Starting the year strong: what the final CSRD & CSDDD amendments mean for business

In order to narrow the scope of reporting obligations, the Directive significantly raises the thresholds for companies subject to CSRD.

For EU Companies: From FY 2027 (“Wave 2”), only companies with more than 1,000 employees and net turnover exceeding EUR 450 million (on an individual or consolidated basis) will be required to report.

For non-EU groups: The final Directive confirms the removal of any employee threshold. Reporting will become mandatory from FY 2028 (“Wave 4”) if both of the following conditions are met:

• The group generates more than EUR 450 million in net turnover within the EU (on an individual or consolidated basis) for each of the last two consecutive financial years; and
• At least one EU subsidiary or branch records more than EUR 200 million in net turnover in the preceding financial year.

This reconciles the Council’s focus on EU turnover with the Parliament’s emphasis on the EU entity threshold.

The Directive also introduces several measures designed to streamline reporting obligations and lighten compliance costs for in-scope companies.

A. WITHDRAWAL OF “REASONABLE ASSURANCE” STANDARDS

The Directive confirms the removal of the requirement for the Commission to adopt mandatory reasonable assurance standards. Instead, the Commission will issue limited assurance sta ndards, which statutory auditors must apply.

B.     EXEMPTION FOR FINANCIAL HOLDING COMPANIES

Ultimate parent companies that qualify as financial holding companies and are not engaged in management activities are exempt from CSRD reporting obligations. This exemption addresses concerns raised by private equity structures, where entities merely hold shares for investment purposes and would otherwise face unnecessary reporting burdens.

C.  STRICTER LIMITS ON VALUE CHAIN INFORMATION (“VALUE CHAIN CAP”)

To reduce complexity for smaller out-of-scope business partners, the Directive introduces a value chain cap:

• Protected companies (entities with fewer than 1,000 employees) may decline to provide information beyond what is specified in voluntary sustainability reporting standards.
• Reporting companies may rely on a simple self-declaration from value-chain actors to confirm their size. No further verification is required unless the reporting company knows or should reasonably know that the declaration is manifestly incorrect.
• Reporting companies are prohibited from requesting information beyond the limits set in the voluntary sustainability reporting standards to be adopted by the Commission.

D.    RESTRICTIONS ON SENSITIVE INFORMATION

Additional exemptions apply where disclosure would compromise commercial interests or legal protections. Companies may withhold information where it would harm commercial interests, reveal trade secrets or IP, involve classified data, or compromise privacy/security.

E. REMOVAL OF SECTOR-SPECIFIC REPORTING STANDARDS

The Commission’s power to adopt sector-specific European Sustainability Reporting Standards (ESRS) has been removed. Instead, the Commission may issue non-binding sector-specific guidance to assist companies in applying the ESRS, including guidance on identifying sustainability matters likely to be material for a typical company in a given sector.

The Directive also significantly raises the thresholds for companies subject to CSDDD obligations.

For EU Companies: The employee threshold for EU companies increases from 1,000 to 5,000, and the net turnover threshold rises from EUR 450 million to EUR 1.5 billion, reflecting the positions of both the Parliament and the Council.

For non-EU groups: The final Directive confirms the lack of any employee threshold. Reporting will become mandatory if their group has more than EUR 1.5 billion net turnover generated in the EU.

Similarly to the CSRD, the Directive also lightens the compliance burden by introducing several simplifications.

A. ELIMINATION OF THE CLIMATE TRANSITION PLAN OBLIGATION

The Directive removes the obligation for companies to adopt a formal climate transition plan, aiming to avoid duplication with existing or upcoming climate-related requirements. This approach aligns with the Parliament’s position and goes further than the Council’s, which had advocated to retain the plan requirement.

B.    RISK-BASED DUE DILIGENCE APPROACH

The Directive introduces a risk-based approach to value-chain due diligence. Companies must conduct detailed mapping only where there is verifiable evidence of adverse impacts beyond direct business partners. Companies must first perform a scoping exercise, using reasonably available information, to identify areas in their activities and value chain where adverse impacts are most likely and severe. Based on this scoping, they then carry out in-depth assessments in those high-risk areas.

C. REPLACEMENT OF THE “DUTY TO TERMINATE” BY A TEMPORARY SUSPENSION

The Directive replaces the current “duty to terminate” business relationships with a “duty to temporarily suspend” as a last resort. Before suspending, companies must assess whether suspension would cause harm manifestly more severe than the adverse impact itself. If so, suspension is not required, but the decision must be justified to the supervisory authority.

D.  STRICTER LIMITS ON VALUE CHAIN INFORMATION (“VALUE CHAIN CAP”)

In line with the amendments to the CSRD, the Directive introduces a “value chain cap” for due diligence obligations. When conducting in-depth assessments, companies may request information from business partners only where strictly necessary. For partners with fewer than 5,000 employees, such requests are permitted only if the relevant information cannot reasonably be obtained by other means.

E.    REMOVAL OF HARMONIZED EU CIVIL LIABILITY AND CAP ON PENALTIES

The Directive excludes the initial plans for a harmonized EU civil liability regime under CSDDD. Instead, breaches of due diligence obligations will be governed by the civil liability regime of each Member State. This measure contributes to the simplification of enforcement but nevertheless raises concerns as to fragmentation and legal uncertainty for companies operating across multiple jurisdictions.

Moreover, administrative penalties for non-compliance are capped at 3% of the company’s net worldwide turnover.

With a final Directive now agreed upon, this lengthy legislative process is nearing completion. The Directive will enter into force twenty days after its publication in the Official Journal of the EU, and Member States will have twelve months to transpose it into national law. These changes will have a significant impact on in-scope companies, requiring timely adjustments to governance, reporting and contractual frameworks.

Notably, the timeline for CSDDD has been extended: Member States must transpose the Directive by 26 July 2028, with in-scope companies required to comply by 26 July 2029 and publish the necessary disclosures by 1 January 2030.

Our team keeps a watchful eye on the rapid changes in EU sustainability frameworks and is ready  to provide clear and practical legal advice to help our clients navigate the new compliance standards. For tailored guidance on the implications of the Directive and upcoming sustainability legislation, please reach out to your usual contact.