Council and Parliament strike a deal to simplify sustainability reporting and due diligence requirements and boost EU competitiveness 02:37 Simplification: Council and[...]

Today, the Council's presidency and European Parliament's negotiators reached a provisional agreement to simplify sustainability reporting and due diligence requirements to boost EU competitiveness. The agreement simplifies the directives on corporate sustainability reporting (CSRD) and corporate sustainability due diligence (CS3D) by reducing the reporting burden and limiting the trickle-down effect of obligations on smaller companies.

Corporate sustainability reporting directive

On the CSRD, the Commission proposed to increase the employee threshold to 1000 employees and to remove listed SMEs from the scope of the directive. In the provisional agreement, the co-legislators added a net turnover threshold of over €450 million to further alleviate the reporting burden on undertakings.

The co-legislators also agreed to exempt financial holding undertakings from the CSRD's scope and agreed on a transition exemption for companies that had to start reporting from financial year 2024 (the so-called "wave one" companies) falling out of scope for 2025 and 2026.

Finally, the provisional agreement introduces a review clause concerning a possible extension of the scope for both CSRD and CSDDD.

Corporate sustainability due diligence directive

While the CS3D's scope was not covered by the Commission's proposal, the provisional agreement increases the thresholds to 5,000 employees and €1.5 billion net turnover. The co-legislators considered that such large companies have the biggest influence on their value chain and are best equipped to make a positive impact and absorb the costs and burdens of due diligence processes.

Identification and assessment of adverse impacts

The Commission's proposal limits the further assessment of the identification phase to the company's own operations, those of its subsidiaries, and those of its direct business partners. The provisional agreement removes this limitation. Instead, companies can focus on the areas of their chains of activities where actual and potential adverse impacts are most likely to occur. To provide companies with flexibility, when a company has identified adverse impacts equally likely or equally severe in several areas, they are given the ability to prioritise assessing adverse impacts which involve direct business partners. Furthermore, companies should no longer be required to carry out a comprehensive mapping exercise but instead conduct a more general scoping exercise. Companies are supposed to base their efforts on reasonably available information, which will reduce the trickle-down effect of information requests on smaller business partners.

Climate transition plans

To provide for a significant burden relief, the obligation for companies to adopt a transition plan for climate change mitigation has been removed.

Civil liability, penalties and transposition

The provisional agreement removes the EU harmonised liability regime and the requirement for member states to ensure that the liability rules are of overriding mandatory application in cases where the applicable law is not the national law of the member state. A review clause on the need for an EU harmonised liability regime has been inserted.

When it comes to penalties, the co-legislators agreed on a maximum cap of 3% of the company's net worldwide turnover with the Commission issuing the necessary guidelines in this regard.

Finally, the provisional agreement postpones the CS3D's transposition deadline by another year, to 26 July 2028. Companies will have to comply with the new measures by July 2029.

Next steps

The provisional agreement must be now endorsed by the Council and the European Parliament. before it is formally adopted by the two institutions.

Background

In October 2024, the European Council called on all EU institutions, member states and stakeholders, as a matter of priority, to take work forward, notably in response to the challenges identified in the reports by Enrico Letta ('Much more than a market') and Mario Draghi ('The future of European competitiveness'). The Budapest declaration of 8 November 2024 subsequently called for 'launching a simplification revolution', by ensuring a clear, simple and smart regulatory framework for businesses and drastically reducing administrative, regulatory and reporting burdens, in particular for SMEs.

On 26 February 2025, as a follow-up to EU leaders' call, the Commission put forward two 'Omnibus' packages, aiming to simplify existing legislation in the fields of sustainability and investment, respectively. On 20 March 2025, leaders urged the co-legislators to take work forward on these Omnibus simplification packages as a matter of priority and with a high level of ambition, with a view to finalising them as soon as possible in 2025.

On this occasion, the European Council specifically called on co-legislators to adopt the 'Stop-the-clock' mechanism without delay and at the latest by June 2025. On 14 April 2025, the Council adopted the mechanism and postponed by two years the entry into application of the CSRD requirements for large companies that have not yet started reporting, as well as listed SMEs, and by one year the transposition deadline and the first phase of the application (covering the largest companies) of the CS3D.

• Simplification: Council agrees position on sustainability reporting and due diligence requirements to boost EU competitiveness (press release, 23 June 2025)
• Directive on certain corporate sustainability reporting and due diligence requirements, Commission proposal, 26 February 2025