Executive Summary

In December 2025, the European Parliament and EU Member States reached a provisional agreement to significantly simplify corporate sustainability reporting and due diligence obligations. The reforms form part of the Omnibus I Simplification Package, designed to reduce administrative burden, strengthen EU competitiveness, and concentrate sustainability obligations on the largest companies with the highest impact.

Changes in the New Framework

Sustainability Reporting: Narrowed and Simplified Scope

Under the revised rules, mandatory sustainability reporting will apply only to companies that:

  • Employ 1,000 or more employees, and
  • Generate net annual turnover exceeding €450 million

These thresholds also apply to non-EU companies with significant EU market presence, including subsidiaries or branches generating more than €200 million in EU turnover.

Smaller companies with fewer than 1,000 employees are protected from excessive data requests and are not required to provide information beyond voluntary reporting standards, even when operating within large supply chains.

In addition, sector-specific sustainability disclosures will become voluntary, with a stronger focus on essential and quantitative information, reducing complexity and duplication.

To further support compliance, the European Commission will launch a digital reporting portal, offering harmonized templates, guidance, and access to EU and national sustainability requirements.

Corporate Due Diligence: Focused on Very Large Companies

The agreement also recalibrates due diligence obligations originally proposed under the Corporate Sustainability Due Diligence Directive (CSDDD).

Only very large companies will be subject to mandatory due diligence requirements, defined as those with:

  • 5,000 or more employees, and
  • Net turnover exceeding €1.5 billion

This scope applies equally to EU and non-EU companies operating in the EU market.

Companies in scope must identify, assess, and address significant environmental and human-rights risks in their own operations and supply chains, focusing on areas where adverse impacts are most likely.

The rules promote a risk-based and proportionate approach, limiting information requests to business partners only where genuinely necessary. Notably, the obligation to prepare mandatory sustainability transition plans has been removed.

Enforcement and liability will remain at national level, with Member States empowered to impose penalties of up to 3% of global net turnover for non-compliance.

Implementation Timeline

  • Due diligence obligations will apply from 26 July 2029
  • The agreement still requires formal approval by the European Council
  • Final rules will enter into force following publication in the Official Journal of the EU

Why is the EU simplifying the rules?

The reform is driven by three core objectives:

  • Reducing administrative burden by limiting excessive disclosures and supply-chain pressure
  • Protecting SMEs from indirect compliance obligations
  • Enhancing EU competitiveness through a more predictable and proportionate regulatory framework

Political messages

Rapporteur Jörgen Warborn (EPP, Sweden) stated that the agreement delivers “historic cost reductions while keeping Europe’s sustainability goals on track.”

EU Member States echoed this view, stressing that cutting red tape is essential to support innovation, investment, and economic growth while preserving core sustainability ambitions.

Stakeholder reactions

Support

Business groups and industry associations welcomed the reforms, citing lower compliance costs, clearer scope, and reduced reporting pressure on supply chains.

Criticism

Some environmental NGOs and political groups warned that narrowing the scope could weaken the EU’s global leadership on sustainability and human-rights accountability.

What does this mean for businesses?

For large multinationals:

Companies within scope must prepare for streamlined but enforceable reporting and due diligence obligations, supported by clearer thresholds and timelines.

For SMEs and smaller suppliers:

Most mandatory obligations are removed, with sustainability reporting remaining largely voluntary and proportionate.

What happens next?

  • Final approval by the European Council
  • Publication in the Official Journal
  • Preparation period ahead of July 2029 enforcement

Source: Simplified sustainability reporting and due diligence rules for businesses

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