Lawmakers in the European Parliament and Council announced on Tuesday that they have reached a provisional agreement on the Omnibus proposal to simplify and reduce sustainability reporting and due diligence requirements for companies.
The agreement, if approved by the Parliament and Council, would dramatically reduce the number of companies covered by the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), although the reduction in CSRD-covered companies was not as sharp as Parliament’s proposal, and the deal includes review clauses that could potentially expand the scope of the sustainability regulations to cover more companies in the future.
Additional significant changes to the sustainability regulations include the elimination of a requirement under CSDDD for companies to prepare transition plans to align their business models with the goals of the Paris Agreement, and the removal of the CSDDD’s EU-wide liability regime, with companies instead remaining liable at the national level for noncompliance.
Morten Bødskov, Minister for industry, business and financial affairs of Denmark, said:
“For years, European businesses have faced wave after wave of red tape. This has slowed green investments and weakened our competitiveness. Now we are taking a big and important step in the right direction. With clear and simple rules, companies can focus on their core business, so we achieve better value for money in the green transition, create European jobs and strengthen companies’ ability to grow and invest.”
The Omnibus package was released by the Commission in February, proposing a wide-ranging series of changes to regulations including the CSRD and the CSDDD, as well as the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM).
One of the most significant changes proposed by the Omnibus was a dramatic decrease in scope for the CSRD, moving the regulation to cover only companies with more than 1,000 employees from the current 250 employee threshold, removing an estimated 80% of companies from the regulation’s sustainability reporting requirements. The CSDDD was adopted with a 1,000 employee threshold in 2024, but had initially been set to apply with a 500 employee threshold before last-minute changes.
In the process of adopting their negotiating positions, however, both legislative bodies moved to cut the number of companies covered by the regulations even further, with member states in the Council retaining the Commission’s proposal of a 1,000 employee threshold for the CSRD, but adding a revenue threshold of €450 million as well, while Parliament’s position proposed raising the employee threshold much further to 1,750 employees, in addition to including the €450 million revenue threshold. For the CSDDD, both the Council and Parliament adopted positions establishing a new threshold of 5,000 employees and €1.5 billion in revenue, removing the vast majority of companies, which was the position reached reflected in the new agreement.
The new agreement on the CSRD appears closer to Council’s position, establishing a new threshold to include only companies with at least 1,000 employees and €450 million revenue. The agreement also excludes listed SMEs and financial holding undertakings from the scope of the CSRD.
The lawmakers also established a new position on which non-EU companies would be included in the scope of the CSRD and CSDDD, with the lawmakers agreeing to include those with €450 million revenues generated in the EU for the CSRD, and those with more than €1.5 billion revenues in the EU for the CSDDD. The treatment of non-EU companies has emerged as a key focus area, following threats from the U.S. and Qatar of trade and energy consequences if their companies were included in the regulations.
Notably, the new agreement includes review clauses for the CSRD and CSDDD, concerning a possible extension of the scope for both regulations.
In addition to reducing the number of companies covered by the CSRD and CSDDD, the new agreement introduces additional changes to the current regulations, and to the Commission’s proposals. Among the most notable changes, the new agreement introduces a risk-based approach on the identification of impacts in the CSDDD, removing a limitation proposed by the Commission to focus primarily on a companies’ own operations and direct business partners, shifting focus instead to areas of the supply chain where actual and potential adverse impacts are most likely to occur, while adding flexibility for companies that identify likely adverse impacts in multiple areas to prioritize assessing adverse impacts which involve direct business partners.
The agreement also removes the CSDDD’s obligation for companies to prepare climate transition plans, and the regulation’s EU-wide liability regime, and also lowers potential penalties under the regulation to a maximum cap of 3% of global revenues.
As proposed by the Commission, the agreement also limits the amount of information that companies under the scope of the regulations can request from smaller companies within their supply chains, allowing companies with under 1,000 employees to refuse to provide reporting information beyond that outlined in the voluntary sustainability reporting standard for SMEs (VSME), and directing companies under CSDDD to rely on primarily reasonably available information instead of systematically requesting information from smaller value chain companies.
Parliament’s Rapporteur Jörgen Warborn said:
“We have secured a very good compromise. We are making the sustainability rules easier to comply with, delivering historic cost reductions for businesses, and still delivering for European citizens. This is a win for competitiveness and a win for Europe.”
The new provisional agreement will need to be endorsed by both the Parliament and Council in order to be formally adopted.
