On April 3rd, the European Parliament voted in favor of the European Commission’s “Stop the Clock” proposal (COM(2025) 80), aligning with the Council of the EU on the decision to postpone the application date of the Corporate Sustainability Reporting Directive (“CSRD”) for most companies, and the Corporate Sustainability Due Diligence Directive (“CSDDD”) for all companies. Specifically, the adopted proposal will amend the phase-in of CSRD reporting requirements by delaying Wave 2 and Wave 3 reporting by two years. For the CSDDD, it will delay the Directive’s application to the first group of in-scope companies to 2028 and postpone Member States’ transposition deadline to 2027.
The decision to delay follows the European Commission’s release of its anticipated “Omnibus” Package which proposes amendments to the CSDDD, the CSRD, the EU Taxonomy Regulation (“Taxonomy”), and the Carbon Border Adjustment Mechanism Regulation (“CBAM”). Now that the clock is being stopped, this alert highlights eleven key open questions on these groundbreaking EU ESG laws. Given the potentially significant impacts of these regulations on a range of companies, Covington’s ESG team is closely monitoring developments that will seek to address these remaining questions, and provides context on each of them below.
1. Timeline: When do we expect the EU to adopt the amendments?
Different parts of the Omnibus package are on different timelines:
- The “Simplification Proposal” (COM(2025) 81), which proposes to amend and significantly reduces the scope of both the CSRD and CSDDDD, is likely to be the subject of prolonged debate. The EU institutions may not reach political agreement until late 2025 or beyond. The Commission proposes to give Member States twelve months to transpose these substantive amendments into their respective national legal systems.
- The “Taxonomy Delegated Act” proposed by the Commission would amend and simplify companies’ Taxonomy reporting obligations. Based on the feedback received during the public consultation that concluded on March 26th, the Commission may further revise the delegated act before it formally adopts it. Once adopted, a notification period follows where both the EU Parliament and Council will have four months (though this can be extended by two months) to object. If neither objects within this period or they explicitly inform the Commission that they won’t object, the delegated act with the amendments will enter into force.
- The “CBAM Proposal” (COM(2025) 87) delays the sale of CBAM certificates to February 2027, but maintains the overall timing of the CBAM’s full entry into force by January 1, 2026. The Proposal follows the ordinary legislative process, requiring approval by the Council and the Parliament, allowing both to propose amendments before the final text is adopted. A parliamentary majority has agreed on a simplified procedure to facilitate a 2025 adoption in Parliament. Once adopted, the regulation will apply directly to Member States, without requiring transposition.
2. CSDDD: How far would amended due diligence obligations extend in the value chain?
The Omnibus proposal introduces a potentially significant change to the reach of due diligence obligations in relation to a company’s indirect business partners. Specifically, the proposal would limit the extent of the in-depth risk assessments required for these indirect partners, unless the company has “plausible information” that suggests adverse impacts at the level of that indirect business partner.
The impact of this change on existing risk assessment processes is in part a question of interpretation. If enforcement authorities take the view that it takes little for an in-scope company to have plausible information of adverse impacts, the effect of the amendment may be limited. However, should enforcement authorities take the position that plausible information is relatively difficult for an in-scope company to acquire, the proposed amendment could significantly reduce required risk assessment processes with respect to indirect business partners. This is an issue that the European Parliament and Council will have the opportunity to clarify, but given its significance, may become subject to judicial interpretation by the Court of Justice of the EU.
We expect this issue to be a key point for the negotiations between Parliament and Council (with the Commission participating). We also anticipate that, regardless of the final language in the amended Directive, it will be further clarified in the forthcoming CSDDD guidance.
The German Supply Chain Act includes a similar limitation on due diligence obligations regarding a company’s indirect supply chain. The Act’s due diligence obligations only apply with regard to the company’s indirect supply chain if the company has specific indications that a human rights violation may be occurring in its supply chain. According to regulatory guidance, such indications can come from various sources, including complaints received through the company’s grievance mechanism, but also through NGO reports or media coverage. Additionally, companies are expected to establish internal processes that ensure relevant information about potential human rights violations is effectively communicated to the responsible personnel. It remains to be seen whether similar standards will apply under the CSDDD.
