Tag: CSDDD

Adjustments are imminent to the key EU regulations designed to ensure that companies in the European Union (EU) move towards climate neutrality, human rights and environmental protection. In addition, according to the agreements reached by the SPD and CDU in their coalition agreement, changes are also planned at national level, particularly with regard to the Supply Chain Due Diligence Act (LkSG). The proposed changes come against the backdrop of a weakening economy and accelerating global warming. On the 15.04.2025, the EU’s Copernicus service and the World Meteorological Organisation (WMO) published their report ‘European State of the Climate’. According to the report, Europe is the fastest warming continent and therefore particularly affected by climate change.

This article provides an overview of the changes already adopted and planned as part of the OMNIBUS initiative (see A.), the expected changes to the LkSG (see B.) and the associated opportunities and risks for competitiveness, environmental protection and human rights (see C.).

A. OMNIBUS initiative

The OMNIBUS initiative was publicly presented by the EU Commission on the 26.02.2025. According to the Commission, the background to this is the changed geopolitical world situation, which has made changes to essential instruments for sustainable corporate governance necessary. In particular, it is important to simplify EU regulations and thus increase the competitiveness of companies, as freed-up capacity could be reinvested. This should also bring the two concerns of ‘competitiveness’ and ‘climate protection’ closer together. The legal acts affected by the proposals, which in turn directly affect companies and are therefore of interest in this article, are Directive (EU) 2022/2464 (CSRD) (see I.), Directive (EU) 2024/1760 (CSDDD) (see section II), Regulation (EU) 2023/956 (CBAM) (see section III) and Regulation (EU) 2020/852 (Taxonomy Regulation). Despite ongoing discussions, Regulation (EU) 2023/1115 (EUDR) is not covered by the initiative, even though the EU Commission is also seeking changes here.

The OMNIBUS initiative – insofar as it is directly relevant to companies – is essentially divided into three Commission proposals:

With Commission proposal COM (2025) 80 final, the Commission intended to postpone the date of application of the CSRD and CSDDD. The proposal was adopted unchanged by the EU Parliament on 03.04.2025 and subsequently by the Council of the EU on 14.04.2025 and published in the Official Journal of the EU on 16.04.2025 (Directive (EU) 2025/794).

The Commission proposal COM (2025) 81 final provides for changes to the content of the CSRD and CSDDD in order to reduce and simplify the obligations imposed on companies by the legal acts. The proposal has been forwarded to the Council of the EU in accordance with the ordinary legislative procedure and is to be given priority treatment by the institutions.

Finally, the Commission proposal COM (2025) 87 refers to the amendment of the CBAM with the aim of increasing the efficiency of the mechanism, among other things by simplifying reporting requirements for importers. This proposal is also at the start of the ordinary legislative procedure.

I. CSRD

The CSRD is itself a directive amending Directive 2013/34/EU (the Accounting Directive), Directive 2004/109/EC (the Transparency Directive), Directive 2006/43/EC (the Audit Directive) and Regulation (EU) No. 537/2014 (EU Audit Regulation). Its aim is to inform investors, consumers and civil society about a company’s sustainability performance. This should enable informed decisions to be made about investments or the use of services. To this end, companies within the scope of application are required to disclose the risks and opportunities for the company arising from social and environmental issues. Reporting is carried out in accordance with the European Sustainability Reporting Standard (ESRS) and must be verified to a certain extent by auditors. The CSRD must be transposed into national law.

With the adoption of Directive (EU) 2025/794, the reporting requirements introduced by the CSRD will apply to companies that are not already covered by the scope of the Directive for the 2024 financial year, depending on the company, from 01.01.2027 or 01.012028, one year later than previously planned.

The Commission’s draft COM (2025) 81 final essentially provides for the following changes to the CSRD:

• The personal scope is to be limited to companies with more than 1,000 employees that either have a turnover of EUR 50 million or a positive balance sheet of EUR 25 million. According to the Commission, this will reduce the number of companies within the scope by 80%. At the same time, this is intended to align the scope with the CSDDD in order to harmonise the regulations more closely (amendment to Art. 19a of the Accounting Directive).
• All companies outside the scope of application may refer to a voluntary standard to be adopted by the Commission based on the ‘Voluntary Sustainability Reporting Standard for non-listed SMEs’ (VSME) published in December 2024 for voluntary reporting. This should also be the maximum amount of information that companies within the scope of the Directive may request from their exempt business partners along the supply chain in order to fulfil their own reporting obligations (amendment to Art. 19a of the Accounting Directive).
• The sector-specific reporting standards that are currently still pending will not be adopted. Instead, the existing ESRS will be revised. In particular, a significant reduction in the data points required is being sought (amendment to Art. 29b of the Accounting Directive).
• Voluntary reporting by companies with more than 1,000 employees and less than EUR 450 million in turnover in accordance with the Taxonomy Regulation. If they wish to report in accordance with the Taxonomy Regulation, they must disclose their turnover and certain key figures, while other key figures are only reported on a voluntary basis. According to the Commission, this eliminates the costs of reporting under the Taxonomy Regulation for these companies. The background to this provision is likely to be that reporting under the Taxonomy Regulation on a voluntary basis continues to be subject to certain minimum standards (introduction of Art. 19b of the Accounting Directive).

