CSRD and CS3D - Simplification of Sustainability Reporting Requirements and Due Diligence

On 26 February 2025, following the call by EU leaders, the Commission presented two omnibus packages aimed at simplifying existing legislation in the areas of sustainability and investment respectively. On 20 March 2025, the leaders urged the co-legislators to continue, as a matter of priority and with a high level of ambition, working towards finalising these packages as soon as possible in 2025. In this vein, on 9 December, the Council Presidency and European Parliament negotiators reached a provisional agreement[1] on simplifying sustainability reporting requirements and due diligence - a significant step in the European legislative procedure to simplify the obligations arising from the Corporate Sustainability Reporting Directive ("CSRD")[2] and the Corporate Sustainability Due Diligence Directive ("CSDDD" or "CS3D")[3]. The interim agreement introduces several adjustments within the scope of the CSRD:

• Raising the threshold for the number of employees to 1,000 employees;
• Removal of listed SMEs from the scope of the directive;
• Addition of a net turnover threshold of more than 450 million euros;
• Exemption of financial holding companies from the scope of the CSRD and transitional exemption for "first wave" companies - which had to start reporting from the 2024 financial year; and
• Introduction of a review clause regarding a possible extension of the scope of the CSRD.

With regard to the CS3D, the provisional agreement:

• Raises the thresholds to 5000 employees and 1.5 billion euros of net turnover;
• Allows companies to focus (only) on those areas of their supply chains where actual and potential  negative effects are most likely to occur. In addition, it gives them the ability to prioritise the assessment of negative effects involving direct trade partners;
• Establishes that companies must base their efforts on reasonably available information and are no longer obliged to carry out an exhaustive mapping exercise;
• Removes the obligation for companies to adopt a transition plan for climate change mitigation;
• Eliminates the harmonised liability regime at EU level and the requirement for member states to ensure that civil liability rules are immediately applicable in cases where the applicable law is not the national law of the member state;
• Establishes a ceiling of 3 per cent of the company's net worldwide turnover for penalties;
• Introduces a review clause on a possible extension of the scope of the CSRD and another on the need for a harmonised liability regime at EU level.
• Extends the transposition deadline until 26 July 2028.

The provisional agreement must now be approved by the Council and the European Parliament before being formally adopted by the two institutions.

[ 1] Letter sent to the European Parliament with a view to a first reading agreement, 10 December 2025, available at: https://data.consilium.europa.eu/doc/document/ST-16702-2025-INIT/en/pdf[2] DIRECTIVE (EU) 2022/2464 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU as regards sustainability reporting by companies. [3] DIRECTIVE (EU) 2024/1760 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859.