CSRD and CSDDD at a Crossroads: The Council’s Push for Revisions

The Council of the European Union has reached a highly anticipated agreement on the content part of the sustainability-related Omnibus simplification proposal. After agreeing (at record speed) to stop-the-clock on CSRD and CSDDD taking effect, giving companies extra time to comply (see here), the EU co-legislators have turned their attention to the substantive content of these directives, and the changes proposed by the EU Commission in the main Omnibus. Representatives of the 27 Member States of the EU have progressed negotiations in the Council under the leadership of Poland, who hold the Presidency of the Council for the first semester 2025.

The EU Member States have reached a ‘general approach’, i.e. an agreed position setting out their proposal on the Omnibus package. While the Council recognises that the Commission’s proposal was a good start, they have put forward a number of additional amendments aimed at further simplifying the rules, while trying to keep most of the EU sustainability objectives enshrined in the directives.

This blog post outlines the Council’s key changes proposed as well as the next steps at EU level to reach a final agreement on the Omnibus proposal.

Key changes proposed for CSRD 

The Council supports most of the Commission’s proposed CSRD changes, and proposes discrete additions to address some of the key concerns raised by the business community - other key areas remain outstanding, including the complexity of group reporting requirements, and the approach for financial institutions and asset managers. 

The key changes are: 

Higher thresholds 

The Council’s proposal would exclude EU companies and groups with either an annual net turnover under €450m or fewer than 1000 employees, and also exclude non-EU-headed global groups with less than €450m EU turnover from FY 2028+ reporting. This is a significant increase to the current thresholds, and could exclude many former in-scope companies.

Adapting assurance requirements

The Council confirms support for the permanent cancellation of a possible increase of the CSRD assurance standard from limited to reasonable from 2028. The Council also proposes transitional relief for auditors providing assurance of reports prepared for non-EU companies who are EU listed, by delaying commencement of the foreign sustainability auditor registration requirement to 2031. At this stage, no equivalent assurance relief is proposed for non-EU parent companies who voluntarily prepare CSRD reports for their whole group. 

Adjusting transition plan disclosures

While subtle, the Council proposes to soften the “transition to a sustainable economy” disclosure requirement, replacing the requirement for a disclosed plan to “contribute to” the transition, with a requirement that the plan is “compatible with” the transition. The same change is proposed for CSDDD. This appears to align the disclosure requirement more closely with the approach of ISSB (and the TCFD framework on which it is based). 

Withholding certain sensitive information

There has been significant business interest in strengthening protections for sensitive information. The Council proposal would excuse companies from disclosing information that would seriously prejudice commercial positions, or which relates to intellectual capital, intellectual property, know how, or trade secrets (provided they disclose that they are relying on this exception, and reassess the omissions annually). 

Reducing value chain disclosures 

The Council supports reducing the indirect burden that CSRD reporting by large companies may place on small companies in their value chain, by confirming support for two measures: a right for reporting companies to limit information to the voluntary minimum reporting standards where it relates to companies in their value chain with fewer than 1001 employees (Small VC Companies); and a right for Small VC Companies to decline to provide information beyond the minimum standards. The onus would be placed on reporting companies to inform their Small VC Companies where any information exceeds the voluntary minimum standards, identifying their statutory right to decline.

Key changes proposed for CSDDD

The Council’s general approach to CSDDD would substantially reduce the administrative burden for companies, by raising the applicability thresholds, reducing risk analysis and due diligence obligations, softening the climate transition plan requirement and removing the civil liability regime (including standing for trade unions and NGOs). 

The key changes are:

Increased applicability thresholds 

Following significant stakeholder pressure, the Council included a surprising, last-minute proposal to increase the relevant employee and turnover thresholds that trigger CSDDD obligations for companies. The Council’s proposal would limit application of CSDDD to EU companies (or aggregated groups) with more than 5,000 employees and more than €1.5b net turnover, and non-EU companies (or aggregated groups) with more than €1.5b EU net turnover. CSDDD would, however, continue to apply in franchising/licensing scenarios where companies generate more than €80m in EU turnover and more than €22.5m in EU royalties.

Despite calls to disapply CSDDD to non-EU companies, both the Council and Commission continue to support its application to non-EU companies over the relevant turnover threshold.

Revisiting the risk analysis 

The Council proposal would significantly narrow the scope of CSDDD’s due diligence obligations. Unlike the Commission’s proposal, companies would no longer be required to carry out a comprehensive mapping exercise, but instead to conduct a more general scoping exercise (using only “reasonably available information”), and limit their risk assessments to their own operations, those of their subsidiaries, and their direct business partners.

The Council’s proposal would only require companies to conduct an in-depth risk assessment below tier one of their supply chain (indirect business partners) where they have – or can reasonably be expected to know of – “objective and verifiable information that suggests that adverse impacts” have arisen or have a reasonable prospect of arising at that level. This would replace the Commission’s similar proposal which uses the phrase “plausible information”. The Council also proposes to subject this measure to future review by the Commission.

The Council’s proposal would allow companies to seek contractual assurances from their direct business partners that they will ensure compliance with the company’s code of conduct by flowing obligations down through the supply chain. 

The Council also proposes to relieve business partners of in-scope companies by: 

• Limiting information requests for the purposes of the scoping exercise in the case of business partners with fewer than 1,000 employees to scenarios where that information cannot reasonably be obtained by other means; and
• Generally requiring that information requests be necessary for the purpose of the scoping exercise.

