Trimming the Green Tape: The First EU Simplification Package Entered the Final Lap
The first EU simplification omnibus, on sustainability reporting and due diligence, moves to the final stretch of negotiations with interests and emotions running high. The inter-institutional negotiations, known as the trilogue, are expected to start as soon as next week and are envisaged to conclude in December, allowing the revamped legislation to be finalized and voted on by the co-legislators in January 2026, followed by transposition into the national laws of individual EU member states.
Following months of discussions in the European Parliament (EP) over the proposed amendments to the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), the EP’s Legal Affairs Committee (JURI Committee) approved its position on a series of changes to sustainability reporting and due diligence requirements for companies. This vote is a result of heated disagreements within the center platform, followed by a compromise agreement, avoiding an alternative voting coalition with the far right of the EP’s political spectrum.
The EP’s lead negotiator, MEP Warborn, described the adopted position as one that “cuts costs, strengthens competitiveness, and keeps Europe’s green transition on track.”
This compromise position still significantly narrows the scope of sustainability reporting, but does so less aggressively than the June proposal (which we discussed here). Crucially, it brings the applicability thresholds mostly in line with those proposed by the European Council’s report: 1,000 employees and €450 million net turnover for the CSRD, and 5,000 employees and €1.5 billion net turnover for the CSDDD. Both thresholds are significantly higher than those proposed by the European Commission’s Omnibus package, but align with the position of the Council, the other co-legislator, composed of EU member state governments.
Proposed Changes at a Glance
The draft rules would significantly simplify EU sustainability and due diligence reporting obligations for both EU and non-EU companies. The legislation is being fast-tracked, and a final version is likely to narrow the scope of CSRD and CSDDD, eliminate key obligations for companies and their suppliers, and ease penalties for non-compliance.
- Scope Thresholds: As mentioned above, under CSRD, only companies with at least 1,000 employees and €450 million in net annual EU turnover would be in scope; under CSDDD, the thresholds rise to 5,000 employees and €1.5 billion. These thresholds are expected to survive subsequent negotiations.
- Climate Transition Plans: Companies would still need to prepare climate transition plans but would no longer be required to act on them. Policymakers may push to eliminate the planning requirement altogether, though this could face resistance from left-leaning factions.
- Civil Liability: Civil liability for non-compliance would not be harmonized across member states, meaning enforcement mechanisms will remain decentralized. This change is expected to survive subsequent negotiations.
- Due Diligence Obligations: Adopting a risk-based approach, companies would only need to conduct due diligence on suppliers when they have plausible information indicating risk. This provision remains subject to negotiation, as the range from a focus on tier-1 suppliers to an exclusive focus on risk illustrates that this may be one of the more difficult points for resolution between the Commission, Council, and Parliament.
- Penalty Structure: Companies would be subject to a maximum penalty of 5% of global turnover for non-compliance, replacing the previous minimum penalty approach.
- Extraterritoriality: Neither the Parliament nor the Council has addressed whether companies must report and conduct due diligence on their activities outside the EU. If this issue surfaces during subsequent negotiations, we expect pushback from left-leaning lawmakers and EU citizens.
We expect the trilogue negotiations to be relatively straightforward. However, the negotiators and their respective bodies will need to resolve key issues, namely the depth of due diligence, the climate transition plans, and extraterritoriality.
