EU Institutions Agree Substance-Related Amendments to CSRD and CSDDD under ESG Omnibus

Following months of discussion, the EU Parliament and Council have adopted the final text of the omnibus legislative proposal simplifying the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive, which will enter into force upon publication in the EU official journal.

As reported in our previous LawFlash EU Commission Publishes Omnibus Package Proposing to Simplify EU Sustainability Laws, in February 2025, the EU Commission adopted an omnibus legislative proposal that included simplifications to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Due to differing views by the EU Institutions on how extensive red tape should be cut, several rounds of discussion followed on the substance-related amendments. The EU Parliament adopted the final text on December 16, 2025 and the EU Council followed on February 24, 2026.

The EU omnibus package published by the EU Commission on February 26, 2025 (ESG Omnibus Package) proposed simplifications to various EU sustainability laws, including CSRD and CSDDD. In a first step, the so-called “Stop-the-clock” proposal had been adopted on April 14, 2025, by which

• the application of CSRD was postponed by two years respectively for “Phase II” companies (i.e., companies originally due to report sustainability information for financial years starting on or after January 1, 2025) and “Phase III” companies (i.e., companies originally due to report sustainability information for financial years starting on or after January 1, 2026); and
• the start date for the application of CSDDD was postponed by a year to July 2028.

The reason for the “Stop-the-clock” was to avoid a situation in which certain undertakings that were in-scope of the original CSRD would be required to report for financial year 2025 (Phase II) or 2026 (Phase III), but would subsequently be relieved of this reporting requirement, as they would no longer be in-scope following the scope-related amendments to CSRD, and to provide more time to prepare for CSDDD.

In a second step, the substance-related amendments to CSRD and CSDDD had to be negotiated and resolved among the EU institutions. [1] The various rounds of discussion, including the EU Parliament rejecting the mandate adopted by the Legal Affairs Committee in October 2025, and the fact that the final amendments to CSRD and CSDDD deviate quite substantially from the original ESG Omnibus Package proposed by the EU Commission in February 2025, demonstrate the sensitivity and dividedness on sustainability topics within the European Union. The substance-related amendments that were finally agreed with respect to CSRD and CSDDD are summarized below.

HIGH-LEVEL SUMMARY OF CSRD SUBSTANCE-RELATED AMENDMENTS

Scope

The scope of CSRD was substantially narrowed, with the intention of limiting compliance obligations to the largest and most consequential entities from an environmental, social, and governance (ESG) impact perspective:

• The category of “Phase I” companies will no longer exist separately. Companies that—so far—qualified as Phase I will only fall within the scope of CSRD if they meet any of the new scope thresholds below.
• New Scope for EU Companies: Only EU companies (save for an opt-out for financial holding companies) will be subject to CSRD reporting that exceed (individually, or on a consolidated basis):
  • > €450 million net turnover
  • > 1,000 employees on average

Due to the “Stop-the-clock,” those EU companies will need to report on financial years starting on or after January 1, 2027 (with the report to be published in 2028 on 2027 data).

• New CSRD Scope for Non-EU Groups: Only non-EU corporates or corporate groups (save for an opt-out for financial holding companies) will be subject to CSRD reporting that meet the following criteria:
  • The non-EU parent undertaking has at least one EU subsidiary or one EU branch with a net turnover of > €200 million in the preceding financial year
  • On a group or individual basis generates at least €450 million net turnover in the EU for two consecutive years

For non-EU parent undertakings, the timeline for reporting remains the same— i.e., they will need to report for the entire worldwide group for financial years starting on or after January 1, 2028 (with a first publication in 2029 on 2028 data).

Protection for Undertakings in the Value Chain

Provisions on “protected undertakings” are included for entities with fewer than 1,000 employees and which are in the value chain of a reporting undertaking. Among others, protected undertakings have a right to refuse to provide information that goes beyond what is specified in the voluntary sustainability reporting standards for small and medium-sized companies (VSME).