Limiting preventive and corrective action required

In line with the Commission’s proposal, the Council suggests removing the “duty to terminate” business relationships as a measure of last resort, replacing it with a duty to suspend the relationship while adopting and implementing an enhanced prevention action plan. The Council’s general approach clarifies that continuous engagement with a business partner does not expose the obliged companies to penalties or civil liability, as long as there is reasonable expectation that the enhanced prevention action plan will succeed.

The Council also agrees with the Commission’s proposal to only require companies to review the adequacy and effectiveness of due diligence measures every five years, instead of annually.

Aligning the reporting obligation with CSRD

To ensure alignment of reporting obligations under CSRD and CSDDD, the Council proposes to require the Commission to take into account CSRD reporting standards when adopting delegated acts on the content and criteria for CSDDD reporting.

Softening the climate transition plan obligations

The Council proposes to soften significantly the climate transition plan obligation. Going beyond the Commission’s proposal, the Council would not only remove the obligation to “put into effect” a compliant transition plan, but also reduce the substantive requirements for the transition plan: while the CSDDD currently requires the business model and strategy of the company to be compatible with the transition to a sustainable economy and limiting global warming to 1.5 degrees in line with the Paris Agreement, the Council’s would only require the business model and strategy “to contribute to the transition to a sustainable economy and to the limiting of global warming in line with the Paris Agreement”, which is consistent with the update to the CSRD disclosure requirement (see above). 

The Council would also only require companies to adopt “reasonable” rather than “best” efforts in implementing the plan, which the Council defines as “taking the reasonable steps that would be taken by a diligent person to achieve the targets set in the transition plan, taking into account best industry practices, the effectiveness of actions taken, and the principle of proportionality”.

The Council proposes a two-year optional phase-in for the CSDDD transition plan obligation, and suggests subjecting the design and enforcement of the climate transition plan measures to future review by the Commission. 

Adjusting pecuniary penalties

The Council proposal would convert the requirement for Member States to set the maximum limit of pecuniary penalties for CSDDD breaches from a floor of “not less than” 5% of the (aggregated) net worldwide turnover of the relevant company, to a straight “5%” of that turnover – potentially decreasing the maximum fines that Member States adopt on transposition of CSDDD. 

Softening civil liability

The Council has agreed with the Commission’s proposal to remove the civil liability regime currently included in CSDDD, including representative action by NGOs and trade unions. Instead of requiring Member States to provide for a specific, EU-wide civil liability regime, national liability regimes would apply, with Member States ensuring that full compensation is made available to persons suffering damage caused by a breach of CSDDD due diligence requirements.

Postponing transposition date

The council proposes to delay the CSDDD transposition deadline, meaning changes would need to be transposed by 26 July 2028, one year later than what the Commission initially proposed. 

What’s next?

The adoption of the Council’s general approach marks a critical phase in the EU legislative process, as it is now the Council’s official position on Omnibus, that Member States will defend in the final stretch of the negotiations with the European Parliament and the Commission later this year.

Traditionally, the Council tends to adopt more pro-business positions than the Parliament. In the current simplification context of the sustainability-related Omnibus however, all sides seem keen to ensure practicability for businesses in order to foster their competitiveness.

In the European Parliament, the first report in the lead Committee on Legal Affairs (JURI) published (see here) by the lead draftsman Jörgen Warborn MEP (centre-right EPP, Sweden) also signals support towards further simplification for businesses. Other MEPs and political groups which are expected to submit additional amendments by 27 June will have to agree on compromises in order to form the Parliament’s position. This might prove quite difficult to achieve given the tense political situation in the Parliament where the centre-right is joining forces with parties to its right to further weaken the EU sustainability agenda which causes outrage within the centrists and left parties. The final position of the Parliament is currently pencilled for adoption in October.

Freshfields will continue to monitor the situation very closely in order to assess the best options in terms of preparation and compliance. 

Developments with the ESRS standards

In parallel, EFRAG has published a Progress Report (see here) on their work simplifying the ESRS. EFRAG will consult on proposed amendments to the ESRS over the Summer. In addition to reducing data points generally, some key aspects of their proposal include: 

• Simplifying the DMA – while both impact and financial perspectives continue to be assessed, a wide range of measures to simplify the double materiality assessment are being considered. EFRAG is considering clarification on key areas, such as: the criteria for where information is material; the interaction between identified IROs and material topics/sub-topics; the definition of impacts and how mitigation, prevention and remediation actions are considered in assessing the materiality of an impact (gross or net approach); and reduced disclosures when only a sub-topic is material. 
• Improving readability and conciseness of sustainability statements – by providing further optionality so that sustainability reports may: have an executive summary; disclose more granular or additional information in dedicated sections; clarifying that EU Taxonomy disclosures may be disclosed in an appendix; and discouraging repetition of information. 
• Reducing duplication between minimum disclosure requirements and topical standards – including by clarifying that disclosure of policies, actions and targets is only required where a company has them. 
• Clarifying the perimeter of reporting – including a focus on consolidated financial statements as the starting point and specific guidance on how companies should report sustainability information in relation to acquisitions and divestments.
• Expanding reliefs for reporting – including in relation to: the “undue cost and effort” relief, which is available under ISSB S1 and S2; specific relief to reduce the burden for metrics, for own operations and value chain; and considering the exclusion of non-material data in calculations. 
• Enabling interoperability – The report notes that EFRAG are considering all opportunities to make the ESRS standards interoperable with the ISSB standards, including specifically a review of the GHG emissions boundaries as the ESRS E1 diverges from widely adopted methodology.