Important update on CSRD, ESRS and Omnibus

The week of July 7, 2025, several documents were published in connection with the CSRD Omnibus procedure and its implementation in the German market. In this bulletin, we summarize the key points from the three most important documents. The publications are

1. First drafts of ESRS Set 2, which were published in connection with the meeting of the EFRAG Sustainability Reporting (SR) Technical Expert Group (TEG) on July 10, 2025
2. The Delegated Act (“quick fix”) of July 11, 2025
3. The Federal Government’s draft bill on CSRD implementation

1. First drafts of the ESRS Set 2 of the EFRAG SR TEG

In this paper, we discuss the introduction (“Draft Amended ESRS Exposure Draft UNAPPROVED Working documents- Cover note”), which contains explanations of the intended changes, and examine excerpts from thematic standards as examples of intended changes.
The main changes from ESRS Set 1 to Set 2 that EFRAG SR is voting on are:

• Overall reduction of data points: EFRAG proposes to reduce ESRS data points by 66%, exceeding the 50% reduction target announced in June 2025.
• All but a few of the 277 optional data points are to be deleted.
• EFRAG has committed not to add any new data points or convert optional data points into mandatory data points as part of this revision.

Area of change	Previous status	Revised status (July 2025)
Total data points	100%	34% (66% reduction)
Mandatory data points	100%	50% (50% reduction)
Optional data points (“may”)	277	With the exception of a few data points, deleted.

Important structural and content-related changes to ESRS Set 1

1. Simplification and streamlining
   • Less granular disclosures: EFRAG adopts a less granular approach to the narrative disclosures as well as in relation to the duplication of topic-specific disclosures, particularly in the “Policies, Actions, and Targets (PATs)” areas.
   • The revised structure makes a clear distinction between mandatory and non-mandatory elements.
2. Double materiality assessment (DMA)
   • Simplified procedure: The DMA process will be streamlined to remove ambiguity and avoid the DMA becoming a mere compliance exercise. The intention is to make the DMA more meaningful and less burdensome.
3. Option for executive summaries
   • Companies are given the option of including an executive summary at the beginning of their sustainability declarations to make them easier to read.
4. Interoperability and harmonization
   • EFRAG is revising the wording of the ESRS to align it as far as possible with the standards of the International Sustainability Standards Board (ISSB) (IFRS S1 and S2).
   • Some data points that were previously aligned with ISSB will be removed to contribute to the overall reduction, while maintaining alignment at the higher level of disclosure requirements.
5. Simplifications and reduction of effort
   • Incorporated IFRS practical expedients: Most IFRS reliefs (“undue costs and effort”) that are consistent with the European context have been included, with the exception of the omission of Scope 3 GHG emissions due to their relevance to EU targets.
   • Transitional relief: Existing transitional reliefs are retained, but this may increase the differences with the ISSB standards.

For all thematic standards of the ESRS, i.e. E1-5, S1-4, G1, “drafts” are already available (the quotation marks are intended to indicate that they are only working papers to date), which we cannot discuss in detail here due to the relatively short time since their publication. In the coming weeks, we will take a closer look at the drafts and report back to our clients and partners.

What is noticeable on first reading, however, is how much the requirements for Disclosure Requirements and Mandatory Disclosure Requirements have been “thinned out”. Below are two examples, one an excerpt from E5 Circular economy, the other from S2 Employees in the supply chain, which may illustrate how much smaller the scope of data points could be in the future ESRS. (As mentioned at the beginning, these are drafts that have not yet been officially adopted).

ESRS Set 1

ESRS Set 2 (Draft July 10, 2025)

Disclosure Requirement E5-1 – Policies related to RESOURCE USE AND CIRCULAR ECONOMY   12. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to resource use and circular economy.  13. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material impacts, risks and opportunities related to resource use and circular economy.  14. The disclosure required by paragraph 12 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to resource use and circular economy in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.  15. In the summary, the undertaking shall indicate whether and how its policies address the following matters where material:   (a) transitioning away from use of virgin resources, including relative increases in use of secondary (recycled) resources;  (b) sustainable sourcing and use of renewable resources.   16. policies shall address material impacts, risks and opportunities in its own operations and along its upstream and downstream value chain.

Disclosure Requirement E5-1 – Policies related to RESOURCE USE AND CIRCULAR ECONOMY  12. the undertaking shall disclose its resource use and circular economy policies in accordance with the provisions of ESRS 2 GDR-P.  11. (amended 35) In addition to the information required by ESRS 2 GDR-P, the undertaking shall explain, where applicable, how it integrates circularity and eco-design principles in its key products and services.   🡪 The term GDR (“General Disclosure Requirements”) appears at the top of the text for the first time. term MDR (“Minimum Disclosure Requirements”).