II. CSDDD

In the case of the CSDDD, Directive (EU) 2025/794 postponed the date of application for the largest companies by one year, meaning that the first companies will be required to comply with the requirements from the 26.07.2028. The CSDDD must be transposed into national law.

The CSDDD aims to ensure sustainable and responsible conduct with regard to human rights and environmental impacts in companies and along their supply chains. Key obligations include identifying and preventing potential and actual human rights violations and negative environmental impacts of the company itself and within its supply chain. A climate transformation plan must also be adopted and implemented that is consistent with the Paris Climate Agreement.

The Commission’s draft COM (2025) 81 final essentially provides for the following changes to the CSDDD:

• In future, companies will only be required to exercise due diligence with regard to their own activities and those of their direct suppliers (known as the Tier 1 approach). Only in the case of ‘plausible information’ about negative impacts of business activities on indirect business partners must these be identified and mitigated or prevented. According to the Commission, ‘plausible information’ is, for example, information that clearly indicates that the direct business partner was only used as an intermediary to circumvent human rights and environmental obligations. However, it should still be ensured that the company’s own code of conduct is complied with along the supply chain (amendment to Art. 8 CSDDD).
• The definition of stakeholders is limited to employees and their representatives, as well as individuals and communities whose rights and interests could be directly affected by business activities. At the same time, companies will only have to involve ‘relevant’ stakeholders in future, rather than all potentially relevant stakeholders (amendment to Art. 3 para. 1 lit. n) and Art. 13 CSDDD).
• Companies will in future only have to assess and monitor the implementation, effectiveness and adequacy of their measures to comply with due diligence obligations every five years instead of annually (amendment to Art. 15 CSDDD).
• In future, there will no longer be a minimum amount for penalty payments. Instead, the Commission intends to adopt guidelines on the imposition of penalty payments to ensure that they are consistent with the factors to be taken into account in the event of a breach (amendment to Art. 27 CSDDD).
• The obligation to draw up a climate transformation plan will be retained. However, in future it will not have to be implemented, but will merely have to contain measures for implementation (amendment to Art. 22 CSDDD).
• The EU-wide civil liability regime is to be abolished. Trade unions and NGOs will also no longer be empowered to enforce claims for damages on behalf of natural persons. A civil claim for damages will therefore only be possible if provided for under national law (amendment to Art. 29 CSDDD).
• The Commission is to be required to publish and update best practices and guidelines on compliance with due diligence obligations every six months (amendment to Art. 19 CSDDD).

III. CBAM

The aim of the regulation is to reduce greenhouse gas emissions, levy a fair price for CO₂ emissions from the production of CO₂-intensive goods imported into the EU, and promote cleaner industrial production through a method for calculating grey emissions in line with the Paris Agreement and the EU’s ‘Fit for 55’ package. The main obligation to date is to report the direct and indirect greenhouse gas emissions of goods contained in imports into the EU. From 2026, CO₂ certificates must be purchased, each of which ‘represents’ a certain amount of greenhouse gases. If a product whose production has resulted in indirect or direct emissions is then imported into the EU, the corresponding amount of CO₂ certificates must be surrendered upon import. This will make the import of greenhouse gas-intensive products from outside the EU more expensive in the future.

The Commission’s draft COM (2025) 87 essentially provides for the following changes to the CBAM:

• The date of application for the mandatory purchase of allowances for imports of goods within the scope of the Regulation is postponed by one year to February 2027 (amendment to Art. 1 para. 14 CBAM).
• Importers of small quantities of goods covered by CBAM whose imports account for only a very small proportion of the greenhouse gas emissions contained in those goods will be exempt from the regulation (amendment to Art. 1 para. 1 CBAM).
• Reporting requirements for importers within the scope of the regulation will be streamlined. This applies in particular to the approval procedures before the national authorities and the Commission, the collection of data in third countries, the procedures for determining the greenhouse gas emissions contained and the possibility of claiming that a CO₂ price has already been paid in third countries (amendments to various articles).

B. LkSG

As already demanded by the CDU during the election campaign, there are to be changes to the LkSG. Specifically, the coalition agreement states

‘In addition, we are abolishing the national supply chain due diligence law (LkSG)’ (line 1909).

