Introduction
EU member states’ representatives agreed this week on the EU Council’s negotiating mandate on simplifying sustainability reporting and due diligence requirements. This proposal aims at simplifying the directives on corporate sustainability reporting and due diligence by reducing the reporting burden and limiting the trickle-down effect of obligations on smaller companies.
Background
On 26 February 2025, as we noted in an earlier update, the Commission put forward two ‘Omnibus’ packages, aiming to simplify existing EU legislation in the fields of sustainability and investment, respectively. As we also noted in another update, the Council adopted a ‘stop-the-clock’ mechanism on 14 April 2025, and postponed by two years the entry into application of the Corporate Sustainability Reporting Directive (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 Corporate Sustainability Due Diligence Directive (CSDDD).
Proposed changes to the CSRD
On the CSRD, the Commission had originally proposed to increase the employee threshold to 1000 employees and to remove listed SMEs from the scope of the directive.
In its mandate, the EU Council has added a net turnover threshold of over €450 million to ease the reporting burden on undertakings. The Council’s mandate also introduces a review clause concerning a possible extension of the scope to ensure adequate availability of corporate sustainability information.
Proposed changes to the CSDDD
On the CSDDD, the key elements of the Council’s position include:
Scope
While the CSDDD’s scope was not covered by the Commission’s proposal, the Council position increases the thresholds to 5000 employees and €1.5 billion net turnover. In the Council’s view, such largest companies can have the biggest influence on their value chain and are best equipped to absorb the costs and burdens of due diligence processes.
Identification and assessment of actual and potential adverse impacts
The Commission’s proposal limits due diligence requirements to company’s own operations, those of its subsidiaries, and those of its direct business partners (the so-called ‘Tier 1’).
The Council’s mandate changes the focus from an entity-based approach to a risk-based approach, focusing on areas where actual and potential adverse impacts are most likely to occur. Companies would no longer be required to carry out a comprehensive mapping exercise, but instead, conduct a more general scoping exercise.
While the Council position maintains the limitation of the relevant obligations to ‘Tier 1’, it provides that the identification and assessment obligations are extended in case of objective and verifiable information suggesting adverse impacts beyond 'Tier 1'. Furthermore, the Council mandate adds a review clause under which these obligations may be extended beyond ‘Tier 1’.
Combating climate change
The Commission’s proposal simplifies the provisions on transition plans for climate change mitigation and aligns them with the CSRD by replacing the obligation 'to put [transition plans] into effect' by a requirement that companies need only 'adopt' such plans in which they outline implementing action (planned and taken).
The Council position also empowers supervisory authorities under the CSDDD to advise companies on design and implementation of those plans.
To further reduce burdens and provide companies with sufficient time for adequate preparations, the Council also postpones the obligation to adopt transition plans by two years.
Civil liability
The Council’s mandate maintains the Commission proposal to remove both the current 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.
Transposition
The Council mandate also postpones the CSDDD’s transposition deadline by one year, to 26 July 2028.
Next Steps
The Council will enter negotiations with the European Parliament once the latter reaches its negotiating position, with a view to reaching an agreement on the proposed changes to the EU's current sustainability reporting and due diligence rules.
We will continue to keep you updated on further developments in this ever-evolving area.
For more information, please contact John Gaffney or your usual contact in Beauchamps LLP.
