The EU has committed itself to the EU Green Deal to enable the transition towards a more sustainable economy. At the same time, the EU wants to remain competitive to facilitate a good entrepreneurial climate. Especially in the short term, these two goals seem to conflict with each other due to the administrative burden involved in allowing compliance with current sustainability laws and regulations. To meet sustainability goals on the one hand and reduce expenses on the other hand, allowing the EU to remain competitive, the European Commission has proposed an Omnibus package that will amend, inter alia, the Corporate Sustainability Reporting Directive (“CSRD”) and the Corporate Sustainability Due Diligence Directive (“CS3D”). These amendments mostly intend to simplify and streamline laws and regulations, without losing sight of the intended sustainability goals. Below we give you a short list of the most remarkable changes:
CSRD:
- CSRD scope: The scope of undertakings falling under the CSRD will be limited considerably. Whereas under the current regime almost all listed companies and large businesses have to report on sustainability in their annual reports, the proposed amendment will only apply to undertakings with more than 1000 employees and either a turnover above EUR 50 million or a balance sheet total above EUR 25 million. This means that the number of undertakings to be covered by the CSRD is expected to drop by 80%. Moreover, this scope is more in line with the CSDDD.
- Final postponement: For large undertakings that would have to report on 2025 (‘wave 2’) and listed small and medium-sized undertakings that would have to report on 2026 (‘wave 3’), the first reporting obligation will be moved forward by two years. Wave 2 will therefore have to report starting from the financial year 2027, and wave 3 starting from the financial year 2028. This “stop-the-clock” part of the proposal is an individual proposal, which facilitated its accelerated handling; after all, financial year 2025 has already commenced. It was recently adopted by the European Council and the European Parliament. Only the final text is still awaiting the formal approval of the European Commission.
- Limitations in the value chain: Undertakings that do not fall under the CSRD (anymore) can still expect to receive requests within their value chain from undertakings that do fall under the CSRD and must therefore report on their value chain. For those out-of-scope undertakings, the Commission proposes a voluntary standard based on the VSME standard. This standard allows undertakings outside the CSRD scope to report easily and in a standardised way to the business partners in the value chain that do fall under the CSRD. The Commission also wishes that this standard suffices and that the out-of-scope undertakings cannot be forced to provide additional information to undertakings that do have to report.
- ESRS revised: The Commission wants to revise the European Sustainability Reporting Standards (“ESRS”) for the purpose of simplifying and clarifying them.
CS3D:
- Postponement: In addition to a two-year postponement of the CSRD for some undertakings, the Commission also proposes to grant some undertakings that must comply with the CS3D one year extra. This postponement too was wrapped up in the separate proposal that was approved in early April and is therefore as good as final. These undertakings will have one year extra to prepare themselves for compliance with the CS3D.
- Limitation of research in the chain of activities: The proposal limits due diligence obligations in the chain of activities to the direct business partners alone, unless there is plausible information suggesting that adverse effects are occurring with an indirect business partner. If that is the case, more research is necessary. In addition, the information that can be asked of direct business partners, i.e. small and medium-sized businesses (with less than 500 employees), will be limited to the information they provide under the voluntary standards (see above), unless additional information is necessary and that information cannot be obtained in any other way. The frequency of the periodic assessment undertakings have to perform will be changed from every year to every five years, unless there are reasonable grounds for new risks to occur earlier.
- Limitation of measures if there are potential and actual adverse impacts Under the current CS3D, undertakings that identify potential or actual negative impacts that cannot be remedied or alleviated must terminate the relationship with the business partner concerned as a last resort. This last resort will be converted into an obligation to suspend the business relationship as long as the parties have not found a solution.
- Climate transition plan: To fight climate change, undertakings are obliged under the CS3D to prepare and to perform a transition plan for climate change. In the proposal, the obligation to perform the plan has been deleted and replaced by implementing measures that must be included in the plan.
- Liability: The proposal also amends the article on civil liability and the entitlement to full damages. The proposal refers explicitly to national law for liability and compensation. The new proposal also broadens breach of the CS3D to include breaches of due diligence obligations generally, rather than – as in the current text – referring to a specific breach of certain articles from the CS3D.
