EU – provisional agreement on omnibus simplification package for CSRD and CSDDD – a closer look at the draft available

The provisional text can be found here.

In our recent briefing dated 9 December 2005, we set out some of the key terms of the Corporate Sustainability Reporting Directive (“CSRD”) and Corporate Sustainability Due Diligence Directive (“CSDDD” and “CS3D”) which are likely to be amended as part of the omnibus simplification package. We have had a chance to consider the draft text in more detail and set out some key insights below.

In addition to the higher scoping thresholds mentioned in our recent briefing, the draft text provides the following for the CSRD:

• The transition exemption is clarified for Wave One companies (those companies which have had to comply with CSRD from financial year starting on or after 1 January 2024) who would no longer fall within the scope of the directive from 2027 should be subject to an exemption from reporting as regards financial years beginning between January 2025 and December 2026. However, adoption of the exemption has been left to the discretion of each Member State, meaning that existing Wave One companies with less than 1000 employees and less than €450mn turnover could also still be required to report until FY2027 if Member States do not wish to apply the exemption. See recital 18a and the draft text’s revisions to Article 5(2).
• Assurance – adoption of standards for limited assurance for sustainability information is postponed to 1 July 2027.
• Where a parent undertaking meets the definition of “financial holding undertaking”, including having diverse holdings and the obligation not to involve itself in the management of the subsidiary undertakings, it “should be able to choose whether to report consolidated sustainability information or whether to omit that information”. So subject to meeting the conditions set out, financial holding undertakings will not need to publish sustainability information under CSRD. This exemption was originally proposed by the Parliament so it has been useful to receive some guidance from the provisional agreement but we anticipate that in practice this exemption will have limited application.
• The draft recognises that in the case of the financial sector “it is important to consider whether requirements related to ESG or sustainability for the financial sector, including sector-specific financial services legislation, ESAs and supervisory expectations, are to be framed or adapted in a way that ensures consistency with the sustainability reporting obligations set out in [the Accounting Directive]”. This is interesting as it seems to reflect the need for financial supervisors to have data to effectively manage climate risk (and for financial institutions to demonstrate how they are managing climate risk). This suggests that the simplification is not intended to weaken climate-risk oversight, but to facilitate consistency across sustainability reporting requirements.
• The review clause included in Article 6(1) of the amended CSRD will be adjusted to refer to assessing the amended CSRD in light of “the Union's objective of enabling the disclosure of sufficient data on corporate sustainability” and “analysis of the needs for sustainability data to mobilise private investments towards EU Green Deal objectives on the one hand, and the influence of sustainability reporting on the competitiveness of the EU undertaking on the other hand”. The addition of this wording is interesting and indicates that the scope of CSRD may be broadened again in the future. See recital 19aa and the proposed amendments to Article 6(1).

For the CSDDD, in addition to the changes mentioned in our recent briefing (higher thresholds for the scope, removal of climate transition plans, and changes to the liability regime), the draft text provides interesting clarifications on the nature of the due diligence obligations, aimed at mitigating the burden associated with these obligations, for the companies and their business partners:

• As regards the measures to be taken to identify and assess adverse impacts, the draft text clarifies that this scoping exercise should only be based on what information is reasonably available to companies. As a general rule, this will preclude requests for information from business partners. This scoping exercise would also not require a systematic identification of adverse impacts at entity level, but rather a scoping of general areas where adverse impacts are most likely to occur and to be most severe.
• The draft text also addresses the in-depth analysis to be carried out in the areas where adverse impacts were identified to be most likely and most severe in that scoping exercise. This underpins the risk-based approach applied by the draft text. In that framework, the draft text provides that information from business partners should only be requested where that information is “necessary”. Such requests must moreover be targeted, reasonable and proportionate. This is similar to the enforcement practice of the German Federal Office for Economic Affairs and Export Control under the German Supply Chain Due Diligence Act.
• The draft text is also explicit on how the in-depth assessment after the scoping exercise should be limited to the areas where adverse impacts are identified to be most likely and most severe. To this end, the draft text stresses that a company can still fulfil its obligations under the CSDDD even though certain adverse impacts are not identified, and therefore not being prevented, mitigated, brought to an end or minimised.
• The draft text highlights that adverse impacts should be prioritised according to their severity and likelihood and addressed gradually, and that this implies that companies should not be penalized if it is not possible to address at the same time to the full extent all adverse impacts it has identified.

Next steps

Following the Member States’ Ambassadors endorsing the provisional agreement in the COREPER II meeting on 10 December 2025 and the Legal Affairs Committee (JURI) adopting the provisional agreement on 11 December 2025, we expect the Parliament to vote as a whole on it in plenary session on 16 December 2025. Although we expect the Parliament to approve the text, there have been many twists and turns along the path of the omnibus and it is not a rubber stamping exercise.

Once the Parliament has approved the draft, the proposed text will be formally adopted and become law once published in the Official Journal. In addition, the European Sustainability Reporting Standards should be adopted by the Commission at the latest six months after the entry into force of the provisional agreement.

Our global ESG group brings together a multidisciplinary global team that provides clients with best-in-market support. We are following developments relating to ESG regulation, so please get in touch if you would like to discuss.

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This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Emily Julier, Rita Hunter, Julia Cripps, Christelle Coslin, Margaux Renard, Christian Ritz, Felix Werner, Eva Monard, Lourdes Catrain, Renato Antonini and Byron Maniatis.