CSRD & CSDDD: Recent European Developments in Sustainability

This framework is based on several major instruments, including:

• the Taxonomy Regulation of 18 June 2020, which imposes 'minimum safeguards' on companies to ensure that their activities are considered 'sustainable';
• the Corporate Sustainability Reporting Directive  of 14 December 2022 (CSRD), which requires the disclosure of information on the negative impacts of their activities;
• the Corporate Sustainability Due Diligence Directive of 13 June 2024 (CSDDD), which introduces a mandatory duty of due diligence duty throughout their chains of activity, accompanied by a liability regime;
• the Deforestation Regulation of 31 May 2023, which aims to ensure that products entering the EU do not contribute to deforestation.

Specific focus on the CSRD & CSDDD Directives

CSRD

Adopted on 14 December 2022 and entered into force on 5 January 2023, the CSRD was to be transposed by 6 July 2024. It applies progressively to large companies, listed SMEs, and parent companies of large groups. In Belgium, the Law of 2 December 2024 on the disclosure of sustainability information by certain companies and groups and on the assurance of sustainability information transposed this directive into our legal system, without any significant additions.

This directive establishes a framework to standardise published sustainability information. The CSRD thus requires the companies concerned to publish information in accordance with the European Sustainability Reporting Standards (ESRS) adopted by the Commission. This disclosure requirement is to be included in the management report in accordance with the principle of double materiality: this requirement covers both the information necessary to understand the company's impact on sustainability issues (important for its 'stakeholders') and the information necessary to understand how sustainability issues affect the company’s business, results and situation (important for those wishing to know the financial health of a company). The CSRD also requires the Commission to adopt sector-specific standards, with a first set due in June 2026. In addition, the CSRD allows listed SMEs to publish information in accordance with simplified and proportionate standards.

This requirement covers both the company's own activities and its value chain. Companies are required to disclose information about their value chains to the extent necessary to understand their sustainability impacts, risks, and opportunities. Furthermore, the CSRD establishes a ‘value chain cap, whereby the ESRS cannot include disclosure requirements that would require companies to obtain from SMEs in their value chain information that goes beyond the information to be disclosed in accordance with the proportionate standard applicable to listed SMEs.

CSDDD

Adopted on 13 June 2024 and entered into force on 25 July 2024, the CSDDD must be transposed by 26 July 2026. In principle, it is intended to apply, also according to a phased programme, to (i) any company incorporated in accordance with the legislation of a Member State which has employed more than 1,000 employees on average and achieved a global net turnover of more than EUR 450,000,000 during the last financial year, (ii) the ultimate parent company of a group which reaches such thresholds and (iii) any company (or company at the head of a group) which has entered into a franchise or licence agreement with independent third-party companies and which receives royalties of at least EUR 22,500,000 during the last financial year, provided that the company had a net turnover of more than EUR 80,000,000 worldwide. Finally, it also covers any company incorporated in accordance with the legislation of a third country and which meets the same turnover thresholds (the number of employees being irrelevant in this latter case).

It contains rules concerning the 'duty of care' of companies with regard to human rights, fundamental social rights of workers and the environment, the liability resulting from a breach of this duty, as well as the requirement for companies to adopt a 'transition plan for climate change mitigation' in line with the Paris Agreement. Substantially, it enshrines in companies a duty of care regarding negative impacts on human rights and the environment.

This duty of care covers the activities of the company, its subsidiaries, and its direct and indirect business partners throughout its 'chain of activities'. It is exercised in two phases: on the one hand, mapping out its own activities, those of its subsidiaries and, where they are linked to its chain of activities, those of its business partners, in order to identify the general areas in which negative impacts are most likely to occur and be most severe; on the other hand, assessing these identified areas in depth.

Proposal for an 'Omnibus' Directive of 26 February 2025

Following the Draghi report published in September 2024, the Council of the European Union expressed, in the Budapest Declaration on the new pact for European competitiveness, its desire to simplify and harmonise various sustainability regulations. In this context, the Commission published on 26 February 2025 a proposal for a directive known as 'Omnibus I' aimed at amending the CSRD and the CSDDD, with the objective of 'simplifying and rationalising the regulatory framework in order to reduce the burden on companies arising from the CSRD and the CSDDD'.

CSRD

The recent proposal aims to 'reduce the burden of disclosure requirements and limit the cascading effect of these requirements on small businesses'. Among the changes to the current system that it provides for are, among others, (i) a reduction of approximately 80% in the number of companies subject to sustainability disclosure requirements, excluding large companies with up to 1,000 employees and listed SMEs, (ii) an extension and strengthening of the above-mentioned 'value chain cap', which would protect all companies with up to 1,000 employees and not only SMEs as is currently the case, and (iii) a removal of sector-specific reporting standards.

CSDDD

The Omnibus I proposal specifically envisages (i) limiting the active requirement of companies to carry out an 'in-depth assessment' of negative impacts solely with regard to their 'direct' business partners, (ii) limiting the information that can be requested from a subcontractor with fewer than 500 employees to the information that an SME would publish if it voluntarily chose to produce a sustainability report, (iii) reducing the frequency required for periodic monitoring exercises, (iv) limiting the definition of stakeholders to persons or communities that could be 'directly' affected by the products, services or operations of the company, its subsidiaries or companies in its chain of activity, as well as by their 'legitimate' representatives, and (v) removing the harmonised European liability regime. The proposal also suggests changing the implementation dates of the CSRD, providing for (i) a two-year postponement of the application of the disclosure requirements to which companies in the second and third phases of the CSDDD’s application are subject (i.e. to 2028 instead of 2026 for the second phase, and to 2029 instead of 2027 for the third phase), as well as (ii) a one-year postponement of the transposition deadline for the CSDDD (i.e. to 26 July 2027) and a postponement of its date of entry into application for the first group of companies to 26 July 2028.

Points to note

The above developments highlight some of the changes – some of them substantial – envisaged by the Omnibus I proposal. These developments reveal a backward step by the European Union in its environmental ambitions under pressure from economic considerations, which unfortunately creates significant legislative instability and regrettable legal uncertainty for companies that had made considerable investments in sustainability.

Faced with this growing regulatory complexity and the unpredictable evolution of the regulatory framework, our firm, with its specialised expertise in environmental and sustainability law, is at your disposal to support you through this period of uncertainty and to advise you on the consequences of these legislative developments.

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