(1)

In its communication of 11 February 2025 entitled ‘A simpler and faster Europe: Communication on implementation and simplification’, the Commission set out a vision for an implementation and simplification agenda that delivers fast and visible improvements for people and business on the ground. That requires more than an incremental approach, and it is necessary for the Union to take bold action to achieve that goal. The Commission, the European Parliament, the Council, Member States’ authorities at all levels and stakeholders need to work together to streamline and simplify Union, national and regional rules and implement policies more effectively.

(2)

In the context of the Commission’s commitment to reducing reporting burdens and enhancing competitiveness, it is necessary to amend Directives 2006/43/EC (3), 2013/34/EU (4), (EU) 2022/2464 (5) and (EU) 2024/1760 (6) of the European Parliament and of the Council, whilst maintaining the policy objectives specified in the Commission communication of 11 December 2019 entitled ‘The European Green Deal’ (the ‘European Green Deal’) and the Commission communication of 8 March 2018 entitled ‘Action Plan: Financing Sustainable Growth’ (the ‘Sustainable Finance Action Plan’).

(3)

Given the change in the scope of undertakings to be subject to sustainability reporting requirements, it would be disproportionate to require that audit firms that wish to carry out the assurance of sustainability reporting be subject to requirements for approval that are equivalent to those for audit firms that carry out audits of financial statements. Such approval requirements relate to natural persons who carry out the work on behalf of the audit firm, the majority of the voting rights held by the audit firm and the majority of the members of the administrative or management body of the audit firm. Audit firms that wish to carry out the assurance of sustainability reporting should only need to ensure that they designate at least one key sustainability partner who meets the requirements for the purposes of approval and who is approved as statutory auditor in the Member State concerned.

(4)

Article 26a(1) of Directive 2006/43/EC requires Member States to ensure that statutory auditors and audit firms carry out the assurance of sustainability reporting in compliance with limited assurance standards to be adopted by the Commission by 1 October 2026. Undertakings have raised concerns on the work carried out by the assurance providers and have expressed the need for flexibility in addressing specific risks and critical issues identified in the area of sustainability assurance. The Commission should take into account those concerns when working on the limited assurance standards. The lack of harmonised assurance standards contributes to the problems experienced by undertakings, and it is therefore important that the Commission adopt a suitable delegated act. To allow adequate time to develop the limited assurance standards, the deadline for their adoption should be postponed to 1 July 2027.

(5)

Article 26a(3), second subparagraph, of Directive 2006/43/EC empowers the Commission to adopt reasonable assurance standards by 1 October 2028, following an assessment of feasibility for auditors and for undertakings. To avoid an increase in the costs of assurance for undertakings, the requirement to adopt reasonable assurance standards should be removed.

(6)

Article 45 of Directive 2006/43/EC requires the competent authorities of a Member State to register third-country auditors and audit entities issuing assurance reports on the sustainability information of third-country entities whose securities are admitted to trading on a regulated market in that Member State. The conditions for such registration concern the requirements to be met by the majority of the members of the administrative or management body of the third-country audit entity, the requirements to be met by the third-country auditor, the assurance standards to be used and the publication of an annual transparency report by the third-country audit entity. Moreover, Member States are to subject registered third-country auditors and audit entities to their systems of oversight, their quality assurance systems and their systems of investigation and penalties. Taking into account the current international landscape on the regulation of sustainability reporting and the assurance thereof, and considering that registration is necessary for the validity of the assurance reports within the Union, it would be disproportionate to require that those registration conditions be met in the first years of application of the sustainability assurance regime. In addition, the oversight of registered third-country auditors and audit entities is dependent on the existence of equivalence or adequacy decisions. Therefore, for a transitional period, simplified registration conditions and an exemption from oversight should be introduced for third-country auditors and audit entities issuing assurance reports on the sustainability information of third-country entities whose securities are admitted to trading on a regulated market in a Member State. The simplified registration should be possible on condition that certain information be provided to the competent authorities of the Member State concerned. The competent authorities should decline registration if that information is not provided.