• Digitalization and support measures: A dedicated digital portal should be established by the EU Commission to provide undertakings with access to information, guidance, and templates for both mandatory and voluntary sustainability reporting.
• Assurance of sustainability reporting: The reasonable assurance requirement, as already included in the proposal by the EU Commission, is deleted, and the deadline for the EU Commission to adopt limited assurance standards is postponed to July 1, 2027. Furthermore, a more proportionate approach is introduced for audit firm approval given the change of the scope of undertakings being subject to sustainability reporting.

HIGH-LEVEL SUMMARY OF CSDDD SUBSTANCE-RELATED AMENDMENTS:

Scope

Going forward, the companies that will be subject to CSDDD from July 26, 2029 will be as follows:

• EU companies with
  • > €1.5 billion worldwide net turnover and > 5,000 employees; or
  • franchise or licensing agreements in the EU with royalties of > €75 million and a net worldwide turnover of > €275 million.
• Non-EU companies with
  • > €1.5 billion in the EU; or
  • franchise or licensing agreements in the EU with royalties of > €75 million in the EU and a net turnover of > €275 million in the EU.
• Where the ultimate parent company mainly holds shares in operational subsidiaries and does not engage in management, operational, or financial decisions, it may be exempt from the due diligence obligations, if one of the subsidiaries carries out the obligations on the parents’ behalf. Also, it is clarified that parent companies subject to CSDDD may fulfill the due diligence obligations on behalf of their subsidiaries.

Harmonization

The substance-related amendments clarify that CSDDD precludes EU member states from introducing national human rights and environmental due diligence obligations diverging from those laid down in certain core areas of the directive.

Simplifications and Repeal of Requirement to Implement Climate Transition Plan

Various provisions include simplifications and reliefs when it comes to the actual due diligence obligations. For example, for the in-depth assessment, companies may scope general areas of risk. Furthermore, the provisions on climate transition plans were repealed. The EU Commission’s general due diligence guidelines must be made available prior to the transposition deadline by July 26, 2027.

Liability and Penalties

The EU-wide liability regime is removed, shifting responsibility for effective access to justice and full compensation for victims of adverse impacts to EU member states, in line with national law and international obligations. Also, the maximum limit for pecuniary penalties is uniformly set at 3% of net worldwide turnover and requires the EU Commission to issue guidelines to support supervisory authorities in penalty calibration.

TRANSPOSITION ON EU MEMBER STATE

As a next step, the substance-related amendments require a transposition by the EU member states into national law, just like the “Stop-the-clock” amendments. The deadline is March 2027.

Since some countries had failed to even transpose the original CSRD obligations into national law by the required deadline in July 2024, as well as the “Stop-the-clock” (which had to be transposed by December 31, 2025), they can now do so in one go. Otherwise, they will risk the EU Commission launching an official infringement procedure against them.

RECOMMENDATIONS FOR COMPANIES

Given the substance-related amendments, a couple of check points must be carried out:

• Update scoping analysis: Companies previously in-scope of CSRD and CSDDD must reassess by way of a scoping exercise whether they will be subject to them under the revised scope.
• Value chain engagement: Companies subject to reporting obligations should update/implement processes for engaging with value chain partners.
• For international corporate groups: Non-EU companies are still the subject of both CSRD and CSDDD. Since the US administration has repeatedly criticized the extraterritorial scope of both directives and threatened to revisit the transatlantic tariff agreement, if no alleviations are granted, this should be closely monitored.
• Voluntary reporting opportunities: Smaller undertakings, especially those classified as ‘protected’ in the value chain, should consider what benefits they can leverage from voluntary sustainability reporting.
• Due diligence harmonization and national variations: While core due diligence obligations are harmonized, EU member states may introduce more stringent requirements in specific areas. Companies should track developments in relevant jurisdictions and consult national law for sector- or product-specific obligations.
• Liability and penalty exposure: With the EU-wide liability regime removed, companies should familiarize themselves with national liability frameworks and enforcement practices.
• Timeline: The extended transposition and application timelines afford companies additional time to adapt, but early assessment and planning will be key to ensure readiness, especially for those close to the new reporting or due diligence thresholds.
• Digital process adaptation: Companies should prepare to utilize the forthcoming digital portal and leverage technological solutions for data collection and reporting as these become available.