On 24 February 2026, the Council of the European Union ("Council") adopted the final text of the Omnibus I Directive, a keystone Directive in the EU's "simplification" agenda, amending the Corporate Sustainability Reporting Directive ("CSRD") and the Corporate Sustainability Due Diligence Directive ("CSDDD").

Background

The Omnibus I "package" was first proposed on 26 February 2025, addressing proposed simplification amendments to the EU sustainability reporting and due diligence rules as well as the EU carbon border adjustment mechanism ("CBAM"). The changes to the CBAM were already separately adopted in October 2025. For further details, please prefer to our recent briefing.

The CSDDD, as part of this set of rules, had been finalised, and passed into law less than a year earlier on 24 May 2024, after two years of prior negotiation between the EU institutions.

On 9 December 2025, the European Parliament ("Parliament") and the Council reached a provisional agreement on the final text of the Omnibus I package (see the Council's press release here). The Parliament adopted the agreed text on 16 December 2025.

We have followed the path of the Omnibus I package from the Commission's proposal, and its implications for US and other non-EU companies, through the Council's negotiating position, the Parliament's JURI committee position, and the final Parliament negotiating position, formed by a new coalition in the Parliament between the conservative and right-wing parties.

Here, we explore key points of interest in the final text as it relates to the CSDDD and the CSRD. While the Commission initially also proposed changes to the reporting framework under the EU Taxonomy Regulation, the Parliament and the Council decided not to follow the Commission's proposal, leaving the EU Taxonomy Regulation unchanged.

CSDDD

Significant changes have been made to the CSDDD, particularly in reducing its scope of application, the removal of any obligations regarding a climate transition plan, and the removal of an EU-wide civil liability regime.

Scope of application:

Companies are in scope if they either meet these thresholds on entity level or if they are the ultimate parent company of a group meeting these thresholds on a consolidated basis. The final position on scope may represent a 70% reduction in the number of companies within scope of the CSDDD.

Companies that have entered into, or are the ultimate parent company of a group that entered into, franchising or licensing agreements in the EU will be in scope of the CSDDD where royalties from such agreements amount to more than EUR 75 million in the last financial year, or where the company had, or is, the ultimate parent company of a group that had, a net worldwide turnover of more than EUR 270 million in the last financial year.

No review of the exclusion of financial undertakings: The final text also removes any possibility of review of the exclusion of regulated financial undertakings from the scope of the CSDDD.

Due diligence obligations: The final text does not seek to amend the overarching obligation created by the CSDDD, namely that Member States shall ensure that companies conduct risk-based human rights and environmental due diligence. This requires companies to (among other things) take "appropriate measures" to identify and assess actual and potential adverse impacts arising from their own operations, subsidiaries and business partners (where related to their chain of activities), and thereafter to prevent/mitigate potential impacts and bring actual impacts to an end.

The final text contemplates a narrower scope of companies' due diligence from the current text of the CSDDD at the initial stage of identifying impacts. In particular, it requires that companies first conduct a "scoping" (rather than "mapping", as with the current wording) exercise based solely on information that "is already reasonably available" to identify whether adverse impacts have or might occur.

After scoping, the company is only required to assess the most likely and severe adverse impacts, giving priority to the assessment of impacts associated with direct business partners. Requesting information from business partners should occur only where necessary, and only as a last resort for partners with fewer than 5,000 employees. In all cases requests should be "targeted, reasonable and proportionate".

No obligation to terminate business relationships: The final text removes from the CSDDD the requirement that companies, as a last resort, terminate a business relationship where there was no reasonable expectation of successfully preventing or mitigating an adverse impact caused by a direct business partner.

Timing – application starting in July 2029: The final text delays the CSDDD's transposition deadline by a further year, to 26 July 2028. Transposition had already been delayed by a year to 26 July 2027 in April 2025. Companies will be required to comply with the CSDDD and the national transposition laws respectively as of 26 July 2029. The first CSDDD reports will cover financial years starting on or after 1 January 2030. The first guidelines on how to fulfil the due diligence obligations shall be published by the EU Commission in July 2027.

The (pared back) review mechanisms under the final text will see the Commission review the implementation and effectiveness of the CSDDD by 26 July 2031, and every five years thereafter.

No climate transition plans: A significant development, the final text will remove from the CSDDD the requirement to "adopt and put into effect a transition plan for climate change mitigation" aligned with the 1.5°C temperature goal set by the Paris Agreement, and the EU's target of achieving climate neutrality by 2050. Companies in scope of the CSRD will nevertheless still be required to report on their climate transition plan where they have such a plan.

Financial penalties: The final text specifies that the ceiling for pecuniary penalties is set at 3% of the net worldwide turnover of the company, rather than the minimum ceiling of 5% set out in the current text of the CSDDD. For ultimate parent companies in scope of the CSDDD, penalties are limited to 3% of the net consolidated worldwide turnover, calculated at the level of the ultimate parent company.

The final text clarifies that, given the risk-based prioritisation approach to due diligence required under the CSDDD, the fact that a company has not addressed a less significant adverse impact shall not expose the companies to penalties.

