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This article provides an update on European Union Law concerning Corporate Sustainability and Governance (CSG), building on our previous update on the Corporate Sustainability Due Diligence Directive (CSDDD).
Author: Stefan Schmierer, Managing Partner
Key directives and their criticisms: admin burden, extraterritorial effect
The European Union (EU) has developed two main directives in recent years regarding CSG: the CSDDD and the Corporate Sustainability Reporting Directive (CSRD). These directives are considered the EU’s flagship initiatives for CSG. However, they have faced substantial criticism from the business sector both within and outside the EU due to their complexity and the administrative burdens they impose on businesses of all sizes. The directives' extraterritorial effect has also been a point of contention. Initially, these directives were to be transposed into national law and become effective between 2025 and 2026, with parts of the CSRD already in effect for certain businesses.
EU's response to criticism: the “First Omnibus Package” – reduced due diligence
In response to the criticism, the EU member states and the EU Commission announced in November 2024 their intention to significantly reduce the administrative, regulatory, and reporting burdens within the EU. On February 26, 2025, the EU presented its proposal for the “First Omnibus Package.” Although this package still requires approval from the EU Parliament and the Council, it is expected to become effective by December 31, 2025. The Omnibus Package aims to reduce and adjust the scope, reporting requirements, and assurance obligations of the CSRD, and to narrow the due diligence measures of the CSDDD, thereby reducing complexity and improving consistency with other EU legislation.
CSRD implementation delayed and scope narrowed
The implementation of the CSRD will be delayed by two years, except for public interest companies to which the directive already applies. Originally, the first reporting under the CSRD was to be filed by applicable companies in 2026 for the year 2025. This has now been pushed back to 2028, with the first reporting year being 2027. Additionally, the scope of the CSRD will be narrowed, applying only to companies with more than 1,000 employees and either a net turnover of more than 50 million EUR or a balance sheet total of 25 million EUR. This significant reduction will exclude approximately 80% of companies that were initially under the CSRD reporting obligations.
CSDDD deadline extended and supply chain monitoring reduced
The EU intends to postpone the deadline for transposing the CSDDD into national law by one year, from July 26, 2026, to July 26, 2027, with the first reporting year starting on July 26, 2028. Another reduction in burden pertains to a company’s supply chain, where companies will only be required to monitor their own operations and those of their direct business partners. Indirect business partners are generally excluded unless certain circumstances are met. Furthermore, if a direct business partner of an in-scope company is an SME or a small midcap business (i.e., companies with fewer than 500 employees), the information that can be requested from such small-scale business partners is limited to specific information mentioned in the directive. This measure aims to reduce the administrative burden for smaller companies in the supply chain, addressing a major point of criticism.
Changes to remedies and penalties under CSDDD mostly abolished
The CSDDD has also been narrowed regarding remedies against companies in violation of the directive. The obligation for member states to create a harmonized EU-wide civil liability regime for damages will be abolished, with remedies arising only from national law. Additionally, representative actions by trade unions and NGOs will be abolished, leaving it to national laws to determine whether such entities can take action if a company violates CSDDD obligations. Lastly, the 5% linkage between a company’s net turnover and a penalty imposed by a supervising authority in a member state will be abolished.
Implications of the Omnibus Package for businesses: net effect depends on each member state’s national laws
The intended reduction of obligations by the Omnibus Package represents a significant step forward for companies within and outside the EU, reducing their administrative burden and saving costs. However, it is important to note that each member state is permitted to introduce national laws that impose more stringent obligations on both domestic and foreign entities doing business there, as seen in Germany. In such cases, companies must comply with the more stringent national laws unless the member state follows the EU example and narrows its own national legislation.
Additional resources from the EU Commission:
Q&A (PDF download)
Accompanying working document by EU Commission staff (PDF download)
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
For specific advice about your situation, please contact:
Managing Partner
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