EU Officially Changes Sustainability Reporting and Due Diligence Rules

Almost a year after the European Commission first unveiled its “Omnibus I” simplification package, the Council of the European Union has formally adopted new legislation revising the bloc’s corporate sustainability reporting and supply-chain due diligence framework.

The measure, officially known as Directive (EU) 2026/470, was approved on February 24 and published in the Official Journal of the EU on February 26. It amends several existing laws governing corporate reporting and sustainability obligations, including the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.

The directive represents the final legislative step in a process that has unfolded over the past year, as EU institutions moved to adjust sustainability rules that many companies had argued were overly complex and administratively burdensome.

A narrower scope for sustainability reporting

One of the directive’s most significant changes concerns which companies must disclose sustainability information.

Under the revised rules, mandatory reporting will apply only to companies with more than €450 million in net annual turnover and more than 1,000 employees. The threshold is introduced through amendments to the EU’s accounting framework, Directive 2013/34/EU.

The change substantially reduces the number of companies required to publish sustainability disclosures. Firms below these thresholds will still be able to report voluntarily, using simplified reporting standards the European Commission is expected to introduce.

EU policymakers say the revised scope is intended to focus reporting requirements on the companies with the largest environmental and social impacts while limiting administrative burdens for smaller businesses.

Limits on data requests across supply chains

The directive also introduces new safeguards for smaller firms within corporate value chains.

Companies required to report sustainability information will be restricted in the type of information they can request from suppliers with fewer than 1,000 employees. These suppliers will have a legal right to refuse requests for information that exceed the data defined in voluntary sustainability reporting standards.

The provision aims to prevent sustainability reporting requirements from cascading through supply chains and creating disproportionate compliance demands for small and medium-sized enterprises.

Changes to auditing and reporting standards

The directive also modifies the framework for verifying sustainability disclosures.

The European Commission will now adopt limited assurance standards for sustainability reporting by July 2027, providing additional time for auditors and companies to prepare. The legislation also removes a previously planned requirement to introduce stricter “reasonable assurance” standards at a later stage.

At the same time, the Commission must revise the existing European Sustainability Reporting Standards (ESRS) within six months of the directive’s entry into force. The revision is intended to simplify the framework by reducing the number of required data points and clarifying how companies determine which sustainability issues are material.

Plans to introduce sector-specific sustainability reporting standards have also been dropped.

Higher thresholds for corporate due diligence

The directive also revises the EU’s corporate due diligence framework.

Under the updated rules, due diligence obligations will apply only to companies with more than 5,000 employees and global turnover exceeding €1.5 billion. The revised thresholds significantly narrow the scope of companies covered by the framework.

The legislation also delays the timeline for implementation. EU member states must transpose the new rules into national law by July 2028, with companies required to comply beginning in July 2029.

Implementation ahead

Member states must now integrate the revised provisions into national legislation over the next two years. Most changes related to sustainability reporting must be implemented by March 2027, while the due diligence provisions will follow under the later timetable.

With the adoption of Directive (EU) 2026/470, the EU has finalized the latest revisions to its sustainability reporting and due diligence regime — rules that have become a central pillar of the bloc’s broader sustainable finance and corporate governance agenda under the European Green Deal.

Source: tovima.com