European Council Approves Simplification of EU’s Sustainability Reporting and Due Diligence Requirements

On February 24, the European Council adopted the directive on simplification of the sustainability reporting and due diligence requirements for EU companies, which sets up requirements for corporate sustainability reporting (CSRD) and corporate sustainability due diligence (CS3D) by reducing the reporting burden on smaller companies in order to improve their market competitiveness.

The CSRD’s scope is narrowed by raising its thresholds to companies with more than 1,000 employees and above €450 million net annual turnover. If the company has third-country undertakings, the requirements will apply only to companies with a net turnover above €450 million for the parent undertaking within the EU and above €200 million generated turnover for the subsidiary or branch.

The directive provides for a transition exemption for companies that had to start reporting from financial year 2024 (the so-called ‘wave one’ companies) falling out of scope for 2025 and 2026. It also includes an exemption for certain EU and non-EU financial holding companies from consolidated reporting.

The CS3D’s scope is narrowed by raising its thresholds to companies with more than 5,000 employees and above €1.5 billion net turnover.

In case of breaches, businesses will be liable at a national level for failure to apply the rules correctly and face a fine with a maximum cap of 3% of the company’s net worldwide turnover. Member States must transpose the updated rules into their national legislations by July 2028 and fully comply with new measures by July 2029.

Press release