Have the CSRD and CSDDD been thrown under the EU omnibus?

In brief

As well as heavily watering down the scope of the EU Corporate Sustainability Reporting Directive (CSRD), EU omnibus proposals also significantly weaken due diligence requirements under the Corporate Sustainability Due Diligence Directive (CSDDD).
However, none of this changes the reality of escalating physical, transition and litigation risks, which, on the current trajectory, could destroy 50% of GDP as early as 2070.
The underlying logic and original intent of regulations, such as the CSRD and CSDDD, therefore still stand – ie, the necessity of driving transformations in strategy and governance, informed by thorough due diligence and the proper assessment and management of ESG impacts, risks and opportunities.
Double materiality assessment of those impacts, risks and opportunities is not merely a reporting process. It's an essential strategic tool – a vital investment in understanding future resilience and competitiveness.

Background

In September 2024, former president of the European Central Bank, Mario Draghi, released The future of European competitiveness. This report singled out the volume of regulation – including in relation to sustainability reporting and due diligence – as a brake on the competitiveness of EU companies compared to the US.

On 8 November 2024, EU leaders issued the Budapest Declaration, including a call on the European Commission to issue concrete proposals for reducing reporting requirements by at least 25% in the first half of 2025.

On the same day, Ursula von der Leyen indicated plans to introduce "omnibus" proposals, focused on the "triangle" of the EU Taxonomy Regulation, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) (see Table 1 below).

This simplification package, she vowed, would reduce the regulatory and reporting burden for companies by addressing redundant or overlapping requirements, while maintaining the fundamental content and intent of the original regulations.

Table 1: Recapping the triangle of regulations in focus

Key things to know

Despite assurances that omnibus legislation would represent a simplification, not a rollback, the proposals published on 26 February 2025 would substantively alter the scope and substance of the original regulations. Key points are as follows:

CSRD

**Compliance thresholds:** only large EU undertakings with more than 1,000 employees (same as for CSDDD), and more than €50 million turnover and/or a balance sheet total of more than €25 million, would be subject to mandatory reporting. For non-EU undertakings to be in scope, they would have to be generating more than €450 million turnover in the EU (again in line with CSDDD), with either an EU subsidiary meeting the thresholds above or an EU branch with annual turnover of more than €50 million. These amendments to thresholds would reduce the number of companies in scope by around 80%.

**Application dates:** the proposal would postpone by two years the application of reporting requirements for large companies that have not yet started implementing the CSRD (wave 2), and for listed SMEs (wave 3). Under current rules, these companies are required to report from 2026 and 2027 respectively. For those that would no longer be required to report if new proposed thresholds are adopted, the delay would protect them from incurring unnecessary and avoidable costs.

**Value chain reporting:** to reduce the trickle-down effect on organisations in the value chains of in-scope companies, the value chain cap would be extended and strengthened to protect all undertakings with fewer than 1,000 employees (not just SMEs). The information that reporting companies can seek from others in their value chain would be limited to that defined by voluntary standards (to be adopted by delegated act), which will be based on current Voluntary Standards for SMEs (VSME Standards).

**Data points:** within six months of the proposal's entry into force, the Commission would adopt a delegated act to revise and simplify the first set of European Sustainability Reporting Standards (ESRS), significantly reducing the number of mandatory data points to report.

**Sector-specific standards:** development of sector-specific standards (currently to be adopted by June 2026) would be abandoned.

**EU Taxonomy alignment:** proposals would introduce a more flexible "opt in" regime. For companies with more than 1,000 employees and turnover not exceeding €450 million, this effectively makes it voluntary to report alignment (or partial alignment) of their activities with the EU Taxonomy.

**Assurance:** while requirements for limited assurance of disclosures would be retained, the expectation of transitioning to reasonable assurance would be dropped. Instead of an obligation for the Commission to adopt standards for sustainability assurance by 2026, it will issue targeted assurance guidelines.

CSDDD

**Application dates:** proposals would delay initial application of the directive (to companies with more than 5,000 employees and more than €1.5 billion turnover) by one year to July 2028. Coupled with pushing up delivery of general due diligence guidelines to July 2026 (from January 2027), this would provide all companies with at least two full years to develop appropriate due diligence measures.

**Value chain due diligence:** proposals would mean that full due diligence is limited, by default, to the company's own operations, subsidiaries and direct business relationships (ie, tier 1 suppliers). In-depth assessment of an indirect partner would only be required if the company has plausible information suggesting that adverse impacts have arisen or may arise. Information sought from suppliers with fewer than 500 employees should not exceed that specified in CSRD voluntary standards.

**Monitoring:** while clarifying that companies need to assess and update their due diligence measures whenever there are reasonable grounds to believe they are no longer adequate or effective, the interval between regular periodic assessments would be extended from one year to five years.

**Risk mitigation:** proposed changes would remove the duty to terminate business relationships as an option of last resort. However, suspension of the relationship could still be required, if an enhanced prevention action plan cannot be reasonably expected to prevent or adequately mitigate adverse impacts.