(7)

Article 19a(1) of Directive 2013/34/EU requires large undertakings, and small and medium-sized undertakings, except micro undertakings, whose securities are admitted to trading on a regulated market in the Union, to prepare and publish sustainability reporting at individual level. The report entitled ‘The future of European competitiveness’ identified the sustainability reporting framework as ‘a major source of regulatory burden’, concluding in that respect that there was a ‘need to better consider the size of companies affected by regulation’. To reduce the reporting burden on undertakings and to achieve the objectives of reporting in a more proportionate way, the obligation to prepare and publish sustainability reporting at individual level should be limited to undertakings with a net turnover exceeding EUR 450 000 000 and an average of more than 1 000 employees during the financial year, as defined in the national measures transposing Directive 2013/34/EU. That more targeted scope, which should also apply as regards groups and issuers, will ensure that the burden of mandatory sustainability reporting is limited to the largest undertakings, groups and issuers. Such undertakings, groups and issuers are the most consequential in terms of environmental, social and governance (ESG) impacts. At the same time, they are the most able to absorb the costs associated with ESG reporting. Undertakings, groups and issuers below the specified thresholds remain free to carry out voluntary sustainability reporting, a possibility that is significantly facilitated by the sustainability reporting standards for voluntary use introduced by this Directive.

(8)

Article 1(3) of Directive 2013/34/EU specifies that insurance undertakings and credit institutions that are large undertakings or small and medium-sized undertakings, except micro undertakings, whose securities are admitted to trading on a regulated market in the Union are subject to the sustainability reporting requirements set out in that Directive, regardless of their legal form. Since this Directive reduces the scope of individual sustainability reporting, such reduction in scope should also apply to insurance undertakings and credit institutions.

(9)

For the purpose of ensuring coherence across sustainable finance legislation, it is important to consider whether requirements related to ESG or sustainability for the financial sector, including sector-specific financial services legislation, the expectations of European Supervisory Authorities (ESAs) and the supervisory expectations at the national level are to be framed or adapted in a way that ensures consistency with the sustainability reporting obligations set out in Directive 2013/34/EU. Maintaining coherence, including as regards undertakings that fall outside of the scope of Articles 19a and 29a of Directive 2013/34/EU, will require careful attention and might require action from the European Parliament, the Council, the Commission and the ESAs.

(10)

Although the European Financial Stability Facility (EFSF) established by the EFSF Framework Agreement is exempt from the sustainability reporting regime set out in Directive 2004/109/EC of the European Parliament and of the Council (7) pursuant to Article 8 thereof, the EFSF is subject to the sustainability reporting requirements set out in Directive 2013/34/EU. Despite it being a large undertaking incorporated in a legal form listed in that Directive, the EFSF has a mandate that is largely similar to that of the European Stability Mechanism (ESM), namely to safeguard financial stability in the Union by providing temporary financial assistance to Member States whose currency is the euro. The ESM, however, is not subject to sustainability reporting requirements. Therefore, in order for the EFSF to benefit from the same treatment as the ESM as regards sustainability reporting and for the purposes of consistency with the exemption regime provided for by Directive 2004/109/EC, the EFSF should be exempt from the sustainability reporting regime provided for by Directive 2013/34/EU.

(11)

Article 19(1), fourth subparagraph, of Directive 2013/34/EU requires large undertakings, and small and medium-sized undertakings, except micro undertakings, whose securities are admitted to trading on a regulated market in the Union, namely the undertakings which are subject to mandatory sustainability reporting, to report information on key intangible resources and their role in the undertaking’s business model and value creation. In order to ensure consistency with the new scope and to achieve the objectives of such reporting in a more proportionate way, that requirement should only apply to undertakings that have a net turnover exceeding EUR 450 000 000 and have more than 1 000 employees on average during the financial year.

