EU Omnibus simplification package – corporate sustainability reporting and due diligence. What's next for the CSRD and the CS3D?

On 26 February 2025, the European Commission released its proposed amendments relating to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the EU Taxonomy and the Carbon Border Adjustment Mechanism (CBAM). The Commission have stated they are seeking to achieve "far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy". In this article, we have focused on the key amendments proposed in respect of the CSRD and the CS3D below. For further background read here.

What amendments have been proposed for the CSRD?

• Postponement of application
  • The Commission has proposed a delay of two years to the application of the CSRD. The effect of such delay would mean that certain EU and Non-EU issuers and large companies with 500 employees (that had previously been reporting under the EU Non-Financial Reporting Directive) who were due to report in accordance with the CSRD this year (in respect of financial periods commencing on/after 1 January 2024) will no longer need to report until 2028 (in respect of financial periods commencing on/after 1 January 2027), subject to new proposed thresholds.
  • This same delay would also apply to large companies who were due to report under the second wave from 2026 (in respect of financial periods commencing on/after 1 January 2025), again subject to new proposed thresholds.
  • The application timeline for Non-EU Ultimate Parent Undertakings would remain within the original timeline from 2029 (in respect of financial periods commencing on/after 1 January 2028), again subject to new proposed thresholds.
• New thresholds for the CSRD
  • The CSRD thresholds proposed by the Commission would align more closely with the scope of the CS3D.
  • Therefore, the Commission has proposed that the CSRD would only apply to the following:
    • EU Large undertakings that have an average number of employees exceeding 1000; and
      • a net turnover exceeding €50million; or
      • a balance sheet exceeding €25 million.
    • EU Parent undertakings with a large group that has an average number of employees exceeding 1000; and
      • a net turnover exceeding €50million; or
      • a balance sheet exceeding €25 million.
  • As such, those businesses who have been preparing to report according to the CSRD would need to refresh their scoping analysis if the Commission's proposed amendments are adopted. While the Commission has proposed raising the thresholds, EU parent undertakings of a large group could still fall within the scope when aggregating their employee / financial data with their subsidiaries.
  • Additionally, the Commission has proposed to raise the non-EU parent turnover threshold to apply to:
    • Non-EU Ultimate Parent Undertakings which generate a net turnover within the EU of €450 million in the last two consecutive years; and which:
      • have an in-scope EU subsidiary (further to the updated criteria above); or
      • have an EU branch that generates €50 million.
• Voluntary Reporting

  For companies which will not be in the scope of the CSRD any more (up to 1,000 employees), the Commission has proposed adopting voluntary reporting standards specific for SMEs (VSME), which will be developed by EFRAG.

• Limiting Value Chain reporting

  The Commission has also proposed that SMEs should be protected from "disproportionate sustainability information requests" when they are included in the value chain of larger companies which fall within the scope of CSRD and CS3D. In-scope undertakings (under the proposed new thresholds) would only be able to request limited information in accordance with the voluntary reporting standards to be adopted for SMEs.

• Taxonomy Reporting
  • The Commission has proposed drastically limiting the application of the reporting requirements under the EU Taxonomy regulation to apply only to in-scope undertakings where they also have turnover of more than €450 million. For all other in-scope undertakings, Taxonomy reporting would be on a voluntary basis only.
  • Among the further proposals relating to the EU Taxonomy, the Commission has suggested:
    • simplifying the reporting templates, leading to a reduction of data points by almost 70%; and
    • introducing a financial materiality threshold which will exempt in-scope undertakings from reporting in respect of Taxonomy-eligible activities that represent less than 10% of their business; and
    • amending the main key performance indicators for financial institutions, such as to simplify the green asset ratio (GAR) for banks.
• Assurance
  • The Commission has proposed issuing targeted assurance guidelines by 2026 (rather than the original requirement to adopt assurance standards by 1 October 2026). The Commission has stated that this will allow them to more quickly address the ongoing uncertainty regarding the assurance requirements.
  • The provisions relating to the possible introduction for reasonable assurance standards would be removed.

