On 14 April 2025, the European Council formally approved the “Stop the Clock” Directive (the Directive), marking a crucial milestone in the European Union’s efforts to overhaul sustainability reporting and due diligence requirements for businesses. The Directive is the first part of the two-part omnibus package aimed at simplifying compliance with the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Our in-depth commentary on the omnibus package can be found here.
Below we provide an overview of the effect of the Directive, the approval timeline, and what the Directive means for companies.
Background and Implications
The Directive is designed to delay certain reporting obligations under CSRD and CSDDD, giving some businesses a grace period to prepare for the sustainability reporting and due diligence requirements that they will be subject to under each regime. The Directive was introduced as part of the omnibus package in early 2025, in response to concerns from companies regarding the difficulty of meeting both the timelines and substantive requirements of CSRD and CSDDD. The approval process was expedited through the EU institutions, highlighting the EU’s political desire to achieve a swift delay. Formally approved by the European Parliament on 3 April, the Directive has the following effects:
- CSRD reporting requirements will be delayed by a period of two years for in-scope companies. Therefore, companies that would otherwise have faced reporting requirements from financial years commencing on or after 1 January 2025 will now report on financial years commencing on or after 1 January 2027. Listed small and medium-sized companies will now report for financial years commencing on or after 2028.
- The transposition deadline and the first phase of the application of CSDDD have been postponed by one year.
The European Council’s formal approval provides clarity on the temporary reprieve while the more detailed secondary directive is negotiated. The Directive will now be published in the Official Journal of the European Union, the day after which it will become law. Member States must then transpose the Directive into national law by 31 December 2025.
Conclusion and Next Steps
By granting a temporary delay on key reporting and due diligence requirements under CSRD and CSDDD, the Directive provides breathing room for companies to meet their obligations under both pieces of legislation.
The delay also affords the EU enough time to propose substantive changes to CSRD and CSDDD, respectively, and represents step one in a wider suite of anticipated reform. Although the initial proposals for substantive reform to CSRD and CSDDD were outlined under part two of the omnibus (and proposed to remove many in-scope companies from the effect of the directives), these changes remain subject to further negotiation and eventual approval.
We will continue to monitor how these changes develop and provide updates on the future form of CSRD and CSDDD as and when the application of these directives becomes clearer.
This article was prepared with the assistance of Ronan Foley in the London office of Latham & Watkins.
