EU Sustainability Developments Unpacked

Key Takeaways

• Shift Toward Simplification and Competitiveness:The Parliament’s position reflects a political pivot from regulatory expansion to consolidation. It aims to reduce compliance burdens and align with international standards, emphasizing proportionality and competitiveness rather than imposing new sustainability obligations.
• Narrowed Scope and Higher Thresholds:For the Corporate Sustainability Reporting Directive (CSRD), applicability thresholds increase to companies with over 1,750 employees and €450 million in net turnover, while the Corporate Sustainability Due Diligence Directive (CSDDD) applies only to firms with at least 5,000 employees and €1.5 billion in global turnover. This significantly reduces the number of companies within scope compared to the EU Commission’s original proposals.
• Deletion of Climate Transition Plan and Streamlined Reporting:The Parliament proposes to remove the mandatory climate transition plan under CSDDD and to simplify European Sustainability Reporting Standards (ESRS) by reducing data points, minimizing overlap, and ensuring interoperability with global frameworks.
• Risk-Based and Non-Solicitation Approach to Due Diligence:Under the Parliament’s proposal, companies would have to adopt a narrowed, risk-based approach to identifying and addressing adverse impacts without comprehensive mapping of all suppliers. They are generally not required or allowed to solicit information from smaller partners, limiting the “trickle-down” effects of due diligence obligations.
• Political Alignment and Outlook:The position aligns closely with the EU Council’s June 2025 mandate, increasing the likelihood of a trilogue agreement in early 2026. Businesses should prepare for adjustments to compliance strategies, particularly as Member State discretion over enforcement and liability may lead to fragmented national implementations.

Introduction

On 13 November 2025, the European Parliament confirmed its position on the EU’s sustainability regulatory framework—proposing a moderated version of the CSDDD and amendments to the CSRD. These developments mark a political pivot from expansion to consolidation, emphasizing proportionality, competitiveness, and alignment with existing international standards.

The vote comes after a first proposal negotiated between the center-right European People’s Party (EPP) and the center-left, liberals, and Greens had failed to receive the required votes in a secret ballot held on 22 October 2025. In the now successful second vote, EPP relied on votes from the far-right which had sparked criticism leading up to the vote. As a result of this newly established support, the Parliament’s position now goes even further in scaling back sustainability requirements than the first proposal by, e.g., increasing the employee threshold for CSRD application from 1,000 to 1,750 and deleting the climate transition plan requirement from CSDDD.

Overall, the Parliament’s stance narrows the scope of both directives, softens liability, and simplifies disclosure requirements. It aligns closely with the Council’s June 2025 mandate (see our Client Alert from 7 July 2025), increasing the likelihood of an expedited trilogue agreement in 2026. While simplification reduces compliance burdens, it also introduces new interpretive uncertainties. Businesses should prepare now to adapt compliance strategies, anticipating further adjustments during trilogue negotiations.

1. Context and Background

The Parliament’s October 2025 vote forms part of the EU’s broader Competitiveness and Simplification Agenda, a political response to mounting criticism that the Green Deal’s regulatory framework imposed disproportionate costs on European companies. Under this so-called Omnibus agenda, the European Commission, Council, and Parliament have sought to streamline sustainability obligations across multiple regimes, including the CSDDD, CSRD, and the EU Taxonomy Regulation.

The Omnibus Simplification Package—first proposed in early 2025 (see our Client Alert from 3 March 2025)—aims to rebalance sustainability regulation by focusing on proportionality, global interoperability, and administrative relief for smaller enterprises. The Parliament’s final position confirms this recalibration: fewer companies will fall within scope, reporting will be lighter and more targeted, and due diligence will move to a narrower, though still risk-based, approach. Nevertheless, the EU remains committed to preserving the integrity of its sustainable finance ecosystem, ensuring that simplification does not amount to deregulation.

2. The Parliament’s Position on the CSRD

2.1 Higher Thresholds and Scope Reduction

The Parliament takes the position that CSRD should apply to companies with more than 1,750 employees and €450 million in net turnover, thereby going beyond both the Council’s (1,000 employees and €450 million net turnover threshold) and the Commission’s proposal (€50 million net turnover or €25 million balance sheet total in addition to 1,000 employees).

Group-level reporting obligations are eliminated for parent companies that operate as financial holding companies not involved in management activities.