Extract from ESRS E5 Circular Economy from ESRS Set 1 and ESRS Set 2 in draft form. 

ESRS Set 1

ESRS Set 2 (Draft July 10, 2025)

Disclosure Requirement S2-1 – Policies related to VALUE CHAIN WORKERS   14. The undertaking shall describe its policies adopted to manage its material impacts on value chain workers, as well as associated material risks and opportunities.  15. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of material impacts on value chain workers specifically, as well as policies that cover material risks or opportunities related to value chain workers.  16. The disclosure required by paragraph 14 shall contain the information on the undertaking’s policies to manage its material impacts, risks and opportunities related to value chain workers in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters. In addition, the undertaking shall specify whether such policies cover specific groups of value chain workers or all value chain workers.  17. The undertaking shall describe its human rights policy commitments2 that are relevant to value chain workers, including those processes and mechanisms to monitor compliance with the UN Guiding Principles on Business and Human Rights, ILO Declaration on Fundamental Principles and Rights at Work or OECD Guidelines for Multinational Enterprises. In its disclosure, it shall focus on those matters that are material in relation to, as well as the general approach to:   (a) respect for the human rights, including labor rights, of workers;  (b) engagement with value chain workers; and  (c) measures to provide and/or enable remedy for human rights impacts.   18. The undertaking shall state whether its policies in relation to value chain workers explicitly address trafficking in human beings, forced labor or compulsory labor and child labor. It shall also state whether the undertaking has a supplier code of conduct. The undertaking shall disclose whether and how its policies with regard to value chain workers are aligned with internationally recognized instruments relevant to value chain workers, including the United Nations (UN) Guiding Principles on Business and Human Rights116. The undertaking shall also disclose the extent to which cases of non-respect of the UN Guiding Principles on Business and Human Rights, ILO Declaration on Fundamental Principles and Rights at Work or OECD Guidelines for Multinational Enterprises that involve value chain workers have been reported in its upstream and downstream value chain and, if applicable, an indication of the nature of such cases.

Disclosure Requirement S2-1 – Policies related to VALUE CHAIN WORKERS   10. (16 amended) The undertaking shall describe its policies for managing the material impacts, risks and opportunities related to value chain workers in accordance with ESRS 2 GDR-P. It shall state whether these policies cover specific groups of value chain workers (for example, particular age groups, workers in a particular factory or country) or all value chain workers.  11. (18 amended) The undertaking shall state whether its policies in relation to value chain workers explicitly address trafficking in human beings, forced labor or compulsory labor and child labor.  12. (18 amended) The undertaking shall also state whether the undertaking has a supplier code of conduct.

Our conclusion 

The final exposure draft is expected by the end of July 2025, a public consultation will follow and adoption is targeted within six months of the CSRD amendments coming into effect. 

Nevertheless, EFRAG’s introduction to the drafts as well as the drafts of the individual standards (all of which are public and can be accessed) show very clearly in our view the direction in which the discussion around ESRS Set 2 is developing. 

2. Delegated Act (“Quick fix”) of July 11, 2025 

The Delegated Act on the “quick fixes” of July 11, 2025 mainly affects companies in the first wave (“Wave One”). “Wave One” companies are those that had to report for the first time under the CSRD/ESRS regime in 2025 for the 2024 financial year. They are defined in Article 5(2) subparagraph 1(a) and subparagraph 3(a) of Directive (EU) 2022/2464 (Corporate Sustainability Reporting Directive). The Wave One companies affected by this Delegated Act include PIE companies (“public interest enterprises”), listed companies and companies that were already covered by the NFRD. 

The thrust of the “quick fix” is to extend exemptions for the next two years. It is important to note that this delegated act distinguishes between companies with up to 750 employees and companies with more than 750 employees. Wave One entities that use the temporary exemptions for a full thematic standard must still report certain summarized information on the topic in question if they conclude that the topic in question is material (see ESRS 2, General Disclosures, paragraph 17). 

Provisions for all first wave entities 

Previous provision	Amendment
May omit expected financial effects for financial year (FY) 2024	Extended to FY 2025 and 2026

Rules for first wave companies with up to 750 employees 

Previous provision	Amendment
May omit Scope 3 GHG emissions and total GHG emissions for FY 2024	Extended to FY 2025 and 2026
May omit all information under ESRS E4 (Biodiversity and Ecosystems) for FY2024 and 2025	Extended to FY 2026
May omit all information under ESRS S1 (own employees) for FY 2024	Extended to FY 2025 and 2026
May omit all information under ESRS S2 (employees in the value chain) for FYs 2024 and 2025	Extended to FY 2026
May omit all information under ESRS S3 (affected communities) for FYs 2024 and 2025	Extended until FY 2026
May omit all information under ESRS S4 (consumers and end users) for FYs 2024 and 2025 are omitted.	Extended through FY 2026

