With human rights and environmental due diligence in global value chains at the center of the Ethical Trade Denmark’s mission, the recent developments in EU regulation have been watched closely by our business, civil society, investors and public sector members.
This brief aims to give members an update on the latest regulatory changes from the EU. The update is available both in English and Danish.
It’s almost six years since the first announcement, during the Covid pandemic, of a sustainability due diligence initiative by the European Union.
After many text revisions, consultations and a turbulent regulatory year 2025, the European Parliament shortly before the end of the year approved the Omnibus I package.
The package introduces the final Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), and after publication in the Official Journal will be formally adopted in early 2026.
The Omnibus I amendments substantially narrow the scope and reduce compliance expectations compared with the original directives.
- For CSRD, only companies with 1000 employees, and €450 million net turnover will have to report.
- For CSDDD, only companies with 5,000 employees, and €1.5 billion annual turnover will be in scope.
- Further delay of transposition for CSDDD to 26 July 2028. Companies will have to comply with the new measures by July 2029.
- Capping penalties: there is now a cap on penalties at a maximum of 3% of the company’s net worldwide turnover.
- Removal of EU-wide civil liability for CSDDD, with potential implications for access to remedy.
What are the key changes and their implications?
Besides the reduced breadth of application, the CSDDD sees significant changes in its provisions from the original approval in 2024 with consequent implications.
- Climate transition plans (CTPs) removed: the mandatory requirement to adopt and implement CTP has been removed from CSDDD, with climate remaining largely confined to reporting in CSRD.
- While the substantive obligation to adopt CTP has been removed, CSRD still requires companies in scope and for whom the issue is material to report on these plans.
- Scope of value chain mapping exercise: A general scoping exercise is now expected to replace a more comprehensive mapping exercise, and the earlier tier-1 approach has been removed. Companies will be expected to base their efforts on reasonably available information and follow up with in-depth assessments of adverse impacts when likely to occur and most severe.
- The provision brings the EU directive back in line with UNGPs and OECD guidelines and the risk-based approach. While the directive’s terminology is softer and can allow for a focus on direct suppliers, the risk-based methodology will continue to be a strategic tool to understanding a company’s value chain hotspots.
- Capping of information request: For CSDDD, companies should not seek to obtain information from business partners “unless this is necessary”. Where a business partner has less than 5,000 employees, the company shall only seek such information only where information “cannot reasonably be obtained by other means”.
- Implications of the provision are yet to unfold. Relations and due diligence with larger partners (over 5,000 employees) will likely remain the same, but companies will have to find alternative or new ways to engage smaller business partners where often highest risks are present.
- Reduced meaningful stakeholder engagement: Narrowed definition of stakeholders to those “directly” affected by the products, services and operations of the company, its subsidiaries and its business partners. Stakeholder engagement is now only legally required for certain parts of the due diligence process, namely at the identification stage, for the development of (enhanced) action plans and when designing remediation measures.
- This is a narrowing of the definition of stakeholders from the original text, as well as from the UNGPs and OECD Guidelines where stakeholder engagement is integrated through the full due diligence cycle and all potentially affected stakeholders should be involved. However, despite a more procedural approach in the final text, stakeholder engagement and the use of experts, also importantly included in CSRD reporting obligations, will likely continue to support ongoing due diligence and be a forward-looking tool to understand impact and risk.
Continuing focus on risk-based due diligence
Despite these changes, the core of the EU sustainability framework remains intact. Companies in scope are still expected to take a risk-based approach to human rights and environmental due diligence, aligned with the UN Guiding Principles and OECD Guidelines.
The double materiality process under CSRD and the updated ESRS continue to anchor the assessment of material impacts onto severity and likelihood of their effects on people and the environment, making the reporting directive also aligned with the recognized definition of due diligence. Emphasis remains on prioritizing salient risks and embedding due diligence as an ongoing, systematic process rather than a one-off compliance exercise.
Principles for effective due diligence
Regardless of legal thresholds, the international standards from the UNGPs and OECD defining sustainability due diligence are still in place as soft law. Ethical Trade Denmark encourages businesses to carry out systematic, risk-based due diligence on human rights and the environment, engage meaningfully with workers and other rightsholders, and take action to prevent and address harm where it occurs in accordance with the 13 ethical trade principles.
Effective mandatory human rights and environmental due diligence must be grounded in international standards, apply across value chains, prioritize the most severe risks, and go beyond reporting to include prevention, mitigation and access to remedy. Insufficient or superficial due diligence can lead to great operational disruption, litigation in both courts of law and at NCP level, and investor backlash. Strong due diligence remains a critical part of responsible business conduct, not simply a regulatory obligation.
At Ethical Trade Denmark we continue working with member companies, business associations, public institutions, NGOs, and trade unions to support organizations’ and business commitment to human rights and guide efforts to address impacts through robust due diligence, meaningful stakeholder engagement, and credible multistakeholder collaboration.
As the directives will be transposed and new practice in interpretation and implementation will emerge, Ethical Trade Denmark will organize multi-stakeholder roundtables and dialogues to offer learning, expert insights and peer exchange – particularly on topics like stakeholder engagement, supplier relations and effective due diligence.
Disclaimer: The information provided is for general informational purposes only and does not constitute legal advice. We recommend consulting with your legal counsel or qualified attorney for advice on legal and compliance matters.