What is CSRD?

Why It Matters

The CSRD was supposed to be the most ambitious mandatory sustainability reporting regime ever enacted, covering roughly 50,000 companies. That vision just got a major haircut.

On February 24, 2026, the EU Council adopted the Omnibus I simplification package, raising the reporting thresholds from 250 employees to 1,000 employees and adding a new €450 million annual revenue floor. The result: approximately 90% of companies previously in scope are now exempt. The CSRD still exists, but it's a fundamentally different regulation than what was envisioned in 2022.

This matters for two reasons. First, if you're among the ~5,000 companies that remain in scope, nothing has gotten easier — you still need to report under the full ESRS, conduct a double materiality assessment, obtain third-party assurance, and digitally tag your disclosures. Second, even if you're now exempt, the CSRD's influence doesn't stop at its legal boundaries. Companies in the value chains of in-scope firms will still face data requests. Investors still want sustainability data. And the ESRS have become a de facto benchmark for what good sustainability reporting looks like.

What Changed Under Omnibus I

The New Thresholds

Under the original CSRD, companies met the reporting threshold if they hit two of three criteria: 250+ employees, €50 million+ in turnover, or €25 million+ in total assets. The Omnibus I package replaced this with a much higher bar: 1,000+ employees AND €450 million+ in annual revenue. Both conditions must be met.

Listed SMEs, which were set to start reporting for fiscal year 2026, are now fully exempt from the CSRD. Financial holding entities also received an exemption.

Transition Relief

Wave 1 companies — those already subject to the old NFRD — that filed their first CSRD reports in 2025 but fall outside the new thresholds get a transition exemption for the 2025 and 2026 reporting years. They won't be required to continue CSRD reporting unless they meet the higher thresholds.

CS3D Delays

The companion Corporate Sustainability Due Diligence Directive (CS3D/CSDDD) also got pushed back. The transposition deadline for member states moved to July 2028, with compliance required by July 2029. Critically, the mandatory climate transition plan requirement was removed from the CS3D, though companies still need transition plans under the CSRD if they're in scope.

What Stayed the Same

The ESRS themselves weren't materially changed. The double materiality requirement remains. Third-party assurance (limited, moving toward reasonable) is still required. Digital tagging under the European Single Electronic Format continues. For companies that remain in scope, the reporting obligations are just as demanding as before.

Lessons from Wave 1 Reports

The first round of CSRD-aligned reports landed in early 2025, covering fiscal year 2024 for roughly 2,000 companies previously under the NFRD. Several patterns emerged.

Double materiality was harder than expected. Companies underestimated the time and cross-functional coordination needed for a rigorous double materiality assessment. Many treated it as a check-the-box exercise rather than a genuine strategic analysis, and the results showed.

Value chain data was the biggest bottleneck. Collecting Scope 3 emissions data, supplier social metrics, and downstream impact information proved difficult. Companies with established supplier engagement programs had a clear advantage.

Quality varied widely. Some reports were detailed, data-rich, and clearly informed by the ESRS. Others read like rebranded versions of prior sustainability reports with a thin ESRS overlay. Assurance providers flagged significant gaps in several reports.

The market noticed. Investors and ESG analysts began comparing CSRD reports across companies and sectors. Early movers with strong disclosures received favorable attention. Companies with thin or evasive reporting drew scrutiny.

How the ESRS Works

For companies that remain in scope, the European Sustainability Reporting Standards are the reporting backbone. The first set includes:

• ESRS 1 — General Requirements (principles and architecture)
• ESRS 2 — General Disclosures (governance, strategy, material impacts, metrics)
• ESRS E1-E5 — Environmental standards (climate change, pollution, water, biodiversity, resource use and circular economy)
• ESRS S1-S4 — Social standards (own workforce, value chain workers, affected communities, consumers)
• ESRS G1 — Governance (business conduct)

ESRS 1 and 2 are mandatory for all in-scope companies. The topical standards apply based on the results of your double materiality assessment. If a topic is material from either a financial impact or sustainability impact perspective, you report on it.

Sector-specific standards remain in development, though the timeline has been pushed back as part of the broader simplification effort.

Impact on Non-EU Companies

The Omnibus I changes affect non-EU companies in several ways. The higher thresholds mean fewer non-EU companies will be directly subject to CSRD. Those that are — non-EU companies with €450 million+ in EU net turnover and a qualifying EU subsidiary or branch — will report under a simplified standard set, though the timeline has shifted.

But the indirect effects remain powerful. Large EU companies still in scope need value chain data from their global suppliers. European investors and lenders continue to use CSRD-aligned data in their decision-making. And several non-EU jurisdictions are developing their own mandatory sustainability reporting regimes, often drawing on the ESRS as a reference point.

Council Fire's Perspective

The Omnibus I rollback is a pragmatic recognition that the original CSRD scope was politically unsustainable. But it would be a mistake to read this as the EU backing away from sustainability reporting. The companies that remain in scope — Europe's largest firms — still face the world's most demanding sustainability disclosure requirements.

For companies now outside the CSRD's direct scope, the question isn't whether to do sustainability reporting, but how much and to what standard. Value chain data requests from in-scope companies will trickle down. Investors still want the data. And many companies that invested in CSRD readiness are choosing to continue reporting voluntarily because the exercise proved genuinely useful for identifying risks and opportunities.

Council Fire helps organizations assess their position under the revised CSRD scope, build or maintain ESRS-aligned reporting capabilities, and prepare for the value chain data requests that will continue flowing regardless of direct obligations.

What's Next

The CSRD's evolution isn't over. The European Commission is expected to issue guidance on the new thresholds and transition arrangements. Sector-specific ESRS standards are still coming, albeit on a delayed timeline. And the shift from limited to reasonable assurance will raise the bar on data quality for companies that remain in scope.

The broader trajectory is clear: mandatory sustainability reporting is here to stay, even if the scope swings with political winds. Companies that build genuine sustainability measurement and management capabilities — rather than treating reporting as a compliance exercise — will be better positioned regardless of where the regulatory lines land.