The Council of the European Union, representing member states, agreed its negotiating mandate regarding substantive changes to the bloc’s sustainability reporting and due diligence obligations, as part of the omnibus updates.
The proposal to simplify the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) forms part of the Omnibus Simplification Package presented by the European Commission in February 2025. The overall aim of the omnibus proposals is to alleviate administrative burdens, especially for SMEs and smaller market players, without compromising the EU’s sustainability agenda.
Member states met on 23 June to reach an agreement before the conclusion of the Polish rotating presidency. The Council leadership will now transition to Denmark, which will mediate with the European Parliament once the latter reaches its negotiating position, most likely not before October.
CSRD: Changes Not Included in the Commission’s Proposal
In the Omnibus Simplification Package, the Commission proposed amending the scope of the CSRD to include entities with more than 1,000 employees and a net turnover exceeding €50 million or a balance sheet total exceeding €25 million, therefore explicitly excluding SMEs. The Council’s position confirms that companies with up to 1,000 employees will be outside the scope of the CSRD, but also adds a €450 million revenue threshold, potentially further reducing the number of reporters.
The Council’s negotiating mandate also includes a “review clause” regarding possible amendments to the CSRD’s scope. Changes would be contingent on several factors, including an assessment of the necessity for sustainability data to attract private investment to fund EU Green Deal objectives, the impact of sustainability reporting on the competitiveness of EU businesses, and the readiness of companies to provide sustainability disclosures. Furthermore, the review clause urged the Commission to explore a "simplified reporting regime" when contemplating extending the CSRD's scope.
Additionally, the Council proposes to slightly amend the requirement to disclose a climate transition plan that “contributes” to the transition to a green economy, as opposed to plans that “are compatible” with this objective.
CSDDD: Narrower Scope, Risk-Based Approach
While the Commission did not propose any changes to the scope of the due diligence directive, the Council has now taken the position that the CSDDD should apply to companies with more than 5,000 employees (as opposed to the current threshold of 1,000 employees) and €1.5 billion in net turnover (currently, €450 million). In the Council’s view, entities meeting those criteria are best equipped to absorb the burdens of due diligence obligations. This change would reduce the number of impacted companies across the EU to fewer than 1,000.
The Council’s position supports shifting the focus of the CSDDD from an “entity-based approach” to a “risk-based approach” to identify risks within their operations, subsidiaries and direct business partners (Tier 1). The obligation to move beyond direct business relationships, however, should be based on “reasonably available information” (as opposed to the “plausible information” the Commission originally proposed). The Council also agrees that the CSDDD transposition deadline should be deferred by one year, to July 2028.
The Council’s CSDDD position also eases the requirement for companies to implement climate transition plans, balancing ambition with feasibility, and finally defers this obligation by two years.
Value Chain Cap: Protecting Smaller Companies from Overwhelming Data Requests
Importantly, the Council’s omnibus negotiating mandate includes a “value chain cap” aimed at reducing the reporting burden on smaller companies within the supply chains of larger, in-scope companies. This cap should limit what information larger companies can request from their smaller peers (those with fewer than 1,000 employees) for sustainability reporting purposes. The cap is based on a voluntary reporting standard for small and medium-sized enterprises (VSME).
For more details on the Council's position, read the press release on the EU Council website.
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