After months of intense negotiations, the European Parliament (the “Parliament”) and the Council of the European Union (the “Council”) have agreed new laws that substantially revise and simplify the EU’s corporate sustainability rulebook.
The package streamlines the scope and obligations of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D). In this article, we set out the key changes to the CSRD and CS3D and how companies will be affected and provide an update on the status of the proposed amendments to the European Sustainability Reporting Standards.
Background
The CSRD (enacted in January 2023) introduced mandatory sustainability reporting requirements for many companies, requiring them to include extensive sustainability related disclosures in a dedicated section of their annual reports. The CS3D (enacted in July 2024) will require in-scope companies to integrate due diligence into their policies and risk management systems and to prevent, mitigate and remediate adverse human rights and environmental impacts. As part of the first “omnibus simplification package”, announced in February 2025, the European Commission proposed a set of legislative proposals designed to simplify sustainability laws in the EU, including the CSRD and CS3D (see our update here).
On 9 December 2025, the Council’s presidency and the Parliament’s negotiators reached an agreement on the proposed changes to the CSRD and CS3D. On 16 December, the European Parliament voted to approve the deal. The final approval of the Council is required before the changes become law, but this is expected to follow soon. EU member states will then have 12 months to transpose the changes to the CSRD into national laws and until July 2028 to transpose the changes to the CS3D.
Key changes to the CSRD and the CS3D
The key changes to the existing CSRD and CS3D can be summarised as follows:
CSRD
- Scope of application for EU companies: The scope of application of the CSRD will change significantly, by taking all EU-incorporated companies with less than 1,000 employees or €450 million of revenue (calculated on a consolidated basis with any subsidiaries) out of scope. This change is anticipated to reduce the number of companies subject to the CSRD by 90%.
- Scope of application for non-EU companies: Non-EU companies with subsidiaries or branches in the EU will only come into scope if they have (among other things) revenue of more than €450 million in the EU (up from €150 million under the existing rules) and their EU subsidiary or branch generates revenue of more than €200 million. The 1,000 employee threshold does not apply to non-EU companies ie, a non-EU parent company may be in-scope for the CSRD where it meets revenue thresholds alone, without meeting the required employee thresholds.
- Value chain cap: To limit the administrative burden that reporting companies might impose on other, smaller companies in their value chain, the new rules allow those other, smaller value chain companies to decline to provide requested information that would not be reportable under new voluntary reporting standards.
- Omitting disclosures: The new laws provide for a broader range of circumstances where reporting companies may omit to disclose information. Under the existing CSRD, it was only possible to omit disclosures relating to impending developments or matters in the course of negotiation in exceptional cases. The new laws allow, subject to certain conditions, information to be omitted from the sustainability report where: (i) disclosure would be seriously prejudicial to the commercial position of the company; (ii) the information qualifies as a trade secret; (iii) the information is classified within the meaning of certain EU defence rules; or (iv) the information is to be protected from unauthorised access or disclosure because of other EU or national laws or to safeguard the privacy or security of a person or the security of a company.
- Transactions exemption: The new laws introduce an exemption that allows, subject to certain limitations, an EU parent company to exclude information from its sustainability report, where the composition of the group has changed during the financial year due to acquisitions or mergers or where a subsidiary undertaking ‘exits’ the group during the financial year.
- Financial holding company exemption: The new law introduces a new exemption for financial holding companies. Those companies, which have subsidiaries with independent business models and operations, may choose not to prepare sustainability reports under the CSRD.
- Wave I companies: The first ‘wave’ of companies (large companies with securities listed on certain EU exchanges, banks and insurance companies with more than 500 employees) were obliged to publish their first report this year in respect of financial year 2024 data. Under the new rules, these companies continue to be in-scope until the end of 2026, but member states may choose to disapply the CSRD for 2025 and 2026 to companies that have less than 1,000 employees or less than €450 million of revenue.
CS3D
- Scope of application: Only EU companies that have more than 5,000 employees and €1.5 billion of worldwide revenue and non-EU companies that have more than €1.5 billion of revenue in the EU will be in-scope for the new diligence rules. Prior to these changes, EU companies were to be in-scope for the CSRD where they had more than 1,000 employees and €450 million of worldwide revenue, while non-EU companies needed to have more than €450 million of revenue in the EU.
- Delay: The commencement of the CS3D will be delayed for a further year to July 2029.
- Climate transition plans: In-scope companies will no longer required to adopt a climate transition plan.
- Diligence: Under the previous iteration of CS3D, companies were required to take appropriate measures to map their own operations, those of their subsidiaries and their business partners in order to identify general areas where adverse impacts are most likely to occur and to be most severe. Companies were then to carry out an in-depth assessment based on the results of the mapping exercise. The revised version of the laws replaces the mapping obligations with a scoping exercise, based solely on reasonably available information. In-scope companies are blocked from requesting information from business partners unless the information is necessary and, where the business partner has less than 5,000 employees, the information cannot be reasonably obtained elsewhere. Where a company identifies adverse impacts that are equally likely to occur or that are equally severe in several areas, companies may prioritise assessing areas which involve direct business partners.
- Penalties: The previous version of the CS3D required member states, where they introduce financial penalties for non-compliance, to set penalties based on the company’s net worldwide revenue. EU member states were required to set the maximum limit of such penalties to at least 5% of net worldwide revenue. The new CS3D instead requires member states to cap the maximum liability at 3% of global revenue.
- Civil liability: The CS3D as enacted in 2024 required member states to ensure that companies can be held liable for damage caused by intentional or negligent non-compliance with the regime. The new law removes this EU-wide civil liability regime, leaving the member states to decide at a national level whether to provide for a private right of action for damages caused by non-compliance.
Revised Sustainability Reporting Standards
Relatedly, on 2 December 2025 EFRAG submitted its technical advice to the European Commission on proposed changes to the European Sustainability Reporting Standards (ESRS).
Companies reporting under the CSRD are required to do so under the ESRS. The first set of sector-agnostic ESRS were adopted in July 2023 and, as part of the omnibus simplification efforts, the European Commission tasked EFRAG, its technical advisor, with simplifying the ESRS also. Following a consultation period on exposure drafts of the ESRS that launched in July 2025, the new ‘Draft Simplified’ ESRS were unveiled at a conference on 4 December 2025. The simplified ESRS reduce the number of mandatorily disclosable datapoints by 61% and remove all voluntary disclosures, introduce “usefulness of information” as a general filter and emphasise fair presentation and simplify the materiality assessment.
EFRAG’s technical advice will now feed into the Commission’s Delegated Act which will revise the existing ESRS. It is expected that these standards will start to apply for reporting for financial year 2027 onwards.
Immediate Next Steps
These changes to the CSRD and CS3D significantly reduce reporting and due diligence requirements and will bring many businesses out of scope. However, for companies that are likely to still be in scope, now is the time to restart CSRD and CS3D readiness projects, as the laws progress towards finalisation. Companies that expect to now fall out of scope should clarify and document their new status and should consider whether and how sustainability could be integrated into their governance framework in light of stakeholder expectations. We recommend that companies closely watch the transposition of changes into national laws.
For further guidance on how these developments affect your business, please contact Susanne McMenamin, Michael Sinnott or your usual Matheson contact.