2.2 Non-EU Companies

According to the Parliament’s position, non-EU companies are covered by CSRD if they generate at least €150 million net turnover in the EU (down from the €450 million proposed by the Commission) and if they have an EU subsidiary or EU branch with at least €450 million net turnover. The reporting obligations would lie with the relevant EU subsidiary or EU branch, not the non-EU company itself.

2.3 Further Limits on Value Chain Reporting Requirements

In line with the Council and Commission, the Parliament endorses further limits on value chain reporting.

At a general level, companies are allowed to adopt a risk-based approach prioritizing information collection on high-risk impacts and sustainability issues commonly associated with their sectors.

In addition, the following limits to information collection requirements apply:

• Companies may only seek information from value chain companies which exceed 1,750 employees and net turnover of €450 million. Value chain companies that do not meet these thresholds may only be approached for value chain information specified in the voluntary reporting standard (VSME) that the Commission is set to adopt according to the Commission’s proposal or if such information is commonly shared among companies in the relevant sector.
• Companies may abstain from seeking information from non-EU companies that could be sanctioned by their respective governments for providing sustainability data. In this case, companies are required to inform their supervisory authorities and replace the information by a default value which represents an estimation of a value typical for the country and sector.
• Companies are not required to disclose information on trade secrets.

Where not all the necessary information regarding their value chain is available, or such information is incomplete or subject to legal limitations, companies should explain the efforts, the reasons why information could not be obtained, and their plans to obtain such information in the future.

2.4 Streamline ESRS

In line with the Council and Commission, the Parliament endorses a streamlined version of the ESRS by reducing the number of data points, clarifying provisions, and improving consistency with related legislation.

The Parliament explicitly requires ESRS to

• Be quantitative in nature;
• Avoid double reporting and any overlap with obligations stemming from other legislative instruments;
• Avoid imposing a disproportionate administrative and financial burden on companies; and
• Ensure, to the greatest extent possible, interoperability with internationally recognized standards set by global standard-setting initiatives.

According to the Parliament’s proposal, ESRS shall take account of the difficulties that companies might encounter in gathering value chain information, especially from companies which themselves are not subject to CSRD reporting obligations and from suppliers in emerging markets and economies. ESRS should specify disclosures that are proportionate and relevant to the capacities and characteristics of the value chain companies, and to the scale and complexity of their activities.

3. The Parliament’s Position on the CSDDD

3.1 Scope and Applicability

According to the Parliament’s proposal, CSDDD would only apply to companies with at least 5,000 employees and €1.5 billion in global turnover (for non-EU companies: no employee threshold but at least €1.5 billion in EU turnover) aligning with the respective Council position. This represents a substantial narrowing from the European Commission’s original proposal (500 employees and €150 million turnover).

If an in-scope company acquires an out-of-scope company which it must integrate into its group-wide due diligence policy, the acquiring company will be granted a two-year grace period to complete this integration process.

3.2 No Comprehensive Tier 1 Mapping but Strict Risk-Based Approach

Unlike the Commission and Council, the Parliament does not explicitly put the focus of due diligence obligations on direct business partners, e.g., Tier 1 suppliers.

Rather, the Parliament’s position is that, instead of doing a comprehensive mapping of all direct business partners while including indirect business partners only where there is “objective and verifiable information that suggests that adverse impacts at the level of the operations of an indirect business partner have arisen or have a reasonable prospect of arising” (Council position), in-scope companies must conduct a general scoping exercise to identify general areas at the level of both direct and indirect business partners where adverse impacts are most likely to occur and to be most severe. Unlike a mapping exercise that requires attaching a risk profile to each individual business partner, scoping would require companies to adopt a narrowed risk-based approach aimed at only scoping those business partners that have a high-risk profile. For this purpose, companies are required to take into account all relevant risk factors, including company-level risk factors, such as whether the business partner is not an in-scope company, business operation risk factors, geographic and contextual risk factors, product and service risk factors, and sectoral risk factors.

Where scoping has identified “relevant and verifiable information” causing the company to believe that adverse impacts have arisen or may arise at the level of a business partner, the company is required to carry out further assessments but only in areas where adverse impacts were identified to be most likely to occur and most severe. Companies will be granted discretion to prioritize assessing their direct business partners, e.g., their Tier 1 suppliers, if warranted by the severity and likelihood of adverse impacts.

