EU Council unveils draft position on CSRD and CSDDD revision

The European Council has unveiled a draft position paper gathering the amendments it may request as part of the EU Omnibus simplification of sustainability rules like CSRD and CSDDD.

Now that the European government has officially ‘stopped the clock’ on the implementation of the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), the next step of the Omnibus package is to review these texts and agree on amendments at EU Council and Parliament level.

To this end, the text published yesterday (April 16) by the Council will now be reviewed by Member States, who will then share feedback in order to finalise the position paper.

CSRD: Fully removing SMEs from scope

The first thing to note in the draft is that, as expected, the scope of CSRD would be drastically reduced to include only large companies with 1,000 employees or more, with all references to ‘small undertaking’ – ie. SMEs – to be removed.

“To achieve the objectives of reporting in a more proportionate way, the obligation to prepare and publish a sustainability statement at individual level should be reduced to large undertakings with an average of more than 1,000 employees during the financial year,” the text says, adding that in order to be considered large, companies must have the right number of employees and either a net turnover above €50 million or a balance sheet total above €25 million.

Because of the removal of SMEs from the scope of CSRD, the EU Council is also seeking to amend other EU laws, including the Directive on Annual Financial Statements, to ensure SMEs would never be required to disclose non-financial information.

CSDDD: Defining ‘plausible information’ for extended due diligence

The Omnibus draft shared by the European Commission in February reduces the CSDDD obligation to conduct environmental and human rights due diligence to Tier 1 suppliers only – unless they have “plausible information” that there are adverse impacts further down their supply chains.

The EU Council confirms this amendment, and adds a definition of plausible information. According to the draft paper, information can be considered “plausible” when it “objectively has a reasonable likelihood of being true, taking into account amongst other things the credibility of the source”. 

For example, data produced by government bodies, local community grievances, academic and NGO studies about environmental or human rights violations would all be considered plausible information under the terms of the revised CSDDD – prompting the need for large companies to extend their due diligence beyond direct suppliers.

EU Taxonomy: Optional except for companies that claim to be aligned

Finally, the Council’s draft position paper clarifies amendments around EU Taxonomy requirements, which would be made mostly optional under the Omnibus Directive.

According to the Council, Taxonomy reporting would still be mandatory for companies that “claim through any communication or representation to external stakeholders and the public at large that their activities are associated with environmentally sustainable activities”, as defined by the EU Taxonomy. That is, companies claiming to make sustainable investments would still have to disclose how their investments align with Taxonomy definitions.

Beyond that, companies whose activities are only partially aligned with the Taxonomy Directive would still be “able to disclose that information” voluntarily, since the Council acknowledges that such disclosures may be useful to investors and financial markets in their sustainable transition.