European Union advances ‘Stop the Clock’ Directive: Why the pause should not be met with inaction

On April 3, the European Parliament voted in favor of the “Stop the Clock” Directive, introduced as part of the Omnibus proposal unveiled in February. As a result, the reporting deadlines for the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) have now been delayed for most companies in an effort to reduce regulatory burden and allow lawmakers time to consider additional changes. 

Reporting for large companies that are not deemed to be of public interest and small and medium enterprises (SMEs), or those with less than 500 employees, is now delayed for two years. The first reports for such entities will be due in 2028 using 2027 data. The application of CSDDD was delayed by one year, postponing reporting until 2028. 

Despite delays in Europe, pausing related compliance activities could prove costly for many companies. State-level regulations in the U.S. continue to advance, with California’s SB 253 and SB 261 in their final stages of development and similar bills being introduced in other state legislatures. Inaction could lead to significant financial penalties for companies, in some cases up to $500,000 per reporting year, as well as other market and operational risks.

Next steps

After last week’s vote, there are several procedural steps to make the directive official, but those are expected to continue without issue. EU member states will have until the end of 2025 to transpose the approved delays into national law, but debate on additional changes to the regulations will continue. 

Messaging from the European Parliament continues to indicate the desire to simplify the rules without stripping them of their original intent. Changes being considered include reducing the scope to only require compliance from companies with 1,000 employees or more and others such as increasing turnover thresholds for non-EU parent companies. New technical guidance for any changes is to be provided by the end of October.

How corporates can capitalize on the delay

Corporates who are subject to CSRD and CSDDD likely began the hard work of preparing for reporting long ago, and while a delay in reporting may be welcome, pausing or stopping could undermine progress. Rather than stopping implementation, the additional time can be used productively to better prepare for the eventuality of reporting by:

• Assessing readiness
• Continuing to build or strengthen governance structures
• Investing in data collection infrastructure
• Pilot reporting under the ESRS guidelines
• Aligning strategy with business goals and engage supply chain

Cost of inaction

Despite the delays to CSRD, preparing for sustainability disclosures is still essential, as climate disclosure is increasingly becoming an expectation of global companies. Stakeholders, from investors to customers, are looking for transparency into how a company may contribute and adapt to the climate. Additionally, climate reporting regulations from the state level in the U.S. are continuing and expected to grow. 

Implementation of the final rules for California’s SB 253 and SB 261, which require disclosure of Scope 1-3 emissions and climate-related risks, respectively, are expected to be finalized this summer. Several states, including New York, Illinois, and New Jersey, are considering near-duplicate laws which would go into effect in 2027-2028 if passed by their legislature this year. 

Companies that proactively integrate climate risk into their operations will not only meet regulatory requirements but also strengthen their market position, investor confidence, and long-term resilience. 

Financial, market, & operational risks of inaction

• With regulation comes the potential for compliance penalties – with fines up to $500,000 and $50,000 for California’s SB 253 and SB 261 respectively. Additional state-level climate disclosure regulations are considering steeper fines that would add to the potential total cost of inaction.
• Similarly, EU member states are expected to impose financial penalties for non-compliance for CSRD once the rules are finalized.
• Disclosure of climate risk is increasingly becoming an expectation of investors who look to understand how an organization can respond and adapt to the changing climate.
• As Scope 3 reporting requirements continue to grow, large corporations will look to their suppliers for data collection. Suppliers with systems in place to respond to these requests will be better positioned to maintain strong relationships with their customers.
• In a recent Trio webinar, the attendees polled indicated that data collection and quality of data was the leading pain-point in preparing for disclosures. Developing and implementing the necessary data collection processes to ensure accurate and consistent data can take time – understanding how these efforts relate to compliance deadlines is critical.

Early compliance can be a strategic advantage

Rather than being viewed as a burden, climate disclosure compliance can present organizations with a strategic opportunity to enhance competitiveness, improve operational efficiency, and strengthen stakeholder trust. 

• Companies that proactively develop emissions inventories and climate risk assessments will have a competitive advantage.
• Companies that transparently disclose their sustainability efforts gain a market advantage over competitors who resist change.
• Aligning with international standards like ISSB, TCFD, and CDP can streamline compliance across multiple jurisdictions. 

 Waiting to comply is not just a legal risk—it’s a lost business opportunity. The companies that embrace compliance today will be the industry leaders of tomorrow. 

Get in touch with Trio’s team of experts - we’ll help you navigate the rapidly evolving regulatory landscape and ensure that your business is prepared to meet the latest compliance requirements.