EU Publishes Pared Back ESG Rules In The Omnibus

For over a year, the EU has been working to reduce the scope of and simplify two flagship ESG rules, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D).

On February 26, 2026, the EU published the final package of amendments in the “Omnibus” Directive EU 2026/470 that will significantly pare back the scope of reporting and due diligence requirements for EU and global (including U.S.) companies operating in the EU.

Below is a summary of certain key changes of interest to companies operating in the EU.

CSRD: 

• Higher Thresholds: Companies tying themselves into knots to determine whether various EU subsidiaries crossed the thresholds have reason to rejoice; the Omnibus narrows the scope of CSRD reporting requirements. Increased size thresholds mean that (i) EU companies and groups will only be in scope if they exceed both €450 million in worldwide net turnover on their balance sheet date and 1,000 employees on average during the financial year and (ii) non-EU ultimate parent companies must “generate” at least €450 million turnover in the EU (for each of the last two consecutive years) and have a significant EU subsidiary or branch (exceeding €200 million turnover in the preceding financial year). The European Commission (“EC”) may adjust these thresholds to reflect inflation.
• Compliance Timeline: For EU companies, reporting will be required for financial years starting on or after January 1, 2027 (reporting in 2028, assuming a December 31 financial year). For non-EU ultimate parent companies, group reporting will be required for financial years starting on or after January 1, 2028 (reporting in 2029, assuming a December 31 financial year). Companies that have already been reporting under the CSRD (i.e., EU listed companies with more than 500 employees) that fall out of scope under the new thresholds may suspend reporting for financial years 2025 (reporting this year) and 2026 (reporting next year) under a new transitional period, if permitted by the relevant EU member state.
• Value Chain Cap: Companies with fewer than 1,000 employees are classified as "protected undertakings" and may decline information requests from in-scope companies that exceed voluntary reporting standards to be published by the European Commission.
• Exempted Financial Holdings: Financial holding undertakings are exempt from consolidated sustainability reporting where their subsidiaries operate independently and the parent undertaking does not have an active role in their management. This is expected to require a facts-and-circumstances analysis.
• Simplified Reporting: The EC must adopt a delegated act by September 18, 2026 that is expected to substantially reform the European Sustainability Reporting Standards under which EU companies report their CSRD information, removing less useful data points and prioritizing quantitative over narrative disclosures. This is a further opportunity for advocacy, including engagement with the working group tapped to develop the new ESRS.
• M&A Flexibility: Parent companies of consolidated groups may exclude newly acquired or merged subsidiaries from consolidated sustainability reporting. Subsidiaries leaving the group may also be excluded from reporting for the year they leave the consolidated group.
• Voluntary Standards: Sector-specific reporting standards are now voluntary guidance rather than mandatory requirements, and the EC will adopt a revised voluntary standard for small-and-medium enterprises.

CS3D: 

• Higher Thresholds: Due diligence obligations will now apply only to (i) EU companies and groups exceeding €1.5 billion in net worldwide turnover and 5,000 employees on average for the last two consecutive financial years, (ii) non-EU companies or groups generating more than €1.5 billion turnover in the EU, and (iii) franchisors and licensors that are ultimate parent companies of a group meeting specific net worldwide turnover (€275 million) and royalty (€75 million) thresholds, with only EU-generated turnover and royalties considered for non-EU entities.
• Compliance Timeline: Companies must comply with CS3D by July 26, 2029. The requirement to provide a due diligence statement will apply to financial years starting on or after January 1, 2030 (reporting in 2031 assuming a December 31 financial year).
• Risk-Based Due Diligence: Companies must conduct a two-stage assessment: a scoping exercise to map and prioritize risks based on reasonably available information, followed by in-depth assessments only for adverse impacts identified as most likely to occur and most severe.
• Climate Transition Plans Removed: The obligation to adopt climate transition plans has been deleted from the CS3D, though CSRD reporting obligations on transition plans (if they are in place) remain unaffected.
• Extended Maximum Harmonization: The Omnibus prevents EU member states from “gold plating” a number of the CS3D obligations, including the publication of due diligence statements, creating a more level playing field and ensuring that parent companies can comply with CS3D on behalf of exempted subsidiaries.
• Contract Suspension Replaces Termination: Companies are no longer required to terminate business relationships as a last resort to prevent adverse impacts. Instead, they may suspend the relationship, provided suspension would not cause manifestly more severe adverse impacts.
• Civil Liability: The EU-wide civil liability regime has been removed. Liability for violations of CS3D is now governed by each EU member state’s national law, subject to mandatory minimum safeguards (e.g., victims' right to full compensation without overcompensation).
• Reduced Penalties: The maximum fine for non-compliance permitted to be assessed by an EU member state regulator has been reduced from 5% to 3% of net worldwide turnover.
• Reduced Monitoring Frequency: Periodic assessments of operations and the adequacy and effectiveness of due diligence procedures are now required every five years (previously required annually), or there are reasonable grounds to believe the measures are not adequate.

These changes should have an immediate impact on EU and non-EU (including U.S.) companies’ reporting and governance postures. However, companies will as ever need to monitor EU member states’ implementation of the new rules, which are not required until March 19, 2027 (for CSRD) and July 26, 2028 (for CS3D). It is expected that EU member states that have not yet implemented the ESG rules at all will implement the as-amended rules by the Omnibus deadlines.