**Stakeholder engagement:** proposed amendments would limit the notion of stakeholders to workers and their representatives, and individuals and communities, whose rights or interests are, or could be, "directly" affected by the products, services and operations of the company, its subsidiaries and business partners. Further, companies need only engage with "relevant" stakeholders, depending on the specific stage of the due diligence process (e.g., affected individuals when designing remediation measures).

**Transition planning:** proposed wording changes create a degree of uncertainty. While they drop the duty to put transition plans into effect, companies remain obligated to lay out their trajectory towards a Paris Agreement-compatible business model and strategy, and to explain progress in implementation. With mandatory contents (eg, time-bound targets, key actions, funding to support implementation) unaffected, this suggests transition plan requirements remain largely intact.

**Penalties and damages:** proposals would mean that there is no longer a minimum harmonised penalty value (currently not less than 5% of a company's net worldwide turnover). Instead, guidance will be issued to assist supervisory authorities in determining appropriate levels of penalties.

**Civil liability:** proposed amendments would remove the obligation for member states to ensure that companies can be held liable for damage caused by failing to comply with their due diligence obligations. The effect of this would be that civil liability is left to the discretion of member states, dependent upon what is provided for in national laws.

**Harmonisation:** the principle of maximum harmonisation would be extended to cover more core aspects of the due diligence process. This includes in relation to duties to identify and address adverse impacts, as well as providing for complaints and notification mechanisms. Rather than the CSDDD acting as the regulatory floor, this effectively creates a regulatory ceiling, precluding member states from introducing national laws that go further.

**Financial services activities:** proposals would scrap the requirement for the Commission to report to the European Parliament and Council on the need to adopt additional due diligence requirements, tailored to the provision of financial services and investment activities.
CSRD	The CSRD requires in-scope companies to report on a full range of ESG impacts, risks and opportunities, as well as associated governance arrangements and implications for corporate strategy.
CSDD	The CSDDD requires in-scope companies to identify and proactively address adverse impacts on human rights and the environment, which arise from their operations and value chains.
EU Taxonomy	The EU Taxonomy is designed to help reorient capital flows towards sustainable investment by providing a classification system and set of performance thresholds that define which economic activities can be considered environmentally sustainable.

It will now be for the European Parliament and Council to consider and adopt the Commission's proposals, with proposed changes only entering into force once tripartite agreement has been reached.

Our commentary

In January, in conversation with sustainability agency Good Business, we predicted that the omnibus proposals would heavily water down ESG due diligence and disclosure requirements, and so it has proved. In fairness, that seemed like a safe bet considering recent missives from German and French ministers to the Commission, variously calling for CSRD thresholds to be increased, to delay CSRD application by two years, and to indefinitely delay the application of CSDDD.

The significant dilution of the original regulations will no doubt be greeted with relief and consternation, in equal measure, by those who have lobbied hard for a relaxation of the rules and by those who have already invested in preparing to meet new obligations.

As for the latter group, our view is that this will not be wasted effort. The omnibus simplification package may weaken due diligence requirements, and significantly reduce the number of organisations required to publicly disclose their ESG impacts, risks and opportunities. However, it does not negate the value and importance of identifying, evaluating and prioritising them.

While instigators of the ESG backlash view accounting for impacts of, and contributions to, mounting social and ecological pressures as a costly and unwarranted drag on business-as-usual, the numbers tell a different story. For example, climate-related economic costs have more than doubled over the last 20 years, exceeding US$3.6 trillion since 2000¹. And with six (possibly seven) of nine planetary boundaries already breached, it's been projected that 50% of GDP could be destroyed as early as 2070, if we don't change course.

In this context, the underlying logic and original intent of regulations, such as CSRD and CSDDD, still stand – ie, the necessity of driving transformations in strategy and governance, informed by thorough due diligence of impacts, and the proper assessment and management of systemic risks.

Accordingly, we shall continue to recommend double materiality assessment (DMA) of ESG impacts, risks and opportunities to our clients, even if they are no longer (or never were) in scope of the CSRD. That's because DMA isn't just an exercise for determining what's salient for companies to report on publicly. First and foremost, it's a strategic process – a vital investment in understanding a business' capacity to protect and grow value in a world of rising physical, transition and litigation risks.

Understanding the dynamic relationship between impact and financial materiality is foundational to understanding future resilience and competitiveness – eg, how dependencies and impacts on resources, upon which a business relies to function, will affect their quality, availability and affordability over time.

As such, DMA is critical to identifying where a company is exposed to risk, lacks resilience, and needs to adapt and transform its business model, strategy and value chain arrangements. Boards of directors should want to know this, irrespective of whether regulation requires public disclosure.

Need help?

Our specialist ESG practice, Mishcon Purpose, offers a range of services help clients find the simplicity on the other side of regulatory complexity – not only helping to determine which regulations are likely to apply and when, but also to develop the strategies and governance frameworks necessary to comply with new obligations and capitalise on opportunities to strengthen resilience. For further advice, get in touch.

¹This figure very likely an underestimate. While it includes direct damage, such as infrastructure destruction, insured losses and immediate economic impacts, it does not include indirect effects, such as longer-term health consequences, loss of productivity and natural resource depletion.