(12)

Article 19a(3) of Directive 2013/34/EU requires undertakings to report information about their own operations and about their value chain. There is evidence that undertakings in the value chain, including small and medium-sized enterprises, receive disproportionate requests for information from reporting undertakings, notwithstanding the existing limitations set out in that Directive. It is therefore necessary to introduce protections for undertakings in the value chain that do not exceed the average number of 1 000 employees during the preceding financial year to limit the burden for those undertakings (the ‘protected undertakings’). Reporting undertakings should be able to rely on a self-declaration issued by undertakings in their value chain for the purpose of determining the size of those undertakings. No further verification by the reporting undertaking should be necessary. However, the reporting undertaking should not rely on a self-declared size that it knows, or can reasonably be expected to know, is manifestly incorrect. When seeking to obtain information about their value chain, reporting undertakings should be prohibited from requiring information exceeding certain limits from protected undertakings. Those limits should reflect the limits specified by the sustainability reporting standards for voluntary use to be adopted by the Commission. At the same time, protected undertakings in the value chain of the reporting undertakings should be given a statutory right to refuse to provide information exceeding those limits. To ensure the effectiveness of that right and to avoid placing a burden on smaller undertakings to proactively assess whether that right applies, reporting undertakings which choose to request information exceeding those limits should be required to ensure that protected undertakings are informed of which extra information is requested and of their statutory right to decline to provide it. To ensure proportionality, the scope of this ‘value-chain cap’ should be limited in the following ways. First, it should not prohibit the sharing of information on a voluntary basis, such as information that is commonly shared among undertakings in a given sector. Second, it should not affect any obligation that might exist, whether contractually or under Union or national law, to provide information that does not exceed the information specified in the voluntary standard. Third, the value chain cap should only apply to information gathering carried out for the purpose of reporting sustainability information as required by Directive 2013/34/EU. It should not affect Union requirements to conduct a due diligence process or information gathering carried out for any other purpose, such as for the reporting undertaking’s risk management. Undertakings reporting in accordance with those limitations should be deemed to comply with the obligation to report value chain information as required by Directive 2013/34/EU. It is important that reporting undertakings only request information from undertakings in their value chain insofar as necessary. In particular, it is important that they request less information than that specified in the standards for voluntary use if they do not need all the information in those standards. Assurance providers should prepare their assurance opinion respecting the protections provided for undertakings in the value chain. Furthermore, recognising that all the necessary information might not always be available from undertakings in the value chain, the reporting undertaking should be able to meet the reporting requirements for value chain information by using information directly obtained from undertakings in its value chain or estimates for that information, as appropriate.

(13)

Given the change to the series of application dates set out in Directive (EU) 2022/2464, Directive 2013/34/EU should be amended to simplify the three-year transition period and to clarify that it begins at the point in time at which an undertaking becomes required to report sustainability information in accordance with Directives 2013/34/EU and (EU) 2022/2464.

(14)

There are circumstances in which undertakings should, subject to assurance, be permitted to omit certain information when applying sustainability reporting requirements. Such circumstances should be developed and clarified. First, in certain cases the disclosure of sustainability information could seriously prejudice the commercial position of an undertaking. In such cases, the undertaking should be allowed to omit such information, provided that specific conditions for the omission are met to ensure that such cases remain exceptional and that the interests of the users of reported sustainability information are also adequately protected. In that context, the commercial position of the reporting undertaking is not seriously prejudiced by the fact that third-country undertakings are not required to report the same information. Second, undertakings should be able to omit information corresponding to intellectual capital, intellectual property, know-how, technological information or the results of innovation that would qualify as a trade secret as defined in Directive (EU) 2016/943 of the European Parliament and of the Council (8). Third, undertakings should be able to omit classified information. Finally, there might be information that should be kept confidential for reasons not relating to commercial prejudice, trade secrecy or classification. In particular, undertakings should be free to omit information that is to be protected from unauthorised access or disclosure pursuant to other Union legal acts or national law. Moreover, the sustainability reporting requirements should not oblige undertakings to disclose information which would be prejudicial to the privacy of natural persons or to the security of natural or legal persons. That is especially important in the current geopolitical context. Defence undertakings, in particular, need to have discretion to withhold sensitive information the disclosure of which could be prejudicial to their own security or to that of other legal persons, including Member States.