However, if one reads the lines following this quote, this is probably not literally the case. The LkSG is to be replaced by the CSDDD, which is to be transposed into national law in a ‘bureaucracy-free and enforcement-friendly’ manner. With regard to the LkSG, it is stated that the reporting obligations are to be completely abolished with immediate effect. However, the statutory due diligence obligations will continue to apply, even if no sanctions are imposed. The only exception will be ‘massive human rights violations,’ which will continue to be punished.

It therefore remains to be seen what the changes will actually look like. However, it is not to be expected that the law will be completely abolished and that the responsible Federal Office for Economic Affairs and Export Control (BAFA) will have to reassign all staff in this area of responsibility, but rather that it will continue to work on the matter and draw up guidelines, such as the recent information sheet on industry initiatives and antitrust law.

C. Assessment and outlook

Any changes resulting from the OMNIBUS initiative are now dependent on agreement between the Council, the EU Parliament and the Commission. In any case, Directive (EU) 2025/794 has given the legislator a little more time, which is also needed due to the sometimes widely divergent positions among EU member states and within the Parliament. In this context, it will be interesting to see how the CDU and SPD work together in the context of Germany’s position and, in particular, how the measures are subsequently implemented at national level.

It remains to be seen whether the proposed amendments, if adopted, will succeed in better aligning competitiveness with climate and human rights protection. At first glance, competitiveness stands to benefit most by limiting the personal scope of the legal acts and reducing reporting requirements. However, due to the risks posed by climate change, the financial market in particular may continue to push for more extensive reporting requirements for smaller companies under civil law in the case of CSRD reporting. In addition, changes in the case of the CSDD could also lead to renewed legal uncertainty and, in some cases, aimless action on the part of companies. For example, the term ‘plausible information’ about human rights violations and environmental damage is open to interpretation and can mean anything from reliable knowledge to generic findings about problematic supply chain flows. The obligation to review own due diligence systems only every five years does not necessarily take into account the fact that complex compliance systems require very regular monitoring and evaluation. Finally, the ‘retreat’ to national liability regimes once again leads to a fragmented legal situation, which creates uncertainty, particularly for companies operating across the EU. On a positive note, the Commission has committed to publishing guidance every six months. This has been lacking in the past.

Do you have any questions or would you like to discuss the news with the author? Please contact Michael Öttinger and Paul Jäde.

Many member states can literally implement the EU Corporate Sustainability Due Diligence Directive (CSDDD) on a greenfield site, as they have not yet issued any national requirements in this area. The Federal Republic of Germany, on the other hand, is in a special situation due to the Supply Chain Due Diligence Act (LkSG), which has been in force since 01.01.2023. As the CSDDD – similar to the LkSG – standardizes comprehensive due diligence obligations in the supply chain, which also apply regardless of the product, the industry and the supply chain structure, the question arises for Germany as to whether and how the LkSG should be adapted to the CSDDD.

I. What are the differences to the LkSG?

Since the CSDDD basically has a similar regulatory structure to the LkSG, a fundamental restructuring of the LkSG is certainly not to be expected. The due diligence architecture, which is based on a risk analysis and – building on this – requires preventive and remedial measures in the event of risks and violations of the human rights and environmental concerns covered, will remain at the core of the regulation. The same applies to the accompanying complaints procedures, documentation and information obligations.

Within this framework, however, the CSDDD requires numerous adjustments that will lead to considerable shifts and changes. The following aspects are particularly relevant:

