CSRD – Scope Narrowed, Burden Reduced
The Council’s proposed revisions to the CSRD introduce several key changes that significantly narrow its application and reduce reporting burdens, particularly for SMEs and mid-sized companies.
- Thresholds / Scope:
The CSRD will now apply only to companies with at least 1,000 employees (up from 250) and a net turnover of at least €450 million. This adjustment removes a substantial number of companies from the mandatory reporting scope.
- Exclusion of Listed SMEs:
Listed SMEs—previously required to comply with simplified sustainability reporting standards—are now excluded from CSRD’s scope, reflecting widespread concern over the disproportionate burden placed on small public companies.
- Scope Review Clause:
The Council’s position includes a commitment to revisit the scope of the directive in the future to assess whether the market still has access to sufficient corporate sustainability data. If necessary, the scope may be extended again.
- Removal of sector-specific standards
The EC removed its plans to develop sector-specific ESRS standards.
Implication for businesses:
Many mid-sized and listed SMEs will benefit from immediate regulatory relief, avoiding the resource-intensive task of sustainability reporting under ESRS. However, large companies that remain in scope must maintain or accelerate efforts to align with the ESRS framework and ensure their reporting is material, decision-useful, and accessible to stakeholders. Companies outside the mandatory scope should evaluate the benefits of voluntary alignment, especially if they are part of value chains led by regulated entities.
CSDDD – Narrower Scope, Risk-Based Due Diligence
The revised CSDDD (CS3D) directive reflects a shift towards focusing regulatory efforts on the largest companies and the highest ESG risks, but the changes have prompted debate over whether the directive will still be effective in driving systemic impact.
The revised CSDDD introduces a more targeted and risk-prioritised framework for due diligence, reflecting proportionality in regulatory obligations.
- Thresholds / Scope
The CSDDD will now apply only to companies with ≥5,000 employees and net turnover of ≥€1.5 billion, focusing on entities with the resources and market leverage to manage complex due diligence processes.
- Due Diligence Approach
The Council replaces the entity-wide due diligence model with a risk-based approach, requiring action only in parts of the business where actual or potential adverse impacts on human rights or the environment are most likely to occur. - Definition of Tier 1 Suppliers
The directive focuses due diligence duties on direct business partners���also referred to as tier 1 suppliers—meaning those entities with whom a company has a direct commercial contract or long-term business relationship. This does not automatically include subcontractors, sub-suppliers, or second-tier suppliers unless further risk evidence is present. - Conditional Extension Beyond Tier 1
Companies will be required to extend due diligence beyond direct partners only where objective and verifiable information suggests material risks further down the value chain. This is designed to maintain proportionality and feasibility. - Climate Transition Plans
Companies are still required to adopt climate transition plans, but the obligation is now clarified to focus on outlining planned and taken implementation actions, rather than demonstrating execution. This aligns with the CSRD. - Transposition Deadline
The Council has extended the deadline for Member States to transpose the directive into national law to 26 July 2028, providing additional lead time for legal alignment and corporate preparedness.
Implication for businesses:
The revised CSDDD improves legal clarity and operational feasibility, particularly for companies with complex global supply chains. However, the extremely limited scope and conditional obligations beyond direct partners may weaken the directive’s potential to drive responsible business conduct at scale. Businesses in scope should still invest in building risk identification systems, supplier screening tools, and governance processes aligned with responsible business conduct expectations.
Strategic Outlook
Together, these simplifications represent a recalibration of the EU’s corporate sustainability agenda. While regulatory relief is welcomed by many, especially smaller enterprises, the changes also highlight the ongoing tension between regulatory ambition and implementation feasibility.
- Large companies that remain in scope under CSRD and CSDDD should continue preparations, focus on material ESG risks, and ensure internal processes are aligned with risk-based due diligence models.
- Mid-sized companies and listed SMEs that are now excluded should remain alert to stakeholder expectations and potential future scope extensions.
- Across all sectors, voluntary ESG reporting and value chain engagement will continue to play a critical role in meeting investor demands, accessing finance, and maintaining market trust.
As the legislative negotiations move into trilogue, companies should stay informed and prepared. The direction of travel in EU sustainability regulation is clear: transparency, accountability, and ESG risk management will remain central to corporate governance in the coming years—even if the timelines and thresholds have shifted.
For more details, please visit:
Press Release:
https://commission.europa.eu/document/download/1d14a487-f042-476f-997f-adf7c3e14950_en?filename=CSDDD%20Omnibus%20proposal.pdf