Comparing Proposals
| Aspect | Existing legislation | European Commission proposal | Council position | European Parliament position |
|
Applicability threshold for CSRD |
For EU entities, at least two of the following: (1) 250 employees (2) €25 million balance sheet total (3) €50 million |
For EU entities, (1) 1000 employees (2) Either (a) €25 million balance sheet total or (b) €50 million net turnover |
For EU entities, (1) 1000 employees (2) €450 million net turnover |
For EU entities, Same as Council, but with greater exemptions for (i) financial holdings and (ii) subsidiaries whose parent company already publishes group-wide sustainability data |
|
For non-EU parent entities, (1) €150 million net turnover within the EU in each of the last two years (2) Either (a) an EU subsidiary which is a large undertaking or a listed SME (b) an EU branch with net turnover exceeding €40 million |
For non-EU parent entities, (1) €450 million net turnover within the EU in each of the last two years (2) Either (a) an EU subsidiary which is a large undertaking (b) an EU branch with net turnover exceeding €50 million |
For non-EU parent entities, Same as Commission |
For non-EU Parent entities, Same as threshold for EU entities (according to Parliament’s June 2025 draft report; Parliament’s current position not publicly stated) |
|
|
Applicability threshold for CSDDD |
For EU entities, (1) 1000 employees (2) €450 million net turnover worldwide
For non-EU parent entities, €450 million net turnover within the EU |
Same as current CSDDD |
For EU entities, (1) 5000 employees (2) €1.5 billion net turnover worldwide
For non-EU parent entities, €1.5 billion net turnover within the EU |
Same position as Council |
|
Climate Transition Plans |
CSRD: Must disclose a plan to be “compatible with the transition to a sustainable economy”
CSDDD: Must implement a plan to ensure the business model and strategy are compatible with the transition to a through best efforts |
CSRD: Mandatory disclosure of transition plans
CSDDD: Mandatory adoption and disclosure of a transition plan, but no obligation to put the plan into effect |
CSRD: Must disclose plans which “contribute to the transition to a sustainable economy” (rather than compatible plans)
CSDDD: Must adopt a plan outlining ‘implementing actions’ which aim to contribute to the transition through reasonable (not best) efforts; postpones obligation by two years |
CSRD: Same position as Commission
CSDDD: Mandatory adoption of a transition plan through reasonable efforts, but no obligation to put the plan into effect or show implementing actions |
| Civil Liability | CSDDD: Introduces a harmonized civil liability regime, setting EU-wide standards for companies that fail to comply | No harmonized civil liability regime; each member state’s national law will apply | Same position as Commission | Same position as Commission |
| Penalty Fees |
CSRD: Requires member states to provide for penalties but does not set a specific EU-wide cap
CSDDD: Requires fines to be minimum 5% of the entity’s global turnover |
CSDDD: The Commission, in collaboration with the member states, will develop guidelines for penalties; Does not link penalties to net turnover or set a specific cap | CSDDD: The Commission, in collaboration with the member states will develop guidelines for penalties; Proposes a maximum 5% of global turnover cap on fines | Aligned with Council |
|
Scope of due diligence |
CSRD: Requires companies to report on risks from internal operations and their entire value chain (upstream and downstream)
CSDDD: Requires companies to report on risks from direct and indirect business partners, including upstream and downstream (but limiting downstream to distribution, transport, and storage) |
CSDDD: Limited as a general rule to the company’s own operations, those of its subsidiaries and its direct business partners (‘tier 1’)
Companies should, however, look beyond their direct business relationships where they have plausible information that suggests an adverse impact at the level of an indirect business partner |
CSDDD: Limited as a general rule to the company’s own operations, those of its subsidiaries and its direct business partners (‘tier 1’)
Adopts a ‘risk-based’ rather than ‘entity-based’ approach, meaning that companies rely on ‘reasonably available information’ to conduct a scoping exercise
Requires further assessment only when verifiable information suggests an adverse impact beyond direct business partners is most likely to occur and most severe |
CSDDD: Adopts a fully risk-based approach: rather than having the obligation apply as a general rule to tier-1 partners only; in-scope companies must probe all risks based on reasonably available information |
What Companies Should Do Now
Companies should continue preparing for CSRD and CSDDD compliance while monitoring legislative developments. Recommended next steps include:
- Conduct a scoping exercise of any EU companies in your group and determine whether this could trigger any group-wide reporting under the newly proposed thresholds.
- Continue preparing climate transition plans.
- Identify information indicating whether any tier 1 suppliers present a plausible risk.
- Monitor and inform the trilogue negotiations with a view to a positive outcome.
Subscribe to Akin’s Speaking Sustainability blog for ongoing analysis of legal and regulatory developments in the sustainability space, and please reach out to the team for any further information or assistance in scoping exercises.
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