E.U. Approves Sustainability Reporting and Diligence Simplification

On December 16, the European Parliament approved Omnibus I, a package of amendments to the E.U.’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD or CS3D).  These reforms, proposed by the European Commission in February 2025, reduce sustainability reporting burdens, simplify the CSRD and CSDDD, and narrow the scope of companies subject to the directives.  See E.U. is Dialing Back Sustainability Reporting and Due Diligence, March-April 2025 Update. For U.S. companies with E.U. sales or subsidiaries, Omnibus I may change whether the company is in scope, and when and how E.U. sustainability rules apply.

CSRD requires in-scope companies to include in their annual report a standardized sustainability statement that discloses how sustainability matters affect the business and how the business affects people and the environment.  The statement, which is subject to third-party assurance, must comply with the European Sustainability Reporting Standards and cover governance, strategy, risks, metrics, and targets environmental, social, and governance topics.  CSDDD requires in‑scope companies to conduct a risk-based human rights and environmental due‑diligence process across their operations, subsidiaries, and key business partners.  The objective of the process is to identify, prevent or mitigate, and remediate adverse human rights and environmental impacts.

Omnibus I will affect the application of CSRD and CSDDD to both E.U. and non-E.U. businesses.  Some U.S. public companies with activities in the E.U. will no longer be subject to the directives, and those that remain subject may have new compliance timelines and disclosure obligations. Below is a high-level overview of some of the key changes.

• Omnibus I refocuses CSRD on larger businesses.  In practice, E.U. company and group CSRD reporting will be limited to larger companies -- typically those with more than 1,000 employees and a worldwide net turnover of at least  €450 million.  Previously, these thresholds were 250 employees and €50 million in worldwide net turnover.  Non‑E.U. groups will be in scope only if the ultimate parent company generates turnover of more than €450 million in the E.U. during each of the last two years and has at least one E.U. subsidiary or branch with more than €200 million of E.U. turnover. The previous threshold for non-E.U. parent companies was €150 million E.U. net turnover and a subsidiary or branch generating €40 million in net turnover. These changes should eliminate from coverage roughly 90 percent of entities that previously anticipated being in scope.  As a result, many U.S. companies with only limited E.U. operations that were previously expecting to be subject to CSRD requirements will now fall outside the directive.

• The “Stop‑the‑clock” directive adopted last year extends most companies’ CSRD compliance deadlines.  Apart from large E.U. public interest entities that have already begun CSRD reporting for 2024, E.U. companies and groups will start CSRD reporting with fiscal years beginning on or after January 1, 2027. Non-E.U. ultimate parent companies will start reporting with fiscal years beginning on or after January 1, 2028. 

• Omnibus I simplifies CSRD reporting. It places greater emphasis on quantitative information, rather than narrative.  Sector-specific disclosures will be voluntary.  In addition, Omnibus I postpones the deadline for obtaining third-party limited assurance over CSRD reporting to 2027 and eliminates the requirement to move eventually from limited to reasonable assurance.

• CSDDD now applies only to E.U. companies with more than 5,000 employees and worldwide net turnover above €1.5 billion, up from €450 million and 1,000 employees.  Non‑E.U. companies will be subject to the CSDDD if they generate E.U. net turnover above €1.5 billion; the prior threshold was €450 million. These changes will mean that only very large companies with substantial E.U. revenue will be covered and will likely reduce in‑scope entities by about 70 percent.

• Omnibus I replaces the prior CSDDD requirement that in-scope companies map human rights and environmental risks throughout the company’s value chain with a two‑step approach that relies on reasonably available information and focuses on areas where severe adverse impacts are likely. CSDDD will require companies to perform in-depth risk assessments only in the areas where they identify the most serious risks. When an in-depth assessment is required, a company can limit information requests to business partners with fewer than 5,000 employees to situations in which the company cannot reasonably obtain the necessary information by any other means.

• CSDDD will no longer require companies to adopt and implement a climate transition plan. 

• CSDDD will no longer require member states to create a civil liability scheme for the recovery of damages from companies that fail to comply with CSDDD due diligence risk mitigation obligations. Each member state may decide whether to impose a civil liability.

Audit Committee Takeaways

Audit committees of companies with any level of contact with the E.U. should ensure that management considers how Omnibus I affects the company’s CSRD and CSDDD obligations.  Audit committees should discuss with management the need to refresh the company’s analysis of whether it meets the thresholds or whether the company may no longer be in scope.  Such an analysis should focus on E.U. turnover, headcount, and E.U. subsidiary/branch structure.

For companies that remain in scope, management should update its CSRD/CSDDD implementation plan to reflect the new timelines and simplified requirements and discuss with the committee the company’s revised compliance resource needs. Many in-scope U.S. companies also do business in California and will be subject to California’s climate disclosure requirements.  Although the status of California’s rules is in flux, audit committees may want to explore with management opportunities to coordinate CSRD/CSDDD and California compliance. See Court of Appeals Pauses California Climate Disclosures, November-December 2025 Update.