3. CSDDD: How will the new enforcement regime work?
The proposal eliminates the pan-EU civil liability regime that would have allowed victims of adverse impacts, or organizations acting on their behalf, to bring claims against companies in the courts of every Member State. Instead, recourse would be based on existing Member State laws and applicable rules of civil procedure. The proposal retains enforcement by specifically designated public supervisory authorities in each Member State, though without the previously passed maximum penalty rules and with more mandated guidance from the Commission.
The removal of an EU-wide liability regime may limit access to justice by reducing opportunities for redress through EU-wide judicial procedures. However, even without a pan-EU civil liability regime under the CSDDD, risks may still be significant, and businesses would have to assess their exposure to liability under individual Member State rules on civil procedure and the reach of jurisdiction. Particular attention should be given to class action mechanisms under the EU Representative Actions Directive, the jurisdiction’s implementation of the Aarhus Convention’s provisions on access to environmental justice, and the potential impact of third-party litigation financing in each jurisdiction.
4. CSDDD: What do the climate transition plan amendments mean in practice?
The Omnibus proposal modifies the original CSDDD’s two-step obligation. The CSDDD’s current obligation requires companies to “adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, that the business model and strategy of the company are compatible with . . . the limiting of global warming to 1,5oC in line with the Paris Agreement and the objective of [the European Climate Law]” (emphasis added). The proposal would delete the “put into effect” language and instead require companies to “adopt a transition plan for climate change mitigation, including implementing actions.” (emphasis added).
This subtle but significant shift potentially transforms the nature of the obligation. On one reading, the removal of the explicit requirement to “put into effect” the plan could be interpreted as only requiring companies to include discrete implementing actions that do not necessarily amount to the degree of action required to achieve the plan. Alternatively, the requirement to adopt “implementing actions” could be interpreted as closer in meaning to the previous “put into effect” language, thus raising the possibility that the amendment is substantively less significant than it may appear on first sight.
The legislative process may further clarify this language before the final text is adopted. The Commission’s guidance on this point—which the Omnibus would require by July 26, 2027—will be crucial to interpret the obligation and we expect companies to use the opportunity to engage with the Commission on this key point. If no further clarification is provided on this amendment, its practical impact on companies may ultimately depend on how national authorities and courts interpret the new language, and whether the upcoming revisions to the European Sustainability Reporting Standards (“ESRS”) maintain robust reporting requirements for transition plans, as currently in disclosure requirement ESRS E1-1.
5. CSRD: Will the new thresholds for covered companies stick?
Under the proposal, the CSRD scoping threshold would change to cover only EU/EEA-incorporated companies with more than 1,000 employees that exceed either the threshold of EUR 50 million in turnover or EUR 25 million of assets. Of note, this change would not impact the CSRD’s reach to third-country ultimate parent companies. For such non-EU/EEA companies, the proposal only raises the threshold of aggregate EU turnover to EUR 450 million—alongside the criteria of having an EU branch with a turnover of EUR 50 million or a subsidiary qualifying as a large undertaking.
According to the Commission, this amendment would reduce the number of in-scope companies by 80%, and would align the scope of the CSRD more closely with the scope of the CSDDD. As the previous threshold for companies under the NFRD was 500 employees, it is possible that some in the Council and Parliament would seek to align to these older thresholds instead, and thus retain a wider scope of applicability.
6. CSRD: What will the revised European Sustainability Reporting Standards (ESRS) look like?
The Commission has announced plans to adopt a delegated act to simplify the ESRS “as soon as possible.” Emphasizing a fast-tracked approach, the Commission has formally requested EFRAG to prepare drafts of the revised ESRS by October 31, 2025. If EFRAG adheres to this timeline, an early indication of the ESRS 2.0 framework could give businesses subject to CSRD reporting in 2027 more time to prepare for and implement the new standards.
Although scant on details, the Commission’s overall justification for the revision indicates a planned reduction in mandatory data points and a shift toward quantitative disclosures rather than narrative text. While these changes may streamline reporting, it is unclear how far the Commission will go.
Questions remain about whether the requirements for materiality assessments will be refined; if the revisions will inadvertently introduce new complexities; and how closely the ESRS will align with other reporting standards, specifically the disclosure standards of the International Sustainability Standards Board (“ISSB”). Once the regulatory process for the ESRS revisions begins, companies may look to advocate on these key issues.
