[co-author: Ali Abughoush]
The first EU simplification omnibus, on sustainability reporting and due diligence, moves to the final stretch of negotiations with interests and emotions running high. The inter-institutional negotiations, known as the trilogue, are expected to start as soon as next week and are envisaged to conclude in December, allowing the revamped legislation to be finalized and voted on by the co-legislators in January 2026, followed by transposition into the national laws of individual EU member states.
Following months of discussions in the European Parliament (EP) over the proposed amendments to the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), the EP’s Legal Affairs Committee (JURI Committee) approved its position on a series of changes to sustainability reporting and due diligence requirements for companies. This vote is a result of heated disagreements within the center platform, followed by a compromise agreement, avoiding an alternative voting coalition with the far right of the EP’s political spectrum.
The EP’s lead negotiator, MEP Warborn, described the adopted position as one that “cuts costs, strengthens competitiveness, and keeps Europe’s green transition on track.”
This compromise position still significantly narrows the scope of sustainability reporting, but does so less aggressively than the June proposal (which we discussed here). Crucially, it brings the applicability thresholds mostly in line with those proposed by the European Council’s report: 1,000 employees and €450 million net turnover for the CSRD, and 5,000 employees and €1.5 billion net turnover for the CSDDD. Both thresholds are significantly higher than those proposed by the European Commission’s Omnibus package, but align with the position of the Council, the other co-legislator, composed of EU member state governments.
Proposed Changes at a Glance
The draft rules would significantly simplify EU sustainability and due diligence reporting obligations for both EU and non-EU companies. The legislation is being fast-tracked, and a final version is likely to narrow the scope of CSRD and CSDDD, eliminate key obligations for companies and their suppliers, and ease penalties for non-compliance.
- Scope Thresholds: As mentioned above, under CSRD, only companies with at least 1,000 employees and €450 million in net annual EU turnover would be in scope; under CSDDD, the thresholds rise to 5,000 employees and €1.5 billion. These thresholds are expected to survive subsequent negotiations.
- Climate Transition Plans: Companies would still need to prepare climate transition plans but would no longer be required to act on them. Policymakers may push to eliminate the planning requirement altogether, though this could face resistance from left-leaning factions.
- Civil Liability: Civil liability for non-compliance would not be harmonized across member states, meaning enforcement mechanisms will remain decentralized. This change is expected to survive subsequent negotiations.
- Due Diligence Obligations: Adopting a risk-based approach, companies would only need to conduct due diligence on suppliers when they have plausible information indicating risk. This provision remains subject to negotiation, as the range from a focus on tier-1 suppliers to an exclusive focus on risk illustrates that this may be one of the more difficult points for resolution between the Commission, Council, and Parliament.
- Penalty Structure: Companies would be subject to a maximum penalty of 5% of global turnover for non-compliance, replacing the previous minimum penalty approach.
- Extraterritoriality: Neither the Parliament nor the Council has addressed whether companies must report and conduct due diligence on their activities outside the EU. If this issue surfaces during subsequent negotiations, we expect pushback from left-leaning lawmakers and EU citizens.
We expect the trilogue negotiations to be relatively straightforward. However, the negotiators and their respective bodies will need to resolve key issues, namely the depth of due diligence, the climate transition plans, and extraterritoriality.
Comparing Proposals
What Companies Should Do Now
Companies should continue preparing for CSRD and CSDDD compliance while monitoring legislative developments. Recommended next steps include:
- Conduct a scoping exercise of any EU companies in your group and determine whether this could trigger any group-wide reporting under the newly proposed thresholds.
- Continue preparing climate transition plans.
- Identify information indicating whether any tier 1 suppliers present a plausible risk.
- Monitor and inform the trilogue negotiations with a view to a positive outcome.
