EU lawmakers seal CSRD and CSDDD fate with Omnibus deal

The European Council and Parliament have officially agreed on the sustainability Omnibus to reduce corporate reporting requirements under CSRD and CSDDD – ending a controversial process that began more than a year ago.

The agreement – which put an end to trilogue negotiations – took place this morning (December 9), clarifying the new scope of the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).

As expected, the scope of CSRD is reduced by 90%, with only companies of 1,000 or more employees and €450 million or more in turnover mandated to comply. Note that the text adopted by the MEPs in November sought to increase the employee threshold to 1,750 – a measure the Council seems to have pushed back on.

On CSDDD, the final agreement has removed all mentions of climate transition plans and reduced the scope to large corporations with more than 5,000 employees and annual turnover higher than €1.5 billion.

New flexibility in CSDDD

While the Commission’s initial proposal limited the assessment of environmental and human rights risks to the company’s own operations, those of its subsidiaries, and those of its direct business partners (so-called Tier 1 suppliers), the agreement signed this morning removes this specification. 

Now, companies have flexibility to focus on areas of their supply chains where “actual and potential” adverse impacts are most likely to occur – this is called the risk-based approach. Firms are no longer required to map their supply chain risks, and instead can conduct a “general scoping exercise”, based on reasonably available information – with limited ability to request data from smaller partners.

According to Andreas Rasche, Professor and Associate Dean at the Copenhagen Business School, the wording of the new agreement – specifying that “when "adverse impacts [are] equally likely or equally severe in several areas, [firms] are given the ability to prioritise assessing adverse impacts which involve direct business partners” – is “an indirect invitation to not address severe impacts”.

Review clause and new delays

Under the new agreement, CSDDD implementation is delayed again, with compliance expected only in July 2029. In addition, the deal introduces a review clause “concerning a possible extension of the scope for both CSRD and CSDDD". This opens the door for more regulatory uncertainty, but also “shows that policymakers have doubts about the severe scope reduction”, adds Rasche.

The deal also removes the EU harmonised liability regime for CSDDD, though it includes another review clause on this topic. Finally, it clarifies the penalties companies could face for not complying with CSDDD, with a maximum cap of 3% of net worldwide turnover – compared to 5% initially.

The agreement still needs to be formally adopted by both the European Council and Parliament, with votes to take place between December 10 and December 16.

“Today we delivered on our promise to remove burdens and rules and boost EU’s competitiveness. This is an important step towards our common goal to create a more favourable business environment to help our companies grow and innovate,” commented Marie Bjerre, Minister for European affairs of Denmark.

‘Flawed and shameless process’

Reacting to the agreement on Linkedin, Richard Gardiner, Interim Policy Lead at ShareAction, said: “Overall this process was flawed, shameless, with zero actual data, analysis or justification, and whose lasting impact could be the legitimising of anti-EU political forces in EU policy making… But for now hopefully we can just move on to application and stop pretending that simplification is not deregulation.”

The process used by European legislators to adopt this first sustainability Omnibus has been repeatedly criticised for its opacity – and this “maladministration” was officially recognised by the EU’s institutional watchdog, the Ombudsman, at the end of November. 

EU Ombudsman decisions are only advisory but they do carry legal weight, and while this first wave of simplification can no longer be stopped, sustainability and legal experts now expect more legal challenges against future omnibuses.