(15)

Article 29c(1) of Directive 2013/34/EU empowers the Commission to adopt limited sustainability reporting standards specifying the information to be reported by small and medium-sized undertakings whose securities are admitted to trading on a regulated market in the Union, small and non-complex institutions, captive insurance undertakings and captive reinsurance undertakings that rely on the derogation to provide limited sustainability reporting set out in Article 19a(6) of that Directive. Since this Directive excludes small and medium-sized undertakings whose securities are admitted to trading on a regulated market in the Union from the sustainability reporting regime, the empowerment for the Commission to adopt delegated acts to provide for sustainability reporting standards for those small and medium-sized undertakings should be removed. References to Article 29c of Directive 2013/34/EU should accordingly be deleted from that Directive.

(16)

Article 19a(7) of Directive 2013/34/EU allows small and medium-sized undertakings, except micro undertakings, whose securities are admitted to trading on a regulated market in the Union to opt out from the sustainability reporting regime for the first two years of its application. Since this Directive excludes small and medium-sized undertakings from the sustainability reporting regime, the provision allowing for the two-year opt out should be deleted.

(17)

Article 29a(1) of Directive 2013/34/EU requires parent undertakings of groups of a certain size to prepare and publish sustainability reporting at consolidated level. However, it is appropriate to increase the flexibility in the case of financial holding undertakings. In particular, where a group of that size exists only by virtue of the diverse investments of a financial holding undertaking, consolidated reporting might present practical difficulties and burdens and be of limited use to other market participants. Consequently, financial holding undertakings that are parent undertakings of such groups should have the option to choose whether to report consolidated sustainability information or whether to omit such information. That option should be strictly limited given its objective. It should only apply where the parent undertaking meets the definition of a financial holding undertaking, including the requirement not to involve itself directly or indirectly in the management of the subsidiary undertakings, without prejudice to its rights as a shareholder. Those rights include the right to vote at general shareholder meetings, which could, depending on national company law rules, inter alia, relate to the appointment of members of the management, administrative and supervisory bodies of the undertakings in which holdings exist, in order to ensure the proper oversight and protection of those investments. Additionally, financial holding undertakings should only have that option where they have holdings in undertakings whose business models and operations are independent of one another. This excludes cases where the subsidiaries of a financial holding undertaking are closely interconnected through their business activities, for example when the activities of one subsidiary enable or directly support the activities of another subsidiary. Finally, that option should not affect any reporting obligations that might apply to other undertakings in the group, for instance if an undertaking in the group falls within the scope of Article 19a or 29a of Directive 2013/34/EU in its own right.

(18)

Directive (EU) 2022/2464 requires certain undertakings to report sustainability information in accordance with mandatory European Sustainability Reporting Standards (ESRS). In July 2023, the Commission adopted the first set of ESRS. To deliver swiftly on the simplification and streamlining of sustainability reporting, the Commission, within six months of the entry into force of this Directive, will adopt a delegated act to revise the first set of ESRS in order to substantially reform ESRS by: (i) removing datapoints deemed least important for general purpose sustainability reporting; (ii) prioritising, to the extent possible, quantitative datapoints over narrative text; (iii) further distinguishing between mandatory and voluntary datapoints; (iv) providing clear instructions on how to apply the materiality principle in order to ensure that undertakings are only required to report material information and to reduce the risk that assurance service providers inadvertently encourage undertakings to report information that is not necessary or dedicate excessive resources to the materiality assessment process; (v) improving consistency with other pieces of Union legislation, including financial services legislation; and (vi) taking account, to the greatest extent possible, of interoperability with global sustainability reporting standards. The revision will clarify provisions that are deemed unclear and simplify the structure and presentation of the standards. It will also make any other modifications that might be considered necessary considering the experience gained in the application of the first set of ESRS. Sustainability reporting standards should also take account of the difficulties that undertakings might encounter in gathering information from actors throughout their value chain, especially from those which are not subject to the sustainability reporting requirements and from suppliers in emerging markets and economies.

