The Omnibus I political agreement announced yesterday broadly eases the sustainability compliance and due diligence burden for businesses under the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD), giving much-needed certainty to businesses. It is a significant achievement for the EU’s simplification agenda and ongoing efforts to reduce the regulatory burden. Specifically, the flexibility introduced in terms of the risk-based approach and how companies need to define adverse impacts will alleviate most of the excessive burden that existed under the original CSDDD. The revised transposition timeline of CSDDD to 2029 will also give all parties the necessary time to prepare for implementation.  

However, it appears that EU policymakers did not yet sufficiently tackle how these rules apply to the global activities of companies and groups – for example, by limiting the scope of the CSDDD to only those products and services with a logical link to the EU. This is a missed opportunity with far-reaching consequences that keeps legal uncertainty in place for global firms and their supply chains.  This oversight on extraterritorial impact will make the CSDDD more difficult for policymakers to implement and monitor and risks creating confusing overlap with other jurisdictions’ rules. 

The EU must use the next steps in the policy-making process – including implementing measures, guidance and future reviews – to fix outstanding challenges in both the CSDDD and the CSRD. In particular, clearer rules on when and how EU legislation impacts global business activities would give companies the predictability they need to invest and support sustainability investments.