• Deletion of sector-specific standards requirement

The proposal will delete the empowerment for the Commission to adopt sector-specific standards.

What amendments have been proposed for the CS3D?

• Postponement of application
  • Instead of indefinitely suspending CS3D, the proposal recommends a one-year delay in its implementation. Under this revised timeline, the transposition deadline would be extended to 26 July 2027, and the first phase of application for the largest companies would shift to 26 July 2028.
  • Additionally, the Commission would be required to adopt general due diligence guidelines by July 2026, allowing companies more time to integrate best practices and reduce their reliance on legal and advisory services.
• Same thresholds, reduced scope of due diligence requirements under the CS3D
  • While the EU omnibus legislation proposal would not alter the Directive's overall criteria, it would significantly simplify in-scope undertakings' due diligence requirements.
  • In-scope undertakings would primarily be required to assess human rights and environmental risks at the level of direct business partners (Tier 1). Full due diligence obligations would extend beyond direct business partners only in cases where a company has plausible information suggesting potential or actual adverse impacts within its full supply chain. This update would align the CS3D with the approach under the German Supply Chain Due Diligence Act which has been in force in Germany since 1 January 2023.
  • In addition, the Commission has proposed that the requirement for the Commission to consider possible introduction of downstream due diligence requirements for financial institutions would be removed. 
• Limiting Value Chain reporting

  The proposal also suggests limiting information requests from SMEs and small midcaps (i.e., less than 500 employees). In-scope undertakings would only be able to request limited information in accordance with the voluntary reporting standards to be adopted for SMEs under CSRD reporting (explained further above), unless additional data is essential for due diligence mapping and cannot be reasonably obtained by other means.

• Due Diligence assessments

  Another key change would be the frequency of regular due diligence assessments that would be extended from one year to every five years, unless there are reasonable grounds to believe that current due diligence measures are inadequate or ineffective.

• Harmonisation requirements

  To further ensure a level playing field, the proposal extends maximum harmonisation across EU member states by prohibiting additional national due diligence requirements beyond those established by the Directive. It will be interesting to see the reaction from national governments and legislative bodies if the Directive is amended in this way - for example Germany's existing supply chain due diligence legislation would go beyond the proposed new CS3D threshold scope, and therefore could require the German legislature to adapt their pre-existing requirements.

• Climate Transition Plan requirements

  The current obligation for in-scope undertakings to implement climate mitigation transition plans would be eliminated. Instead, businesses would only need to outline their planned measures for meeting climate goals, which would align the CS3D requirements with the current CSRD reporting obligations.

• Civil Liability implications

  One of the most significant changes pertains to civil liability. Under the Commission's proposal, the CS3D would defer to national legal systems, and thus delete the requirement for harmonised EU conditions for civil liability. As a result, Member States would no longer be required to ensure that companies can be sued for damages under national law. Instead, Member States will be able to rely on their national law to define whether its civil liability provisions override otherwise applicable rules of the third country where the harm occurs.

  What are the next steps?

• The legislative proposals will now be submitted to the European Parliament and the Council for their consideration and adoption. The changes on the CSRD, CS3D, and CBAM will enter into force only once the co-legislators have reached an agreement.
• It is uncertain how the European Parliament and the Council will receive the Commission's proposals, and what level of negotiation will be needed. A lot can happen between now and the final version of the text – the European legislative process can often become protracted in attempts to achieve tripartite agreement.
• We saw how drawn out this process became during the negotiations for the CS3D. The Commission has asked co-legislators to treat these proposal as a priority, especially in relation to the proposed postponement of the application of the CSRD and the CS3D. However it remains to be seen whether the European Parliament and the Council will cooperate with the Commission's position.
• While we understand that the Commission is focused on delivering simplification, in reality many businesses will find themselves in a state of flux – especially for companies who have been invested resources in preparation for publishing their first Sustainability Statement this year.

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Authored by Rita Hunter, Christelle Coslin, Christian Ritz, Julia Cripps, Emily Julier, Felix Werner and Margaux Renard.