(19)

When the composition of a group changes during the financial year due to the acquisition or merger of undertakings, integrating those undertakings into the sustainability reporting process for the same financial year might take additional time and pose administrative challenges. It is therefore appropriate to enable the parent undertaking subject to consolidated sustainability reporting requirements to postpone the sustainability reporting for such newly acquired or merged undertakings to the subsequent financial year. In addition, when an undertaking leaves a group of undertakings during the financial year, requiring the parent undertaking subject to consolidated sustainability reporting requirements to provide sustainability information on that undertaking for the same financial year would be disproportionate. It is therefore appropriate to allow the parent undertaking not to include in the consolidated management report for that financial year the sustainability information on the undertaking that left the group. Considering that certain events affecting the undertakings that were acquired or merged or that left the group of undertakings might nevertheless have an effect on the group’s impacts on, or risks or opportunities related to, sustainability matters, it is appropriate to require the parent undertaking that chooses not to provide sustainability information on those undertakings for a financial year to indicate those significant events in its consolidated management report.

(20)

Article 29b(1), third subparagraph, of Directive 2013/34/EU empowers the Commission to adopt, by means of delegated acts, sector-specific reporting standards, with the first set of such standards to be adopted by 30 June 2026. To avoid an increase in the number of prescribed datapoints that undertakings are required to report, that empowerment should be deleted. Depending on the demand from undertakings subject to the sustainability reporting requirements set out in Directive 2013/34/EU, the Commission could support undertakings by providing sector-specific guidance that illustrates and facilitates the application of ESRS within a given sector, including guidance on the conduct of the double materiality assessment aimed at identifying sustainability matters likely to be material for a typical undertaking operating in the given sector. Any such guidelines should be based on consultations with relevant stakeholders. Where appropriate, relevant international standards could be taken into account.

(21)

Article 29b(4) of Directive 2013/34/EU requires sustainability reporting standards not to specify disclosures that would require undertakings to obtain from small and medium-sized undertakings in their value chain any information that goes beyond the information to be disclosed pursuant to the sustainability reporting standards for small and medium-sized undertakings whose securities are admitted to trading on a regulated market in the Union. Since this Directive excludes small and medium-sized undertakings whose securities are admitted to trading on a regulated market in the Union from the sustainability reporting regime, and in order to reduce the reporting burden for undertakings in the value chain that are not required to report on their sustainability, the sustainability reporting standards should not specify disclosures that would require undertakings to obtain from undertakings in their value chain that have up to 1 000 employees on average during the financial year any information that goes beyond the information to be disclosed pursuant to the sustainability reporting standards for voluntary use by undertakings that are not required to report on their sustainability.

(22)

The Commission should be empowered to adopt a delegated act to provide for sustainability reporting standards for voluntary use by protected undertakings. Those standards should be proportionate to, and relevant for, the capacities and the characteristics of those undertakings and proportionate to the scale and complexity of their activities. Other undertakings not required to report sustainability information should also be able to choose to make use of those standards. The sustainability reporting standards for voluntary use should use simplified language and take into account the ‘think small first’ principle, using modularity allowing for flexibility and progression in the disclosures. To the greatest extent possible, sustainability reporting standards for voluntary use should take account of Regulation (EC) No 1221/2009 of the European Parliament and of the Council (9). Those standards should also specify, where possible, the structure to be used to present that information. Until the Commission adopts sustainability reporting standards for voluntary use, undertakings that report sustainability information voluntarily are free to do so in accordance with Commission Recommendation (EU) 2025/1710 (10) which is based on the voluntary standard for SMEs (VSME) developed by EFRAG. To ensure continuity and proportionality, the sustainability reporting standards for voluntary use adopted by the Commission by means of a delegated act should be based on that Recommendation.

(23)

In order to ensure that the sustainability reporting standards for voluntary use remain aligned with developments relevant to sustainability reporting, the Commission should review those standards at least every four years. In carrying out that review, the Commission should take due account of developments relevant to sustainability reporting as well as whether the standards enable undertakings to achieve relevant objectives, including: (i) providing information that meets the data needs of undertakings requesting sustainability information from their suppliers; (ii) providing information that meets the data needs of financial institutions and investors and thereby facilitates undertakings’ access to finance; (iii) improving the management of sustainability matters, including, as relevant, environmental and social aspects such as pollution and workforce health and safety, in a manner that strengthens the competitiveness and resilience of undertakings; and (iv) contributing to a more sustainable and inclusive economy. Where those objectives are not achieved, the Commission should amend the standards accordingly.

