Omnibus Updates: Council and Parliament respond to the Commission’s proposals

Recent developments in the Council and in the European Parliament have shed some light on the discussions we can expect in the upcoming trilogue negotiations about content changes to the EU’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CS3D). This falls under the second part of the EU’s omnibus package as released by the European Commission in February (the Amending Directive). While the Council agreed its negotiating mandate on 23 June, the European Parliament is still finalising its position based on proposals published by its designated rapporteur, Jörg Warborn, on 12 June.

The Council

The Council made the following proposals, in addition to those made by the Commission[1].

On CSRD

• Raising the thresholds for in-scope entities to €450mn net turnover and 1,000 employees (compared with the Commission’s proposed thresholds of €50mn net turnover and 1,000 employees) and removing listed small and medium-sized enterprises (SMEs) from scope.
• Including a review clause on the possible extension of the scope of CSRD to ensure that there is adequate availability of corporate sustainability information.

On CS3D

• Raising the thresholds for in-scope entities to €1.5bn net turnover and 5,000 employees (it should be noted that the Commission’s proposed amendments to CS3D did not include any changes to its scope).
• Limiting the due diligence requirements to the company’s own operations, those of its subsidiaries, and those of its direct business partners (tier 1) and changing the focus of due diligence requirements from an entity-based approach to a risk-based approach, focusing on areas where actual and potential adverse impacts are most likely to occur.
• Removing the requirement for entities to map their chain of activities and instead conduct a general scoping exercise, based on reasonably available information.
• Aligning transition plan requirements with those in CSRD and clarifying that the obligation to put transition plans into effect includes outlining implementing actions (planned and taken). This alignment would help simplify the transition plan requirements under CSRD and CS3D.
• Postponing the obligation to adopt transition plans by two years to July 2031.
• Postponing the transposition deadline by one year to 26 July 2028.

European Parliament

The rapporteur’s proposal to the European Parliament contains multiple changes to the Commission’s position. 

On CSRD 

• Aligning and raising the thresholds in both CSRD and CS3D for in-scope entities to €450mn net turnover and 3,000 employees.
• Replacing the requirement to report on a climate transition plan aligned with the Paris Agreement with a requirement to report on any climate transition plan, if such a plan exists. 
• Exempting ultimate parent companies that are financial holding undertakings and not engaged in operational or management decisions from direct sustainability reporting obligations, mirroring the exemption in CS3D. 
• Replacing the term “value chain” in CSRD with the CS3D term “chain of activities” to harmonise terminology across EU legislation. 
• Extending the reporting exemption to all subsidiaries, provided that the parent company reports at the consolidated level (CSRD currently requires large public interest entities to report even if their parent company is also reporting).
• Reaffirming that the Commission should adopt limited assurance standards for sustainability reporting by 1 October 2026. 
• Clarifying that sustainability reporting obligations do not override the existing protection of trade secrets.

On CS3D

• Removing the mandatory requirement for companies to adopt a climate transition plan under the CS3D. 
• Expanding the full harmonisation clause to limit the ability of EU member states to introduce stricter rules (known as ‘gold plating’) when transposing CS3D into their domestic legislation. 
• Introducing greater flexibility for companies when deciding whether they should terminate business relationships due to adverse impacts.
• Reducing the due diligence obligations of in-scope companies to protect SMEs from excessive requests by in-scope companies. 

The rapporteur’s proposal has been controversial in the relevant parliamentarian committees, with particular scrutiny on the proposed increase in the employee threshold both for EU and non-EU companies as well as the removal of transition plan requirements from CS3D. We expect trilogue negotiations to start after the summer break and at the latest in October.

Conclusion

Both the Council’s agreed position and rapporteur’s Draft Report go beyond the Commission’s proposed amendments to CSRD and CS3D, most notably by increasing the thresholds for entities in-scope under both directives, and watering down or removing transition plan requirements. This indicates the direction of travel is likely towards increased simplification and reduction of reporting obligations, as compared to the Commission’s initial proposals. It is worth noting that the Commission is taking its simplification agenda ever more seriously as its draft delegated act to amend the Taxonomy Disclosures, Climate and Environmental Delegated Acts published on 4 July shows. This draft cuts the data points to be reported by more than 60%.

It should be noted that the omnibus process has not been without external criticism and challenge, including through a complaint lodged by various NGOs relating to the Commission’s process behind the Amending Directive. This complaint is currently under inquiry by the European Ombudsman. 

[1] Please refer to our  Horizon Scanning update where we summarised the original Commission proposal.