Don’t wait for the Omnibus proposals approval to start preparing for CSDDD

The European Union Commission's recent Omnibus proposals introduced several changes to the Corporate Sustainability Due Diligence Directive (CSDDD) and other related regulations. The proposals seek to establish a streamlined sustainability framework, reducing redundancies in EU reporting and due diligence requirements.

While the core obligations and thresholds in the Omnibus proposals remain largely unchanged, it is essential that companies recognize that this is not the final set of rules but rather the beginning of a process that may lead to revisions. Until these proposals are approved and transposed into law, the existing legislation based on local regulations — including the Corporate Sustainability Reporting Directive (CSRD), CSDDD and EU Taxonomy — will continue to be in force.

While uncertainties remain in some technical areas of the CSDDD, which focuses on human rights issues in operations and across supply chains, companies should act now to stay ahead in an evolving regulatory landscape.

Here are five key changes to the CSDDD based on the proposals, along with recommended steps for companies to get ready for the proposed "Wave 1" compliance deadline of July 2028.

• Proposed monitoring requirements: The CSDDD requirements for monitoring the adequacy and effectiveness of due diligence processes would shift from an annual review to at least once every five years. Additional monitoring may be required if there are reasonable grounds to believe measures are inadequate or ineffective. This proposed shift would ease compliance by removing annual reassessments, while still requiring ad hoc monitoring if issues arise.

Actions to take now: While the review timeline has shifted from annual to every five years, the due diligence processes, which would be the subject of the review, will need to be established. Therefore, companies should act now to strengthen their monitoring frameworks for their operations, subsidiaries and business partners. Begin by establishing holistic governance structures and clear processes to monitor due diligence. These programs should then be actively monitored, both on a scheduled basis and in response to emerging risks.

• Due diligence focus narrows: The proposals focuses due diligence obligations on direct (Tier 1) business partners, with in-depth assessments involving indirect business partners required only when there is plausible information of adverse impacts. Companies are still required to map their full supply chain to identify potential risks and key stakeholders, to make sure code of conduct commitments extend throughout the supply chain. This mapping also prepares non-EU groups for potential third-country reporting under the Corporate Sustainability Reporting Directive (CSRD). Companies with fewer than 500 employees would face reduced compliance burdens through alignment with the Financial Reporting Directive, and information requests would be limited to cases suggesting likely adverse impacts or gaps in standards.

Actions to take now: Due diligence obligations are proposed to focus on Tier 1 business partners but could extend to conducting in-depth assessments of indirect business partners where plausible information exists suggesting impacts. Companies are still required to map their full supply chain to identify potential risks and key stakeholders, to make sure code of conduct commitments extend throughout the supply chain. This mapping also prepares non-EU groups for potential third-country reporting under the Corporate Sustainability Reporting Directive (CSRD).

• Adoption of a climate transition plan: The Omnibus proposals would remove the requirement for companies to "put into effect" their climate transition plans, enhancing alignment between the CSRD and CSDDD. The focus would turn to the adoption of the transition plan that outlines intended actions, rather than mandating the execution of those actions.

Actions to take now: The proposed changes reinforce the expectation for companies to strategically outline, adopt and/or update climate transition plans. Those without a plan — or looking to strengthen one — may consider a gap assessment aligned with a chosen framework (e.g., Transition Plan Taskforce) to identify which requirements have been met and any remaining gaps. As part of this process, companies will need to consider the quantitative financial implications on investments and funding necessary to support the climate transition plan. From there, companies can address gaps systematically and build an actionable plan. Where gaps are significant, pilot assessments can help test approaches before full implementation.

• New stakeholder definition: The Omnibus proposal narrows the stakeholder scope under the CSDDD to individuals and groups “directly affected” by a company’s operations, subsidiaries and business partners. This includes employees of the company and its subsidiaries, employees of business partners, their trade unions and workers' representatives, as well as individuals or communities whose rights or interests may be actually or potentially impacted by the company's activities. However, notification and complaint mechanisms should still remain accessible to certain indirect stakeholders, as those requirements remain unchanged.

Actions to take now: By refining this scope, the proposal may limit stakeholder accountability primarily to directly impacted parties rather than broader indirect stakeholders. However, companies may still engage with credible proxies, such as NGOs or industry groups, as part of their stakeholder engagement efforts. Additionally, companies may consider integrating human rights and environmental elements into existing stakeholder engagement activities to drive an integrated due diligence approach. Consequently, a no-regrets move is to review, align and update stakeholder engagement plans and strategies to enable conformance with CSDDD requirements.

• Termination of business relationships: The Omnibus proposals removes the requirement to terminate business relationships in cases of actual or potential adverse impacts.

Actions to take now: Companies should still consider implementing prevention or correction action plans with a reasonable expectation of success. If necessary, companies may temporarily suspend the relationship rather than terminate it outright. Additionally, companies should work to incorporate commitments around human rights and environmental impacts into contracts with business partners, as well as establish procedures for when contractual requirements are not met. Supplier relationship management will require internal processes, controls and an understanding of the intent of the CSDDD which will need to be integrated into process management- from the evaluation of 'reasonable expectations of success' to the integration of appropriate contract language into supplier agreements.

As regulatory requirements continue to evolve, companies should remain proactive in adapting to the shifting sustainability landscape. The Omnibus proposals mark a step toward streamlining corporate due diligence, but they also signal ongoing adjustments that will help shape future compliance obligations. Businesses should take a forward-thinking approach, strengthening governance, refining monitoring systems and preparing for potential revisions. By staying ahead of these developments, companies can build resilience, maintain compliance and position themselves as leaders in sustainable and responsible business practices.