The European Council Presidency and European Parliament negotiators have reached a provisional agreement to simplify sustainability reporting and due diligence requirements, completing a highly anticipated step in the negotiation process that has been ongoing since 2022.

The Council announced that the agreement, which was approved by lawmakers on 16^th December 2025, “simplifies the directives on corporate sustainability reporting (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) by reducing the reporting burden.”

What’s Changing and Why it Matters

The deal focuses on streamlining compliance obligations under frameworks such as the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).  

Key objectives of the Commission include:

• Simplified reporting: Companies expect to face fewer duplicative disclosures, reducing compliance fatigue and costs.
• Harmonised standards: Greater alignment across EU member states will make cross-border operations smoother.
• Competitiveness boost:  The EU aims to balance the need to foster innovation and growth while also maintaining ESG integrity.

For businesses, this means the ambiguity surrounding sustainability reporting will be reduced. Soon sustainability data collection and reporting will no longer be just a voluntary “green initiative”, but a regulatory and business imperative tied to compliance, cost savings, risk reduction, and operational efficiency.

Corporate Sustainability Reporting Directive (CSRD)

• Higher thresholds: The employee threshold for reporting has been raised to 1,000 employees, and a net turnover threshold of €450 million has been introduced. Listed small and medium-sized enterprises (SMEs) have been removed from the scope of the directive, reducing obligations for mandatory reporting.
• Exemptions: Financial holding undertakings are now exempt from CSRD requirements. Transitional exemptions apply to “wave one” companies that began reporting in 2024, removing them from scope for 2025 and 2026.
• Review clause: Allows future consideration of extending the scope for both CSRD and CS3D, leaving open the possibility for more entities to be required to report in the future.

Corporate Sustainability Due Diligence Directive (CS3D)

• Scope adjustments: The scope now applies only to companies with 5,000 employees and €1.5 billion net turnover, focusing on the largest organisations with the greatest influence on value chains.
• Adverse impact assessment: Companies can prioritise areas most likely to present risks, especially where adverse impacts are equally likely or equally severe in several areas. Companies are able to look beyond their Tier 1 suppliers but are granted the ability to prioritise adverse impacts which involve direct business partners.
• General risk scoping: Comprehensive mapping of value chain activities is replaced by the expectation of general scoping and risk assessments based on reasonably available information.
• Climate transition plans: The requirement for climate transition plans has been removed

Civil Liability, Penalties, and Deadlines

• Liability: The EU harmonised liability regime has been removed, with a review clause for future consideration.
• Penalties: Maximum cap set at 3% of global net turnover, with Commission guidelines forthcoming.
• Timeline: CSDDD transposition deadline postponed to 26 July 2028, with compliance required by July 2029. For CSRD, the first reports are due in 2025 for the 2024 financial year for large public companies, and 2029 (for FY 2028) for non-EU large entities.

What This Means for UK and EU Businesses

For large organisations operating in or trading with the EU, these changes represent a significant reduction in administrative complexity. Companies will benefit from lower compliance costs and simplified reporting requirements. Businesses may especially find benefits in the approach’s greater flexibility in prioritising ESG risks, enabling a more strategic approach to sustainability.

However, businesses should not interpret simplification as deregulation. ESG remains a critical factor for investor confidence, brand reputation, and long-term resilience. Companies must continue to maintain robust sustainability strategies and transparent reporting practices. The finalisation of CSRD and CSDDD will only formalise these needs and requirements.

What it Means for Contractors and Suppliers

Suppliers and contractors remain integral to ESG compliance. While the trickle-down effect of reporting obligations will not be regulatorily required, expectations from hiring companies will persist. This means:

• Ongoing ESG alignment is essential to remain competitive and secure contracts. The use of ESG metrics as a decision point in tenders and RFPs continues to rise. According to a 2024 survey by the Chartered Institute of Procurement & Supply (CIPS), 78% of procurement professionals reported that ESG factors are considered important within their organisation.
• Voluntary reporting standards for SMEs (VSME) that align with CSRD will continue to define the reporting standard for small businesses, even if not required by regulation. Suppliers should prepare to provide accurate data on emissions, labour standards, and governance when requested by customers.
• Those who demonstrate strong ESG performance will likely gain a competitive edge, as hiring companies increasingly prioritise sustainable partners.

Avetta Viewpoint: How Businesses Can Prepare

While the provisional agreement on CSRD simplifies certain aspects of sustainability reporting and due diligence, it does not eliminate the need for robust sustainability risk management.

Companies should note that penalties for non-compliance could be significant, with a potential fine of 3% of global net turnover from the European Commission alone. Other jurisdictions are finalising related regulations that also may come with financial penalties, underscoring the importance of proactive compliance strategies.

The updated agreement still allows for data requests from larger in-scope entities to smaller businesses, up to the level of the VSME standards. SMEs will still receive requests from customers who expect to manage their suppliers’ ESG impacts, including Scope 3 emissions and modern-day slavery or labour risks.

SMEs operating in the EU can anticipate the VSME standards — a reduced version of the CSRD standards — to become a de-facto requirement in sustainability reporting, even if they are technically “voluntary”.

Additionally, non-EU parent companies of in-scope EU entities should continue to prepare for reporting obligations starting in 2029 for the 2028 financial year. This reinforces the need for multi-national businesses to invest in scalable solutions that can adapt to evolving global requirements.

Avetta’s ESG tools:  

• Save teams significant time on reporting (as much as 60% in some cases) by centralising supplier data, ensuring ease of reporting, analysis, and visibility into high-risk areas.
• Reduce supplier response burden – in spirit with the updated CSRD provisional agreement - delivering higher supplier response rates than similar offerings.

The updated CSDDD framework introduces flexibility by allowing companies to focus on areas of their value chain where actual and potential adverse impacts are most likely to occur, rather than conducting exhaustive mapping exercises.

Instead, businesses are expected to perform a general scoping exercise based on reasonably available information. This approach reduces the expectation to conduct a full supply chain mapping exercise but still requires companies to identify and prioritise risks effectively.

Avetta’s rapid risk assessment capabilities can help your organisation to meet these expectations by streamlining the identification and prioritisation of ESG risks across complex supply chains. Our platform enables you to:

• Conduct efficient scoping exercises aligned with the new requirements, avoiding unnecessary complexity while maintaining compliance.
• Leverage technology-driven insights to prioritise adverse impacts and mitigate risks before they escalate.

Integrating Avetta’s tools into your compliance strategy means you can reduce administrative burdens, maintain regulatory alignment, and strengthen resilience in a marketplace where the expectations of sustainability reporting compliance are becoming clearer.

Talk to our team today to discover how Avetta can help your business simplify ESG compliance and build a stronger, safer supply chain.

Avetta is a SaaS software company providing supply chain risk management solutions. Avetta’s contractor management platform is trusted by over 130,000 clients and suppliers in over 120 countries. Visit Avetta.com to learn how our solutions help businesses reduce risk and operate with confidence.