Deep dive into the first “Omnibus” on sustainability: focus on the CSDDD

Background: a reminder

The first draft directive will change the implementation timeline (i.e. the proposed “Stop the clock” directive); the second will change the content (i.e. the proposed “Content” directive):

1. The proposed “Stop the clock” directive would postpone the due diligence reporting requirements by one year, without changing the thresholds;
2. The proposed “Content” directive would:
   1. relax the transition plan requirements;
   2. restrict the definition of stakeholders and scope of stakeholder engagement;
   3. limit the scope of due diligence to direct business partners;
   4. reduce the requirements on preventing or putting an end to adverse impacts;
   5. relax the monitoring and assessment requirements;
   6. revise the penalty regime;
   7. remove the civil liability regime for companies.

It is important to remember that the EC’s proposals set out in the first Omnibus package are only the first stage in the legislative process; the two European co-legislators (i.e. the European Parliament and Council) must reach an agreement before the final directives can be adopted.

The “Stop the clock” directive is expected to be published in the Official Journal of the European Union in late April/early May, having been endorsed by the European Council in late March and approved by the Parliament on 3 April 2025.

Member States must then transpose it into national law by 31 December 2025. Meanwhile, the proposed “Content” directive will go through the normal legislative process, which could take at least nine months before it is approved and published in the OJEU. The Member States will then have 12 months to transpose the requirements into national law.

Proposals to amend the CSDDD

Timeline for implementation of the CSDDD (proposed “Stop the clock” directive)

* For the few countries that have already transposed the current CSDDD, local laws will prevail until modified.

Content of the CSDDD (i.e. proposed “Content” directive)

Climate change mitigation transition plans

The current directive stipulates that companies shall “adopt and put into effect” a transition plan for climate change mitigation “which aims to ensure [...] that the business model and strategy of the company are compatible [...] with the limiting of global warming to 1.5°C in line with the Paris Agreement.”

In the proposed new directive, the EC has retained the requirement to adopt such a plan, but removed the reference to putting it into effect. Thus, companies would only be required to adopt a transition plan, and would not have to implement it.

However, it is difficult at this stage to fully comprehend the real-world impacts of this relief for companies, or what it would look like to adopt a plan without then implementing it. While the transition plan is a key topic of debate, and the concept of “compatibility with the 1.5°C limit” has not yet been clearly defined, it looks as though the EC wants to give companies more wiggle room.

Restricting the scope of stakeholder engagement

The EC’s proposals also change the definition of stakeholders, reducing the scope of stakeholder engagement. The definition would no longer include “consumers”, “national human rights and environmental institutions” or “civil society organisations”. Moreover, trade unions and workers’ representations are no longer mentioned as independent stakeholders, with the proposed new definition reading, “the company’s employees, the employees of its subsidiaries and of its business partners, and their trade unions and workers’ representatives”.

It should also be noted that the phrasing, “other individuals, groupings, communities or entities whose rights or interests are or could be affected by the products, services and operations of the company” has been slightly modified and is now limited to “individuals or communities whose rights or interests are or could be directly affected by the products, services and operations of the company”.

Thus, it appears that the EC wishes to (i) limit the scope of stakeholders to those who are directly affected by the company’s operations, and (ii) reduce the need to engage with external organisations or groups, particularly civil society organisations.

Regarding stakeholder consultation requirements, the EC introduces the notion of “relevance” in its proposal. In this sense, companies would now be “only” required to consult their “relevant” stakeholders to carry out their due diligence process. However, further detail is needed on how “relevance” should be assessed in practice.

It is also interesting to note that consultation with stakeholders is now only required in two of the five stages of the due diligence process, namely: (i) when deciding to suspend or terminate a business relationship, and (ii) when developing qualitative and quantitative indicators for monitoring purposes.

Thus, the EC is proposing an overall reduction in the requirements for consultation with stakeholders by the companies concerned.

Limiting the scope of due diligence to direct business partners

The EC’s proposal restricts the consideration of business partners to direct business partners. In practice, this would mean that only tier 1 business partners should be included in the company’s chain of activities. Furthermore, the EC’s proposal specifies that, regarding business partners with fewer than 500 employees, the company could no longer request information from them, except on a voluntary basis. Behind this easing, the EC’s intention, in line with the recommendations of the Draghi Report, is clearly to lighten the reporting burden on small to medium-sized enterprises.

However, the proposed directive specifies that when a company has “plausible” information that suggests actual or potential adverse effects at the level of an indirect business partner’s operations, it would need to carry out an in-depth assessment.

Moreover, the EC stipulates that if a company has an indirect rather than direct relationship with a business partner only as the result of an artificial arrangement (i.e. one that does not reflect economic reality), the partner should be treated in the same way as a direct business partner.

Reducing the requirements on preventing or putting an end to adverse impacts

The CSDDD, as published in July 2024, provides the possibility for companies to “terminate”, as a last resort, their business relationships in response to a potential or actual severe adverse impact. However, in its proposed amendments, the EC removes any mention of contract termination, retaining only the possibility of temporarily suspending a business relationship.

Furthermore, the EC’s proposal eases the responsibility of companies by specifying that, as long as there is a “reasonable expectation” that the prevention action plan will be effective (i.e., mitigate or eliminate adverse impacts), their responsibility would no longer be engaged. However, further clarification is needed as to how and by what criteria the concept of “reasonable expectation” will be assessed (if the proposal is adopted in its current form).

Relaxing the monitoring and assessment requirements

The current CSDDD stipulates that companies should carry out regular assessments in order to assess the implementation and monitor the adequacy and effectiveness of the measures put in place (to mitigate or prevent adverse impacts) “at least” every 12 months. The EC proposes to extend this period to five years.

Revision of the penalty regime

While the current Directive stipulates that it is up to Member States to determine the applicable penalty regime (including financial penalties), the EC’s proposal transfers this competence to supervisory authorities. Additionally, the minimum amount of 5% of global net turnover for financial penalties would be removed.

Removal of the civil liability regime for companies

The current CSDDD sets out a standardised European civil liability regime in article 29, para. 1, ensuring that a company can be held liable for damage to a natural or legal person caused by its failure to fulfil its obligations. The EC is proposing to remove it, meaning that only national laws (where they exist) will apply. If this proposal is adopted, the European civil liability regime introduced by the CSDDD will be terminated.