EU Moves to Simplify Sustainability Reporting and Due Diligence to Enhance Competitiveness

European Union (EU) member states have agreed on a negotiating mandate to streamline sustainability reporting and corporate due diligence rules, aiming to cut red tape and boost the region’s global competitiveness. The mandate, adopted by the European Council, supports simplifying two major directives: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D).

Part of the European Commission’s broader ‘Omnibus I’ package introduced in February 2025, the proposal seeks to reduce reporting burdens, especially for smaller businesses. Under the revised CSRD, the employee threshold would rise to 1,000, while listed SMEs would be excluded from the directive’s scope. The Council further added a net turnover threshold of €450 million, easing obligations for mid-sized firms.

In terms of due diligence (CS3D), the scope will now focus on companies with over 5,000 employees and €1.5 billion in net turnover—businesses deemed best equipped to manage supply chain accountability. The Council is also shifting from an entity-based model to a risk-based approach, requiring companies to prioritize areas with the highest potential for harm rather than engaging in exhaustive mapping of their value chains.

Notably, obligations will remain limited to tier-1 business partners—those with direct operational ties—though companies must act if there’s verifiable information suggesting risks beyond that level. A review clause has been introduced to potentially expand this scope in the future.

Climate transition plans have also been simplified. Companies will now only need to outline planned and ongoing actions rather than implementing full plans immediately. Supervisory authorities will be tasked with advising businesses on how to design and execute these strategies. The deadline to adopt such plans has been pushed back by two years.

Additionally, the Council supports the removal of a harmonised EU-wide liability regime and has postponed the transposition deadline for CS3D by one year to July 26, 2028.

The changes reflect calls from EU leaders for regulatory clarity and reduced burdens, especially for SMEs. The push aligns with the Budapest Declaration and high-level reports from Enrico Letta and Mario Draghi, both of which urged EU institutions to prioritize competitiveness by trimming unnecessary regulations.