The European Council has granted final approval to legislation simplifying the EU’s corporate sustainability reporting and due diligence framework, in a move aimed at strengthening the bloc’s global competitiveness and reducing administrative burdens on businesses.
The reform amends the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D), narrowing their scope and easing compliance requirements, particularly for smaller companies affected indirectly through value chains.
Under the revised CSRD, reporting obligations will now apply only to companies with more than 1,000 employees and annual net turnover exceeding €450 million.
For third-country undertakings, the rules will apply solely to parent companies generating more than €450 million in net turnover within the EU and to subsidiaries or branches generating more than €200 million.
The directive introduces a transition exemption for companies that began reporting from the 2024 financial year (‘wave one’ companies) but will fall outside the revised scope in 2025 and 2026. Certain EU and non-EU financial holding companies are also exempted from consolidated reporting requirements.
The revised CS3D will apply only to companies with more than 5,000 employees and net turnover above €1.5 billion. The Council said the higher thresholds reflect the greater capacity of large companies to influence their value chains and absorb due diligence costs.
Companies will be permitted to concentrate their due diligence efforts on areas where adverse impacts are most likely to occur. Where impacts are equally likely or severe across multiple areas, firms may prioritise direct business partners. They will also be allowed to rely on reasonably available information, limiting the indirect reporting burden on smaller suppliers.
The obligation to adopt a climate transition plan under the CS3D has been removed as part of the simplification effort.
The updated directive removes the EU-wide harmonised liability regime and the requirement for liability rules to be of overriding mandatory application where non-national law applies.
Enforcement will remain at national level. The legislation sets a maximum penalty cap of 3% of a company’s net worldwide turnover, with the European Commission to issue guidance on implementation.
The deadline for member states to transpose the CS3D into national law has been extended by one year to 26 July 2028. Companies will be required to comply with the new due diligence rules from July 2029.
The legislative act will be published in the EU’s Official Journal in the coming days and will enter into force 20 days after publication. Member states will have one year from entry into force to transpose the directive into national law, except for provisions on harmonisation levels, which must be implemented by 26 July 2028.
The reforms follow calls from EU leaders to reduce regulatory complexity and strengthen competitiveness. In October 2024, the European Council urged institutions and member states to accelerate simplification efforts, referencing reports by Enrico Letta, Much more than a market, and Mario Draghi, The future of European competitiveness.
The Budapest Declaration of 8 November 2024 called for a “simplification revolution” to create a clearer and smarter regulatory framework, particularly for small and medium-sized enterprises. In response, the European Commission presented the ‘Omnibus I’ package on 26 February 2025, proposing amendments to existing sustainability legislation.