7. CSRD: How will value chain reporting limitations work in practice?
The Commission has proposed to “cap” the information that a CSRD reporting company can request from companies in its value chain that are not also in scope of CSRD. Such requests are to be limited to information that is set out in specifically designed standards for voluntary reporting by small and medium enterprises (the “VSME” standards), as well as information that is “commonly shared” in the sector. The VSME standards would be formally adopted by the European Commission as a further delegated act, using the existing VSME EFRAG standard as a basis.
By limiting these requests to the information outlined in the VSMEs, the amendment could significantly reduce the reporting burden on value chain partners. However, the impact will also depend on how broadly the exception for “information commonly shared” between companies in their sector is interpreted. If assurance providers and regulatory authorities take the view that this exception is to be invoked liberally, the change may have lesser effects, but if it is to be invoked sparingly, in-scope companies may need to adjust their reporting strategies to stay within these new constraints.
8. Taxonomy: How will materiality thresholds affect Taxonomy reporting?
The Commission has proposed amendments to reduce and simplify companies’ obligations to report on Taxonomy compliance. The proposed delegated act would introduce a targeted financial materiality threshold to exempt companies from assessing the taxonomy alignment of Taxonomy-eligible activities that do not exceed 10% of their total EU turnover, capital expenditure, or operational expenditure. The turnover, capital expenditure, and operational expenditure of these economic activities would still need to be reported separately as “non-material” turnover, capital expenditure, and operational expenditure. This change aims to streamline reporting by focusing on a company’s most important business areas.
The ultimate definition of the materiality cut offs and how they are to be interpreted will be crucial for the practical impacts on companies.
9. Taxonomy: What will partial taxonomy reporting entail?
The Omnibus proposal introduces an option for companies with less than EUR 450 million in turnover to voluntarily report “partial taxonomy-alignment.” The intent is to allow companies making progress toward sustainability targets to disclose their efforts, even if they do not fully meet all EU Taxonomy criteria. If adopted, this change would expand Taxonomy reporting beyond the strict binary of aligned versus non-aligned activities, potentially giving companies more flexibility in demonstrating sustainability progress.
While companies that fall below the threshold will benefit from partial Taxonomy reporting by reducing compliance costs, it remains uncertain how partial alignment will be defined and standardized to ensure meaningful and comparable reporting across companies without creating ambiguity or “Taxonomy-washing”. As the legislative process between Parliament and Council unfolds, companies may seek opportunities to engage with policy makers on the wording of these amendments, including advocating for the option of voluntary partial Taxonomy alignment reporting for larger companies.
10. Taxonomy: What future changes to technical screening criteria should companies anticipate?
A key proposed amendment would simplify the generic Do No Significant Harm (“DNSH”) criteria for pollution prevention and control.
Additionally, the Commission has signaled broader efforts to simplify technical screening criteria, including revising DNSH requirements where environmental risks are minimal, and aligning standards with industry practices.
While these adjustments could make Taxonomy alignment easier, revisions could still introduce unexpected compliance challenges.
11. CBAM: How might the proposed mass-based thresholds reshape CBAM’s scope?
The “CBAM proposal” replaces the CBAM’s current EUR 150 de minimis threshold with a new mass-based threshold. Under the proposed amendment, importers of iron and steel, aluminum, fertilizers, and cement will only be in scope if their imports of a CBAM-covered product exceed 50 tonnes of net mass per year. This threshold applies to four of the six CBAM-covered industries, excluding electricity and hydrogen.
This change could significantly reduce compliance obligations, potentially relieving 90% of importers from purchasing CBAM certificates, while still covering 99% of emissions. Importers below the threshold would have to self-identify as “occasional CBAM importers” in customs declarations and track their annual import volumes. If they exceed the 50-tonne limit, they fully re-enter CBAM’s scope for all imports of CBAM covered goods that year. Additionally, the Commission has established a mechanism to adjust the threshold annually if it no longer ensures at least 99% of the emissions caused by CBAM-covered goods are covered.
While this revision simplifies compliance for many small and occasional importers, the threshold remains subject to approval by the Parliament and Council. The upcoming legislative process provides an opportunity for interested businesses to advocate for expansion of the proposed threshold to other imported goods, such as electricity or hydrogen. Regardless, companies should continue to monitor legislative developments, as the Commission has planned a full CBAM review later this year, assessing potential extension to other goods and sectors, with a legislative proposal expected in early 2026.
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If you have any questions concerning the material discussed in this alert, please contact the members of our Environmental, Social, and Governance (ESG) practice.
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