(24)

Article 29d of Directive 2013/34/EU requires undertakings subject to the requirements set out in Articles 19a and 29a of that Directive to prepare their management report or consolidated management report, as applicable, in the single electronic reporting format specified in Article 3 of Commission Delegated Regulation (EU) 2019/815 (11) and to mark up their sustainability reporting, including the disclosures provided for in Article 8 of Regulation (EU) 2020/852 of the European Parliament and of the Council (12), in accordance with the electronic reporting format specified in that Delegated Regulation. To provide undertakings with clarity, it should be specified that, until such rules on the marking-up of sustainability reporting are adopted by means of Commission Delegated Regulation (EU) 2019/815, undertakings should not be required to mark up their sustainability reporting.

(25)

Article 33(1) of Directive 2013/34/EU specifies that the members of the administrative, management and supervisory bodies of an undertaking have collective responsibility for ensuring that certain documents are drawn up and published in accordance with the requirements of that Directive. To provide flexibility for undertakings and reduce the reporting burden on them, Member States should be able to provide that the collective responsibility of the members of the administrative, management and supervisory bodies of an undertaking for ensuring compliance with the requirements of that Directive as regards the digitalisation of the management report is limited to its publication in the single electronic reporting format, including the marking-up of the sustainability reporting therein.

(26)

Pursuant to Article 40a(1), fourth and fifth subparagraphs, of Directive 2013/34/EU, certain subsidiaries in the Union of a third-country undertaking that generates a net turnover of more than EUR 150 000 000 in the Union, or, in the absence of such subsidiaries, branches in the Union of a third-country undertaking that generate a net turnover of more than EUR 40 000 000, are to publish and make accessible sustainability information at the group level, or, if not applicable, the individual level, of the third-country undertaking. To relieve the burden on third-country undertakings in a similar proportion to the reduction in burden on undertakings subject to Articles 19a and 29a of that Directive, the net turnover threshold for the third-country undertaking should be raised from EUR 150 000 000 to EUR 450 000 000. In addition, for reasons of burden reduction, the size of a subsidiary of a third-country undertaking and a branch of a third-country undertaking for such subsidiaries and branches to fall within the scope of Directive 2013/34/EU as regards sustainability reporting should also be adjusted. The net turnover threshold for the subsidiary of a third-country undertaking and the branch of a third-country undertaking should be set at EUR 200 000 000. The reporting requirements for the subsidiary of the third-country undertaking or the branch of the third-country undertaking under Article 40a are different from the reporting requirements for undertakings under Articles 19a and 29a. The subsidiary of the third-country undertaking or branch of the third-country undertaking subject to Article 40a is only required to publish and make available the sustainability report provided by the third-country undertaking, whereas undertakings subject to Articles 19a and 29a are required to report on their own behalf. It is therefore not necessary to apply the same thresholds when identifying which subsidiaries or branches are subject to the reporting requirements under Article 40a and which undertakings are subject to the reporting requirements under Article 19a and 29a. Furthermore, to ensure a level playing field, third-country parent undertakings which are financial holding undertakings whose subsidiaries’ business models and operations are independent of one another should be allowed not to publish and make accessible a sustainability report in accordance with Article 40a.

(27)

To ensure that undertakings can access practical information about the application of mandatory and voluntary sustainability reporting standards as set out in Directive 2013/34/EU, and to ease the burden of applying those sustainability reporting standards, the Commission should provide for a dedicated online portal. The dedicated online portal should give access to information, guidance and support, including relevant templates, regarding those sustainability reporting standards. The dedicated online portal should be interconnected with online support measures provided by Member States, where they exist, to take account of national context.

(28)

In order to reduce the administrative burden stemming from meeting the sustainability reporting requirements mainly associated with the data collection, data processing and business-to-business sharing of data for undertakings, the Commission should present a report on initiatives that enable undertakings to collect, process and exchange data in a secure, seamless and automated manner. That should include: providing harmonised, standardised and structured digital data formats for efficient business-to-business sharing of activity data, such as electronic invoices or digital VSME reports; setting minimum technical requirements for digital systems used for sustainability data management and reporting to ensure interoperability; ensuring access to trustworthy and qualified data; and ensuring the possibility to share data through open and common Union data exchange infrastructure.

