Summary of discussions under Chatham House Rules at FoSDA’s event on the future of the EU’s sustainable finance framework (15 May 2025)

Last week’s Future of Sustainable Data Alliance (FoSDA) session in Brussels brought together investors, policymakers, regulators and policy professionals from across the financial services sector to discuss the evolution of the EU’s sustainable finance framework.

Some high-level observations on the session are summarised below.

1. Broad agreement that the changes proposed through the Omnibus were driven by a genuine desire to ensure sustainability reporting and due diligence is more proportionate for EU companies, reducing burden and costs.
2. General agreement that there is room for improvement too, in terms of how the different parts of the EU sustainable finance framework fit together -> ensuring that the data required by banks and investors is generally reported by the companies they finance is important.
3. Proportionality is important for reporting entities but also for consumers of data -> nobody wants to have to weed through a 300 page document to find the salient information they seek on sustainability.
4. Interoperability must remain a central pillar of CSRD’s evolution. Aligning with ISSB standards as a baseline for global comparability, while ensuring cohesion with other EU regulations (such as SFDR and EBA Pillar 3), will be key to the framework’s credibility and usability.
5. Ensuring the pendulum does not swing too far the other way will be important to ensure investors and other stakeholders have access to the right information to take their decisions. 
   1. CSRD should retain its double materiality focus and, while the burden on SMEs can be lightened, their role in providing data in a proportionate manner will be important.
   1. Ensuring that market participants are not hindered from undertaking meaningful due diligence will also be crucial. 
   1. EU Taxonomy is shifting towards a more voluntary framework.
6. Sustainability reporting should not be a compliance exercise -> it should be a substantive exercise. 
7. The upcoming Omnibus political debates, revamping of the ESRS and VSME standard and SFDR review are crucial milestones to ensure that the EU can preserve the ambition of its green deal while making meaningful cuts to the regulatory burden.

So, where are we today?

• A major simplification effort is underway:
  • CSRD scope to change significantly and the reach of CSDDD will also be reduced with a limit on small companies’ requirement to provide data up the supply chain.
  • Double materiality will still be required, with audited and verifiable data.
  • Changes to the CSRD are likely to be reflected in the SFDR review (delayed to late 2025).
  • EU Taxonomy will remain, but its use will be voluntary. The Omnibus work might provide an opportunity to remind stakeholders of its value as defining what is ‘green’ which is particularly relevant for CapEx and revenue reporting.
  • No immediate plans to review ESG ratings as the framework is seen as sufficiently principles-based.
    
• CSRD (Corporate Sustainability Reporting Directive):
  • Scope to be narrowed; companies with over 1,000 employees likely to be considered capable of complying.
  • The review is a response to feedback that the regulation is overly complex.
  • The European Sustainability Reporting Standards (ESRS) will be reviewed in collaboration with EFRAG.
• Simplification is essential but presents challenges; careful revision of scope and required data points is underway.
  • The process is participative, with input via consultations and meetings.
  • Feedback from co-legislators (Council and Parliament) is still being reviewed, but engagement is positive.
  • SFDR (Sustainable Finance Disclosure Regulation) will also be revised to align better with CSRD outcomes and ensure interoperability.

What is the position re CSRD?

• Over 1,000 companies are already reporting under CSRD, including in countries where transposition hasn’t occurred yet.
• Positive developments:
  • Structured, more in-depth reporting.
  • Higher quality disclosures on material topics.
• Key challenges:
  • Risk of turning the exercise into compliance rather than substance.
  • Materiality is central – non-disclosure of immaterial topics is itself meaningful.
  • CSRD is designed to be interoperable with ISSB standards.

• Narrative information is essential – sustainability cannot be captured by a single summary statement like financial reporting. The objective is to place sustainability and financial reporting on an equal footing, but narrative disclosures risk becoming overly detailed, leading to the loss of the broader story and making comparability challenging. 
• Strong support for simplification, especially where granularity obscures insight.
• No change in core objectives or audience; double materiality remains central.

With regard to scope – what’s the right balance?

• One-size-fits-all approach doesn’t work – should standards for a 500-person company be the same as for a 5,000-person one?
• Proposed changes would eliminate the reporting requirement for 80% of EU companies, but only 20% of EU GDP.
• Broad enough scope is necessary to build market momentum – smaller firms may voluntarily adopt standards over time.

What is the role and status of the SME Standard and value chain reporting?

• The value chain cap is a response to concerns about the feasibility of comprehensive value chain reporting.
  • A voluntary SME standard (developed by EFRAG) is in place and not part of the current simplification
  • Companies with fewer than 1,000 employees are expected to use the SME standard
  • A formal recommendation to endorse the SME standard is expected in the summer, followed by further work on the value chain standard.
  • SMEs are still subject to double materiality, contrary to some misconceptions.

What’s the status of the ESRS review and data availability going forward?

• The EFRAG proposal is pending; they will consult publicly, ensuring stakeholder buy-in.
  • Short consultation expected over the summer.
  • Finalisation targeted for mid-Autumn.
• The central issue is the materiality assessment:
  • A better understanding of what’s material will lead to more focused and useful reporting.
  • The PRI has indicated that 700–800 data points may be considered material. Some narrative elements (e.g., policy, actions, targets) may be moved to guidance instead of mandatory reporting. 15% of ESRS data points are derived from other regulations. Potential to simplify this but to retain data valuable to SFDR and EBA Pillar 3.
  • There is no formal reduction target – the focus is on the quality and relevance of content. Some narrative-heavy data points may be either removed or reframed as examples. The number of mandatory disclosures is likely to decrease.
• Aim is to develop evidence-based judgment on what data is actually useful for decision-making. Sector-specific guidance could be helpful, but must be driven by genuine business need, not just an add-on.
• Some ESRS already have a good level of interoperability.
  • CSRD reporting firms comply with the ISSB and ESRS reporters align with the GRI. There is an intent to retain that level of interoperability.

How is the CSDDD likely to evolve as a consequence of the Omnibus?

• Capital providers are increasingly aware of the risks relating to social and human rights issues. The need for resilient supply chains supports the business case for good due diligence.
• Supply chains depend on SMEs so the main risks will often be beyond direct suppliers – the proposed limit. The legislation should maintain a risk-based approach and be consistent with key international standards.
• The lack of reported data is likely to drive an increase in the value of sector and geographic specific supply chain datasets. SMEs might see reporting as a competitive advantage.

Has the SFDR been successful and where do we go from here?

• There has been a clear improvement in the quality of disclosures, but the cost of compliance has been high and the current use of the Articles as labels isn’t all that effective, with the large majority of funds sitting in Article 8 suggesting that the current categorisation is too broad.
• Minimal requirements are useful, but there is more work to do to identify and focus on sustainability within the investment universe. The UK’s SDR provides an example of what can be done, but there are challenges around defining ‘impact’ and ‘transition’ and in distinguishing them from other categories.
• There needs to be a stronger link between corporate (CSRD) and product-level (SFDR) disclosures – without this, data cannot flow effectively. Interoperability with the CSRD and Taxonomy is essential, but there may be a need to use estimated data. Linking principal adverse indicators to corporate data could be a challenge in a 
• The objective in the SFDR review should be on simplicity, harmonisation and materiality. There should be a lighter touch approach, asking for fewer data points and potential labels should be tested with consumers to see if they would use them and if they would help them make investment choices.