Regulations for first wave companies with more than 750 employees 

Previous provision	Amendment
Report in accordance with ESRS E4 (Biodiversity and Ecosystems), if material, no phase-in	May omit all information for FYs 2025 and 2026
May omit certain information under ESRS S1 (Own Workforce) for FY 2024: Characteristics of non-employees in the company’s own workforce Coverage by collective agreements and social dialog in non-EEA countries Social protection Percentage of employees with disabilities Training and skills development Cases of work-related illness Number of days lost due to injuries, accidents, fatalities and work-related illnesses Health and safety in relation to non-employees Work-life balance	Extended to FY 2025 and 2026
Report in accordance with ESRS S2 (Employees in the value chain), if material, no phase-in	Can omit all information for FY 2025 and 2026
Report on ESRS S3 (affected municipalities), if material, no phase-in	Can omit all information for FYs 2025 and 2025
Report to ESRS S4 (consumers and end users), if material, no phase-in	Can omit all information for FYs 2025 and 2025

Our conclusion 

The relief granted by the European Commission to large and listed companies with regard to disclosure obligations will certainly be welcomed by the companies concerned. Nevertheless, we are still surprised by this “generosity” on the part of the European Commission, as most Wave One companies had already prepared for ESRS Set 1 and had not even asked for any relief. 

3. Key points of the draft bill on the implementation of the CSRD

One year after the deadline for the German government to transpose the EU’s Corporate Sustainability Reporting Directive (CSRD) into German law, the Federal Ministry of Justice has presented a new draft. 

The draft should hardly come as a surprise, as predecessors of the current federal government have generally shown themselves to be very “loyal” to directives from Brussels. It should also come as no surprise that the Ministry of Justice is keeping other regulations open that will only be included in the CSRD Implementation Act after the omnibus procedure in Brussels has been completed. 

We summarize the key points of the 205-page draft bill here. 

Transposition of the CSRD into German law 

• The draft transposes EU Directive 2022/2464 (CSRD) on sustainability reporting 1:1 into national law. 

• The German government is keeping open the option of subsequently incorporating future simplifications at EU level (omnibus procedure) into German law. 

Postponement of reporting deadlines (“Stop-the-Clock Directive”) 

• The introduction of the sustainability reporting obligation for the “2nd wave” and “3rd wave” of companies will be postponed by two years. 

• Companies that were originally due to report from 2026 or 2027 now only have to report from the 2027 or 2028 financial years. 

Extension of the management report 

• Large companies and capital market-oriented small and medium-sized enterprises must add a sustainability report to their management report. 

• The sustainability report will become an integral part of the management report. 

Audit obligation for sustainability reports 

• Sustainability reports are subject to an independent audit. 

• The audits may only be carried out by auditors – despite criticism and discussions, there are still no plans to open up to other audit service providers (e.g. TÜV, Dekra). 

Exemption and simplification regulations 

• Subsidiaries can be exempted from the reporting obligation under certain conditions if the parent company already prepares a compliant sustainability report. 

• Companies with 501 to 1000 employees are exempt from the reporting obligation for the 2025 and 2026 financial years – this is in anticipation of expected EU simplifications. 

Reduction of the scope of application in prospect 

• The German government supports EU proposals to raise the thresholds (e.g. 1,000 employees) and to limit the so-called “trickle-down effect” (value chain cap). 

• If the scope of application is restricted as proposed, only up to 3,900 companies would be required to report in Germany in future (instead of around 15,000 to date). 

Content requirements for the sustainability report 

• The report must contain information on environmental, social and governance (ESG) issues, business model, strategy, objectives, measures, risks, value chain and due diligence processes. 

• The requirements are based on the European Reporting Standards (ESRS). 

Standardized electronic reporting format 

• Sustainability reports must be prepared and published in the standardized electronic reporting format (ESEF/XHTML). 

• Criticism: The introduction of the digital format is seen by companies as an additional expense. 

Sanctions and fines 

• Violations of the reporting obligation or incorrect reports will be subject to fines and administrative penalties. 

• New sanctions are also being introduced for auditors. 

New qualification for auditors of sustainability reports 

• Auditors who wish to audit sustainability reports must complete an additional examination and further training. 

• A new professional register will be created for auditors of sustainability reports. 

Supplementary current information from the explanatory memorandum to the law 

• The Federal Ministry of Justice estimates the annual compliance costs for businesses with a limited scope of application and reduced audit standard at around 430 million euros (previous estimate: 1.7 billion euros). The one-off implementation costs are estimated at around 230 million euros (previously: 909 million euros). 

• The EU Commission has already initiated infringement proceedings against Germany due to the delayed implementation. 

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