(29)

In order to adapt the net turnover thresholds for undertakings to be subject to sustainability reporting requirements, as with the passage of time inflation will erode their real value, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (13). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(30)

Article 5(2), first subparagraph, of Directive (EU) 2022/2464 specifies the dates by which the Member States are to apply the sustainability reporting requirements set out in Directive 2013/34/EU, with different dates depending on the size of the undertaking concerned. Considering that only undertakings with a net turnover exceeding EUR 450 000 000 and more than 1 000 employees on average during the financial year, at the group level, as appropriate, are to be subject to sustainability reporting requirements, the criteria for determining the dates of application should be adjusted, and the reference to small and medium-sized undertakings whose securities are admitted to trading on a regulated market in the Union should be removed.

(31)

It is important to ensure legal certainty regarding the reduction in the scope of undertakings subject to sustainability reporting requirements, especially regarding the personal scope of the relevant provisions at each point in time. Accordingly, Article 5(2), first subparagraph, point (a), of Directive (EU) 2022/2464, which concerns the first set of undertakings subject to that Directive, should be amended to limit its application to three financial years from 1 January 2024. For financial years starting on or after 1 January 2027, Article 5(2), first subparagraph, point (b), of Directive (EU) 2022/2464, which concerns the second set of undertakings subject to that Directive, should apply. Accordingly, undertakings that fall within the scope of Article 5(2), first subparagraph, point (a), of that Directive but outside the scope of point (b) thereof, as amended by this Directive, will fall outside the scope of this Directive as of financial years starting on or after 1 January 2027. Nevertheless, with a view to reducing burden as swiftly as possible, Member States should be able to exempt such undertakings from reporting obligations as regards the financial years beginning between 1 January 2025 and 31 December 2026. Member States are required to implement that derogation in a way that ensures compliance with the principle of legal certainty.

(32)

Article 5(2), third subparagraph, of Directive (EU) 2022/2464 specifies the dates by which the Member States are to apply the sustainability reporting requirements set out in Directive 2004/109/EC, with different dates depending on the size of the issuer concerned. Considering that only undertakings with a net turnover exceeding EUR 450 000 000 and more than 1 000 employees on average during the financial year, at the group level, as appropriate, are to be subject to sustainability reporting requirements, the criteria for determining the dates of application should be adjusted, and the reference to small and medium-sized undertakings whose securities are admitted to trading on a regulated market in the Union should be removed.

(33)

It is important to ensure legal certainty regarding the reduction in scope of issuers subject to sustainability reporting requirements, especially regarding the personal scope of the relevant provisions at each point in time. Accordingly, Article 5(2), third subparagraph, point (a), of Directive (EU) 2022/2464, which concerns the first set of issuers subject to that Directive, should be amended to limit its application to three financial years from 1 January 2024. For financial years starting on or after 1 January 2027, Article 5(2), third subparagraph, point (b), of Directive (EU) 2022/2464, which concerns the second set of issuers subject to that Directive, should apply. Accordingly, issuers that fall within the scope of Article 5(2), third subparagraph, point (a), of that Directive but outside the scope of point (b) thereof, as amended by this Directive, will fall outside the scope of this Directive as of financial years starting on or after 1 January 2027. Nevertheless, with a view to reducing burden as swiftly as possible, Member States should be able to exempt such issuers from reporting obligations as regards the financial years beginning between 1 January 2025 and 31 December 2026. Member States are required to implement that derogation in a way that ensures compliance with the principle of legal certainty.

(34)

Due to the change in the scope of undertakings subject to sustainability reporting obligations, the provisions on the review and reporting in Directive (EU) 2022/2464 should be adjusted. In order to ensure the Union’s objective of enabling the disclosure of sufficient data on corporate sustainability, the Commission should assess the appropriateness of the new scope of Directive (EU) 2022/2464 as amended by this Directive. It is appropriate for that assessment to be based on, in particular, an analysis of the needs for sustainability data to mobilise private investments towards the objectives of the European Green Deal, on the one hand, and the influence of sustainability reporting on the competitiveness of the Union undertakings, on the other hand. It is also important that the review take into account the best practices developed and the actual level of preparedness of undertakings to provide sustainability disclosures under Directive (EU) 2022/2464. To that end and in light of the principle of proportionality, when considering a possible extension of the scope, it is important that the Commission consider whether to balance that extension with the possibility of establishing a simplified reporting regime.

