The EU simplifies complexity in sustainability reporting

On 9 December 2025, negotiators representing the Council of the European Union and the European Parliament reached a provisional agreement on revising key EU corporate sustainability legislation, namely the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D), as part of the European Commission’s broader Omnibus I simplification package. The agreement builds on the previously adopted “stop-the-clock” mechanism, which temporarily suspended certain CSRD and CS3D application deadlines in order to provide companies with legal certainty while the revised sustainability framework is finalized. The new agreement further reflects the co-legislators’ commitment to reducing administrative burdens on businesses while maintaining core environmental and social objectives.

The overarching goal of the agreement is to streamline existing regulatory obligations and thereby enhance the EU’s global competitiveness. EU institutions have faced mounting pressure from businesses and some Member States that stringent reporting obligations and expansive due diligence requirements risk diverting resources away from investment, innovation and job creation.

Under the revised approach, the scope of the CSRD is significantly narrowed. Sustainability reporting obligations will apply only to large undertakings employing more than 1,000 employees and generating net annual turnover exceeding EUR 450 million. This additional turnover threshold substantially limits the number of in-scope entities and removes many mid-sized companies from the reporting regime. Equivalent criteria will apply to non-EU companies operating in the EU through branches or subsidiaries. The agreement also provides exemptions for certain financial holding companies and introduces transitional relief for entities that commenced CSRD reporting for the 2024 financial year (the so-called “first wave adopters”), effectively suspending their obligations for the following two reporting years.

Due diligence obligations under the CS3D are likewise narrowed. Mandatory due diligence will apply only to very large companies with more than 5,000 employees and a net worldwide turnover exceeding EUR 1.5 billion. By concentrating obligations on companies of this scale, the EU aims to address the most significant human rights and environmental risks while limiting indirect compliance pressure on smaller suppliers. The agreement also shifts due diligence requirements toward a risk-based approach, allowing companies to prioritize areas of actual or potential harm rather than undertaking exhaustive value chain mapping.

In addition, the provisional text removes the obligation for companies to adopt climate transition plans, a departure from earlier legislative proposals. This change is intended to further reduce compliance costs, though it has generated debate regarding the balance between simplification and long-term climate governance.

From an enforcement perspective, the agreement abandons plans for an EU-wide harmonized civil liability regime, leaving liability rules primarily to national law, subject to future review. Administrative penalties will be capped at 3% of a company’s net worldwide turnover, with further guidance to be issued by the European Commission. The timeline for national transposition of the CS3D has also been extended, with Member States required to implement the directive by July 2028 and companies expected to comply from July 2029.

Following the trilogue negotiations, the preliminary agreement must still be formally approved by both the European Parliament and the Council, as well as undergo legal-linguistic review. Until these steps are completed and the legislation is published in the Official Journal of the European Union, the revised rules have no legal effect and remain subject to change.