposed substantive revisions to CSRD, some of the companies currently subject to Wave 2 will fall out of scope of the revised CSRD (if they have fewer than 1,000 employees).
• Wave 3 (SMEs with securities listed on EU regulated markets, certain small and noncomplex credit institutions, and certain captive insurance and reinsurance entities): application delayed by two years. Under the revised CSRD, these companies must report in 2029 for FY 2028. Under the proposed substantive revisions to CSRD, many of the companies currently subject to Wave 3 will fall out of scope of the revised CSRD (if they have fewer than 1,000 employees).
• Wave 4 (reporting for certain non-EU undertakings): no delay under the Stop-the-Clock Directive, so these companies must still report in 2029 for FY 2028. Under the proposed substantive revisions to CSRD, some companies will no longer have to undertake reporting in respect of a non-EU parent (e.g., because the non-EU parent does not generate EU revenues of €450 million).

• CS3D: Delay by one year for the largest in-scope companies (Wave 1) but not for other in-scope companies:

• Wave 1 (EU companies with 5,000+ employees and net worldwide turnover of €1.5+ billion; non-EU companies with net EU turnover of €1.5+ billion): The compliance date is delayed by one year to July 26, 2028.
• Wave 2 (EU companies with 3,000+ employees and net worldwide turnover of €900+ million, and non-EU companies with net EU turnover of €900+ million): The compliance date is unchanged at July 26, 2028.
• Wave 3 (EU companies with 1,000+ employees and a net worldwide turnover of €450+ million and non-EU companies with EU turnover of €450+ million in the EU; also certain EU and non-EU companies with a franchising or licensing business model): The compliance date is unchanged at July 26, 2029.

The deadline for EU Member States to transpose CS3D into national law is also delayed by one year to July 26, 2027.

ESRS simplification

On March 27, 2025, in a letter, the Commission has asked the European Financial Reporting Advisory Group (EFRAG) to provide technical advice, by October 31, 2025, in the simplification of ESRS. According to the Commission, this timeline will enable the Commission to adopt a revised and simplified ESRS for reporting covering FY2027 and “potentially” even for reporting covering FY2026, “if companies wish.”

As part of this process, EFRAG has launched a public call to seek stakeholder input (here). Input is requested through an online questionnaire (here) and will be anonymized. The deadline for submitting input is Tuesday, May 6. Stakeholders, including companies or associations, can use this process to share input on how best to simplify the ESRS. In its public call, EFRAG identified the following examples of possible areas for comment:

• identification of ESRS mandatory datapoints that are the least important or problematic for general-purpose sustainability, per each disclosure requirement
• identification of ESRS provisions that are unclear
• consistency of the ESRS reporting requirements with other EU legislation
• possible improvements to ESRS provisions on materiality to ensure that undertakings do not report unnecessary information or dedicate excessive resources to the materiality assessment process
• possible areas for simplification of the structure and presentation of the standards
• ways to enhance the interoperability with global sustainability reporting standards
• any other modifications that could simplify the ESRS without compromising their role in supporting the Green Deal