EU-wide civil liability removed, with no review mechanism: The EU-wide civil liability regime is removed under the final text. This means that it will be up to the individual Member States to decide whether non-compliance with the CSDDD exposes in-scope companies to civil liability risks. The requirement to review the effectiveness of rules on civil liability and penalties has been removed from the CSDDD.

CSRD

Scope of application reduced: The CSRD will apply to EU companies with over 1,000 employees, and over EUR 450 million in net turnover. Companies can be in scope if they either fulfil these thresholds on an individual level or if they qualify as parent companies fulfilling the thresholds on a consolidated basis.

The CSRD will also apply to ultimate non-EU parent companies with over EUR 450 million in net turnover generated in the EU in both of the last two consecutive financial years, and a subsidiary or branch in the EU with over EUR 200 million in net turnover in the preceding financial year.

However, a new exemption has been introduced for EU parent companies as well ultimate non-EU parent companies qualifying as "financial holding undertakings". Such parent companies may choose to not publish a consolidated sustainability report where their subsidiaries have business models and operations independent from one another. This does not affect any obligation of subsidiaries to publish a sustainability report at entity level. Ultimately, the EU legislator also decided that public interest entities can be exempted from publishing a sustainability report at entity level if they are included in the consolidated sustainability report of their parent company.

Further information on the current applicable regime can be found in our briefing on the CSRD.

Timing: Due to the new scoping criteria, many companies that are currently required to publish a sustainability report for financial years starting on or after 1 January 2024 (i.e. large public interest entities with more than 500 employees; so-called "wave 1 companies"), will fall out of scope of the CSRD. Member States are able, under the final text, to exempt such companies from reporting obligations for financial years beginning between 1 January 2025 and 31 December 2026. Such companies will otherwise be required to continue reporting until the new scoping criteria enter into force for the financial year starting on or after 1 January 2027.

Reporting requirements for so-called "wave 3" companies, i.e. publicly listed small and medium-sized companies, which are currently required to publish their first sustainability report for financial years starting on or after 1 January 2026, have been removed. Those companies will now completely fall out of scope.

Simplification of reporting standards: When publishing the Omnibus I package in February 2025, the Commission also decided to revise the European Sustainability Reporting Standards ("ESRS") to substantially reform the standards and called on the European Financial Reporting Advisory Group ("EFRAG") to prepare the revised ESRS.

Following a public consultation process that ended on 29 September 2025, EFRAG published the draft simplified ESRS on 3 December 2025. This draft removes all voluntary disclosures from the ESRS, and reduces the datapoints required (where material) by 61%. The Commission will now review the revised ESRS which will the need to be officially adopted by the Commission. This is expected within six months of the Omnibus I Directive's entry into force.

The introduction of a "value-chain cap": The draft EFRAG voluntary reporting standard (more information here), communicated through Commission Recommendation (EU) 2025/1760, limits what in-scope companies can request from smaller out-of-scope partners, reducing the indirect "trickle-down" reporting burden on the CSRD.

The Commission is tasked with adopting a new set of Voluntary Sustainability Standards for SMEs ("VSME") based on the Commission Recommendation, within four months after entry into force of the Omnibus I Directive.

The final text states that in-scope companies cannot request information from companies that do not exceed an average of 1,000 employees (a "protected undertaking") that goes beyond the information set out in the VSME. When assessing which companies fall under this value chain-cap, under the final text, reporting companies will generally be able to rely on self-declarations issued by protected undertakings in their value chains. Any contractual agreements undermining the value chain-cap will not be binding.

Grace period for acquired and merged undertakings: In the case of recent acquisitions or mergers that change the composition of a group during the financial year, the final text allows the parent company to choose not to include such subsidiaries in its consolidated report for the relevant reporting period, postponing this to the next financial year.

The parent company must, however, indicate any significant event that affected the subsidiary undertaking, and that "has an effect on the group's impacts on, or risks or opportunities related to, sustainability matters."

Next steps

The Omnibus I Directive will enter into force 20 days after publication in the Official Journal of the EU, which will likely happen in the next few days.

Member States will then have 12 months from the date of entry into force of the Directive to transpose amendments to the CSRD.

Appropriate amendments to Member States' ongoing transposition of the CSDDD will need to be completed by 26 July 2028 at the latest.

Outlook

Following a year of uncertainty over the future of the CSDDD and CSRD, the much-anticipated final chapter in the Omnibus I package negotiations will allow companies to prepare for its implications on their business processes. It remains to be seen whether the changes made will actually lead to the intended relief for companies.

However, even after the completion of the Omnibus I package, the European Commission's efforts to simplify existing regulatory frameworks continue. For example, on 23 December 2025 – one week before it was actually due to come into force – the renewed postponement of the entry into force of the EU Deforestation Regulation was officially published in the Official Journal of the EU. Large operators will now have until 30 December 2026 to apply the regulation, and small operators will have until 30 June 2027.

In addition, the Commission on 10 December 2025 presented a package of measures to simplify environmental legislation in the areas of industrial emissions, circular economy, environmental assessments and geospatial data ("Environmental Omnibus") which will now also undergo the ordinary legislative process.

Companies should therefore continue to keep a close eye on developments in the EU and the possible impact on their businesses.