9 December — The Council Presidency and European Parliament negotiators have reached a provisional political agreement to significantly simplify sustainability reporting and due diligence rules for businesses across the European Union. The move aims to strengthen EU competitiveness by reducing administrative burdens and limiting the knock-on effects of reporting obligations on smaller companies.
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The agreement centres on targeted amendments to two major legislative frameworks: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D). Both directives have been re-calibrated to ensure that regulatory requirements remain effective while better reflecting the operational realities faced by companies.
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.
– Marie Bjerre, Minister for European affairs of Denmark
Key Changes to the Corporate Sustainability Reporting Directive (CSRD)
In line with the European Commission’s simplification proposals, the co-legislators have endorsed major scope adjustments, including:
- New thresholds:
- Minimum 1,000 employees, and
- Net turnover above €450 million,
effectively reducing the number of companies required to report under CSRD.
- Removal of listed SMEs from the directive’s scope, easing compliance pressures on smaller publicly listed entities.
- Exemption of financial holding companies, further narrowing the directive’s coverage.
- Transition relief for “wave one” companies—those required to report for financial year 2024 but now expected to fall out of scope in 2025 and 2026.
A review clause has also been added to consider future adjustments to the scope of both CSRD and CS3D.
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For years, European businesses have faced wave after wave of red tape. This has slowed green investments and weakened our competitiveness. Now we are taking a big and important step in the right direction. With clear and simple rules, companies can focus on their core business, so we achieve better value for money in the green transition, create European jobs and strengthen companies’ ability to grow and invest. The Danish Presidency has pushed for this outcome, and we are keeping up the pace.
Morten Bødskov, Minister for industry, business and financial affairs of Denmark
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Revised Scope of the Corporate Sustainability Due Diligence Directive (CS3D)
Although the Commission had not proposed changes to CS3D’s scope, negotiators agreed to substantially increase thresholds to ensure the directive targets the companies with the greatest leverage within global value chains. Under the provisional agreement, CS3D will apply only to companies with:
- 5,000 employees, and
- €1.5 billion in net turnover.
These large entities are considered best positioned to drive meaningful environmental and human rights improvements, while also managing the cost and complexity of due diligence procedures.
Streamlined Due Diligence Requirements
The agreement introduces a more pragmatic approach to identifying and assessing adverse impacts in supply chains, including:
- Removal of the strict limitation to direct business partners.
- Allowing companies to focus on areas where risks are most likely to occur.
- Prioritisation flexibility when multiple areas present similar risk levels.
- Replacement of the comprehensive mapping obligation with a general scoping exercise, grounded in “reasonably available information.”
These adjustments are expected to significantly reduce compliance burdens and mitigate downstream pressure on SMEs.
Climate Transition Plans and Liability Rules
To further ease regulatory demands, the requirement for companies to adopt climate transition plans for mitigation has been removed.
The agreement also eliminates the previously proposed EU-wide harmonised civil liability regime, instead inserting a review clause to reassess this issue in the future.
Extended Implementation Timelines
Recognising the scale of adjustments companies must undertake, the transposition deadline for CS3D has been postponed by one year to 26 July 2028, with compliance obligations taking effect from July 2029.
Political and Policy Context
The simplification effort aligns with the broader EU strategy to reduce administrative burdens in response to recommendations from the Enrico Letta and Mario Draghi reports on the future of the Single Market and European competitiveness.
Calls for a “simplification revolution,” echoed in the Budapest Declaration of November 2024, have driven the push for clearer, more proportionate sustainability rules, particularly to support SMEs.
The provisional agreement also builds on the Commission’s 2025 Omnibus simplification packages and complements the recently adopted “Stop-the-clock” mechanism, which deferred the application of CSRD requirements for many large companies and listed SMEs.
Next Steps: The provisional agreement will now be submitted to both the Council and the European Parliament for formal endorsement before adoption.
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