3.3 Limiting Trickle-Down Effects of Scoping Exercise

When conducting scoping, companies should generally not approach their business partners to identify adverse impacts but should rather rely only on information that is already available to them. This can consist of publicly known information, information from searches, and information gained through earlier cooperation (“reasonably available information”).

This “no soliciting” approach is particularly strict vis-à-vis business partners with less than 5,000 employees which companies may only approach where, following a risk-based approach, the information is necessary to verify indications of likely adverse impacts and where such information cannot reasonably be obtained by other means.

If companies have exhausted all appropriate measures to obtain information necessary to identify adverse impacts at the level of their business partners, they will not be penalized in connection with fact patterns which they failed to uncover. They must, however, reasonably explain why they could not obtain relevant information.

3.4 Prioritizing the Most Adverse and Likely Impacts

According to the Parliament’s position, companies should be given significant flexibility when deciding which risks to prioritize. This should be based on an assessment of the severity and likelihood of an adverse impact, taking into account the scale, scope, and potential irremediable character of the adverse impact.

3.5 Temporary Suspension of Business Relationships as a Last Resort

The Parliament stresses that suspension of business relationships should only be applied as a last resort and that companies should consider negative and significant effects on their legal, financial or economic situation, or its production capacity when making relevant decisions. While this would grant companies some discretion to decide whether to refrain from temporarily suspending business relationships, they would be required to report to the competent supervisory authority about the duly justified reasons for their decisions.

3.6 Climate Transition Plans

The Parliament proposes to delete the climate transition plan requirement in its entirety.

3.7 Civil Liability and Enforcement

According to the Parliament’s proposal, Member States will retain discretion to define civil liability regimes, penalties, and procedural rules. This decentralization may generate fragmentation, with some Member States adopting more stringent standards than others.

Supervisory authorities will continue to oversee enforcement at the national level, coordinated through a European network facilitated by the Commission.

The Parliament proposes a maximum penalty limit of 5% of net worldwide turnover.

3.8 Digital Reporting Portal

The Parliament encourages the Commission to set up a digital platform to provide companies with access to templates, guidelines, reporting requirements, including voluntary tools, and information on funding and tendering opportunities.

4. Political Dynamics and Trilogue Outlook

The Parliament’s position results from a coalition compromise between conservative and right-wing groups. This compromise, while politically fragile, aligns the Parliament more closely with the Council’s June 2025 stance, but prioritizes competitiveness and regulatory certainty even more by further scaling back central requirements like the climate transition plan under CSDDD.

Trilogue negotiations, which will begin on 18 November 2025, will focus on refining liability provisions, defining specific risk triggers, and finalizing reporting exemptions. A political agreement is expected in early 2026, paving the way for transposition beginning in 2027.

5. Implications for Companies

The Omnibus Simplification Package sets the stage for a potentially reduced regulatory burden under CSRD, ESRS, and CSDDD but, in doing so, requires companies to yet again reassess their compliance strategy. Entities that may now fall outside of the direct scope of this regulatory regime should similarly reassess their compliance function as they may face indirect obligations through supply-chain and financial relationships. In-scope businesses that have until now embraced voluntary standards, like those prescribed by the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, should carefully assess their diligence practices in light of the proposed “trickle down” restrictions on risk scoping and the “non-solicitation” provisions with regard to information requests.

Businesses should prioritize the following steps once a final decision has been reached by the EU legislators:

• Conduct a gap analysis under the new thresholds for both directives;
• Review supplier contracts to ensure Tier 1 compliance mechanisms are robust;
• Integrate or modify due diligence and reporting processes for efficiency and interoperability;
• Implement modular ESG data systems that can scale with evolving requirements; and
• Monitor Member State transposition to manage potential fragmentation in enforcement and liability regimes.

6. Conclusion

The European Parliament’s confirmation of its moderated positions on the CSDDD and CSRD marks a pivotal shift in the EU’s approach to sustainability regulation. The new model emphasizes proportionality, regulatory burden reduction, and alignment with existing international standards. However, simplification also introduces new interpretive and operational challenges. Companies should remain vigilant, balancing compliance with flexibility as the EU moves toward final adoption of the sustainability framework in 2026.