The proposal aims at simplifying the directives on corporate sustainability reporting (CSRD) and due diligence (CS3D) by reducing the reporting burden and limiting the trickle-down effect of obligations on smaller companies.
EU members have agreed to its Council’s negotiating mandate on simplifying sustainability reporting and due diligence requirements to boost competitiveness.
The proposal, part of the ‘Omnibus I’ package, aims at simplifying the directives on corporate sustainability reporting and due diligence by reducing the reporting burden and limiting the trickle-down effect of obligations on smaller firms.
The proposal forms part of the ‘Omnibus I’ package adopted by the European Commission on February 26 this year to simplify EU sustainability legislation.
On the CSRD, the Commission proposed to increase the employee threshold to 1,000 employees and to remove listed small and medium enterprises (SMEs) from the scope of the directive.
In its mandate, the Council added a net turnover threshold of over €450 million to further alleviate the reporting burden on undertakings.
The Council’s mandate also introduced a review clause concerning a possible extension of the scope to ensure adequate availability of corporate sustainability information.
While the CS3D’s scope was not covered by the Commission’s proposal, the Council increased the thresholds to 5,000 employees and €1.5 billion net turnover. The Council feels such large companies can have the biggest influence on their value chain and are best equipped to absorb the costs and burdens of due diligence processes.
The Commission’s proposal has limited due diligence requirements to company’s own operations, those of its subsidiaries, and those of its direct business partners (tier 1).
The Council’s mandate has changed the focus from an entity-based approach to a risk-based approach, focusing on areas where actual and potential adverse impacts are most likely to occur.
Companies should no longer be required to carry out a comprehensive mapping exercise, but instead, conduct a more general scoping exercise.
The Council has maintained the limitation of the relevant obligations to the ‘tier 1’. In-scope companies are supposed to base their efforts on reasonably available information.
To ensure an adequate protection of the policy objectives, the Council’s mandate has ensured that the identification and assessment obligations are extended in case of objective and verifiable information suggesting adverse impacts beyond direct business partners. Furthermore, its mandate has added a review clause related to a possible extension of these obligations beyond the ‘tier 1’.
The Commission’s proposal has simplified the provisions on transition plans for climate change mitigation by aligning them with the CSRD. The obligation to put into effect these plans is replaced by a clarification that this transition plan includes outlining implementing actions (planned and taken).
In addition, the Council has limited the obligation for companies to the adoption of a transition plan for climate change mitigation and empowers supervisory authorities to advise companies on design and implementation of those plans, an official release said.
To further reduce burdens and provide companies with sufficient time for adequate preparations, it has also postponed the obligation to adopt transition plans by two years.
The Commission has proposed to remove the EU harmonised liability regime and the requirement for member states to ensure that the liability rules are of overriding mandatory application in cases where the applicable law is not the national law of the member state.
The Council mandate also postpones the CS3D’s transposition deadline by a year, to July 26, 2028.
In October last year, the Council called on all EU institutions, member states and stakeholders, as a matter of priority, to take work forward, notably in response to the challenges identified in the reports by Enrico Letta (‘Much more than a market’) and Mario Draghi (‘The future of European competitiveness’).
The Budapest declaration of November 8, 2024, subsequently called for ‘launching a simplification revolution’, by ensuring a clear, simple and smart regulatory framework for businesses and drastically reducing administrative, regulatory and reporting burdens, in particular for SMEs.
Fibre2Fashion News Desk (DS)