• Art. 2 CSDDD initially narrows the scope of application of the LkSG by introducing an additional turnover threshold of EUR 450 million annual net turnover (worldwide) in addition to the employee threshold. In contrast, the scope of application will be extended with regard to companies that are not based in the EU but reach the aforementioned turnover threshold within the EU. In addition, certain franchise and license constellations will also fall within the scope of application in future.
• In terms of timing, Art. 37 CSDDD provides for the following staggering: Application from 26.07.2027 for companies with more than 5,000 employees and a net turnover > EUR 1.5 billion, from 26.07.2028 for companies with more than 3,000 employees and a net turnover > EUR 900 million and from 26.07.2029 for companies with more than 1,000 employees and a net turnover > EUR 450 million.
• The following human rights and environmental aspects are added by the CSDDD: Biodiversity, protection of species (CITES), Rotterdam Convention on the import and export of chemicals, protection of the ozone layer (Vienna Convention and Montreal Protocol), natural heritage under the World Heritage Convention, wetlands under the Ramsar Convention, pollution from ships, pollution of the oceans under the Convention on the Law of the Sea, prohibition of arbitrary interference with private life, family, home and correspondence, prohibition of interference with freedom of thought, conscience and belief, and general children’s rights.
• Compared to the LkSG, the CSDDD does not contain any restrictions as to which parts of the upstream supply chains are to be included in the due diligence obligations. Accordingly, all indirect suppliers must also be considered in future. The differences in the used terms, according to which the supply chain in the CSDDD is referred to as an activity chain and indirect suppliers as indirect business partners, should however not have substantive impact.
• In addition to the duty to remedy already contained in Sec. 7 LkSG, which is formulated as a duty to fundamentally end a breach, the CSDDD also requires the introduction of a duty to reverse negative effects or at least financial compensation for damage incurred (Art. 12 CSDDD in conjunction with Art. 3 para. 1 lit.t) CSDDD).
• There will then be simplifications for a large number of the companies covered with regard to the reporting obligation. According to Art. 16 CSDDD, the CSRD report under Directive (EU) 2022/2464 with regard to sustainability reporting by companies will in future also apply to the fulfillment of the reporting obligation under the CSDDD. Only those companies that are not (yet) subject to the CSRD reporting obligation will therefore still have to prepare a separate report for the purposes of the CSDDD or the LkSG.
• The plan to minimize the consequences of climate change required under Art. 22 CSDDD does not constitute a due diligence obligation in the true sense of the word, even according to the structure of the CSDDD. Experience has shown that the required scientific basis will present numerous companies with major hurdles. Ultimately, the LkSG is unlikely to be the right place for transposition into national law.
• With regard to civil liability for breaches of due diligence obligations, the German legislator will be forced to make a 180-degree turnaround, as Art. 29 CSDDD obliges the Member States to introduce civil liability for breaches of the prevention and remediation obligations under Art. 10 et seq. CSDDD.

II. When and how is the LkSG likely to be amended?

As an EU directive, the CSDDD must be transposed into national law by 26.07.2026, meaning that the LkSG must be adapted by this date at the latest. However, the CSDDD provides for the following barriers to this:

• According to Art. 4 para. 1 CSDDD, Member States may not provide for deviating provisions with regard to the identification and assessment of adverse impacts (Art. 8 CSDDD), the prevention of potential adverse impacts (Art. 10 CSDDD) and the bringing to an end of actual adverse impacts (Art. 11 CSDDD). Consequently, Sec. 9 para. 3 LkSG, according to which measures are only required for indirect suppliers if there is substantiated knowledge of a possible violation, will have to be lifted in any case. In addition, the existing preventive and remedial measures will have to be extended to include at least financial participation obligations for implementation measures by SME business partners. In all other areas, however, the Member States are generally free to provide for more extensive regulations in national law (Art. 4 para. 2 CSDDD).
• Art. 1 para. 2 CSDDD is likely to be of particular relevance for Germany. According to this provision, EU Member States are prohibited from lowering the current level of due diligence obligations with reference to the CSDDD (so-called prohibition of regression or deterioration). In this context, the legal opinion “Möglichkeiten und Grenzen der Gestaltung des Anwendungsbereichs des Lieferkettensorgfaltspflichtengesetzes (LkSG) bei der Umsetzung der Corporate Sustainability Due Diligence Directive (CSDDD)” by Prof. Dr. Anne-Christin Mittwoch for Germanwatch and Oxfam rightly came to the following conclusion: “The objective of the CSDDD requires an interpretation of Art. 1 para. 2 CSDDD to the effect that the provision precludes both an increase in the existing employee thresholds of the LkSG and the introduction of turnover thresholds, insofar as the CSDDD serves as justification for this.” [translation from the original German version]

This means that the immediate “scaling back” of the LkSG to the scope of application of the CSDDD, as vehemently demanded by numerous German politicians and the German Federal Government in a joint strategy paper, is probably not legally permissible.

III. What is the relationship between the CSDDD and other due diligence obligations?

The relationship between the CSDDD and the following legal acts is regulated in Art. 1 para. 3 CSDDD in such a way that the more specific provisions take precedence in the event of contradictions. In practice, this will mean that all the different nuances of the respective legal acts will have to be taken into account during implementation. The following legal acts are particularly relevant here:

• Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010 (EUDR)
• Regulation (EU) 2017/821 of the European Parliament and of the Council of 17 May 2017 laying down supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas (CMR-Regulation)
• Regulation (EU) 2023/1542 of the European Parliament and of the Council of 12 July 2023 concerning batteries and waste batteries, amending Directive 2008/98/EC and Regulation (EU) 2019/1020 and repealing Directive 2006/66/EC (EU Battery Regulation)
• Regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the Union market [final decision in the Council and publication expected soon]

Conclusion

Due to the numerous extensions and few restrictions in the relationship between the CSDD and the LkSG, it will be necessary to amend the LkSG. There is currently already a government draft for the implementation of the CSRD in Germany, which provides in Art. 3 for the LkSG reporting obligation to be linked to that of the CSRD. Further amendments have been announced for this legislative period.

Do you have any questions about this news, or would you like to discuss it with the author? Please contact: Michael Öttinger