Provisional Agreement Reached on CSDDD and CSRD; Supply Chain Mapping Still Required for Large Companies

Following trilogue negotiations the EU Commission, Council and Parliament have finally reached an agreement on the simplification package for the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy - also known as the Sustainability Omnibus I Directive.

The deal was struck after months of negotiations and political twists, with the EPP ultimately deciding to side with the ECR and Patriots, rather than its traditional majority with Renew and the center-left. However, the final vote was also supported by a majority of Renew members, and the text was ultimately endorsed 428 against 218, with 17 abstentions.

Here are the key takeaways from the agreement:

Limited scope for CSRD reporting

CSRD scope has been narrowed to companies with more than 1,000 employees and an annual revenue of more than EUR 450 million. Non-EU companies must have at least the same annual revenue within the EU (EUR 450 million) for the parent company coupled with an EU subsidiary or branch net revenue of more than EUR 200 million.

A review clause has been added that will allow for a re-assessment of the scope and standards of the law in 2029.

Value Chain Cap for CSRD Reporting:

When collecting information about their upstream supply chain, in-scope companies will be prohibited from requiring direct information beyond voluntary reporting standards from companies in their supply chains with less than 1,000 employees.

Protection of Trade Secrets:

In-scope companies may omit sensitive or classified information that would qualify as a trade secret from CSRD reporting.

Additional Guidelines May be Forthcoming:

Depending on market demand, the Commission may provide sector-specific guidelines for CSRD sustainability reporting.

CSDDD limits scope, adopts risk-based approach and maintains limited value chain due diligence

The agreement will also limit the scope of CSDDD to companies with more than 5,000 employees and an annual revenue of EUR 1.5 billion. After months of deliberation regarding whether or not due diligence would be required past one's direct (Tier 1) suppliers, full value chain due diligence using a risk-based approach will be required under this new agreement.

Due diligence of the upstream supply chain must follow a two-step mechanism: 1) a scoping exercise to identify general areas where impacts are more likely to occur and 2) an in-depth assessment based on the results of this exercise.

Value Chain Cap for CSDDD Due Diligence:

Similar to the value chain cap for CSRD reporting, a cap for CSDDD due diligence has also been introduced to prevent additional burden on suppliers under a certain size. When an in-depth assessment is pursued, companies in scope cannot require from suppliers with less than 5,000 employees any direct information that cannot be (reasonably) otherwise obtained. The specificity of this language should be noted - this value chain cap does not prohibit companies from collecting supply chain information on - or from - suppliers under a certain size, and full value chain due diligence is still required under this new agreement. All due diligence assessments for CSDDD must be kept for 5 years, and penalties for non-compliance have been set to 3% to up to 3% of global annual turnover.

Finally, the application date for CSDDD has been postponed by 1 year to 2029, with the transposition by member states required by July 2027.

What This Means

While the Omnibus package resulted in a limited scope for CSRD and CSDDD, it also brought full upstream supply chain due diligence back to the table for EU sustainability reporting. Despite efforts to simplify and water down existing laws, upcoming EU regulations will still require strict supply chain due diligence, including the EU Forced Labour Regulation and the EU Battery Regulation. Supply chain mapping continues to be a priority for the European Union, and should be a priority for multinational companies in 2026 and beyond.

To learn more about how Sourcemap can support your company's due diligence objectives, reach out to our team of experts.