(35)

Directive (EU) 2024/1760 is not to constitute grounds for reducing the level of protection of certain rights and interests provided by national law or collective agreements applicable at the time of the adoption of that Directive. However, that should not prevent Member States from adjusting national corporate sustainability due diligence laws applicable at the time of the adoption of Directive (EU) 2024/1760, when implementing that Directive, in order to increase or ensure their alignment with it, in particular their scope.

(36)

Directive (EU) 2024/1760 does not aim to provide a comprehensive framework for the protection of human rights or the environment in the context of companies’ operations. Instead, it aims to harmonise national law concerning general due diligence obligations on such companies and liability in that respect, thereby ensuring that companies active in the internal market contribute to sustainable development. Due diligence processes complement, rather than replace, the specific legal obligations that operate to protect, directly or indirectly, human rights or the environment. Those specific legal obligations include those deriving from, amongst many other examples, labour, working time and equality law; law concerning workplace health and safety, including the handling of hazardous materials; construction standards and building zoning law; and law regulating product or food safety. All such legal obligations fall outside the scope of Directive (EU) 2024/1760, unless and insofar as they include general due diligence obligations. To increase legal certainty and to ensure that the necessary regulatory freedom is explicitly preserved, Directive (EU) 2024/1760 should be amended to further clarify the limits of the scope of that Directive.

(37)

Directive (EU) 2024/1760 imposes wide-ranging due diligence obligations on certain companies. Because of that, its scope is limited to particularly large companies. Nevertheless, the report entitled ‘The future of European competitiveness’ identified the due diligence framework as ‘a major source of regulatory burden’, concluding in this respect that there was a ‘need to better consider the size of companies affected by regulation’. Furthermore, Directive (EU) 2024/1760 can best achieve its objectives as regards the very largest companies, which have the greatest influence over their value chains, the greatest impact on human rights and the environment, and the greatest resources to implement due diligence diligently. For all of those reasons, and in line with the crucial objective of simplification, the scope of Directive (EU) 2024/1760 should be reduced. The turnover threshold of EUR 450 000 000 should be raised to EUR 1 500 000 000, and the threshold of 1 000 employees should be raised to 5 000 employees. Accordingly, the thresholds regarding companies that have entered into franchising or licensing agreements should be raised to EUR 75 000 000 with regard to royalties and EUR 275 000 000 with regard to turnover.

(38)

Article 4(1) of Directive (EU) 2024/1760 prohibits Member States from introducing, in their national law, provisions within the field covered by that Directive laying down human rights and environmental due diligence obligations diverging from those laid down in specific provisions of that Directive. To ensure that Member States do not go beyond that Directive and to avoid the creation of a fragmented regulatory landscape resulting in legal uncertainty and unnecessary burden, the full harmonisation provisions of Directive (EU) 2024/1760 should be expanded to include additional provisions regulating the core aspects of the due diligence process. That includes, in particular, the identification duty, the duty to prioritise adverse impacts, the duties to address adverse impacts that have been or should have been identified, the duty to provide for a complaints and notification mechanism, the duty to monitor due diligence measures, and the duty to report on the matters covered by that Directive. At the same time, Member States should continue to be allowed to introduce more stringent provisions on other aspects or provisions on due diligence that are more specific in terms of the objective or the field covered. Such provisions include provisions of national law regulating specific adverse impacts or specific sectors of activity, in order to achieve a different level of protection of human, employment and social rights, the environment or the climate. To increase legal certainty and to ensure the necessary regulatory freedom, in particular as regards emerging specific risks for which due diligence obligations might be important, it should be clarified that such provisions include due diligence obligations concerning specific products, services or situations. Conversely, national rules going beyond a specific objective or field, for instance by regulating the due diligence process in general or regulating due diligence in an entire sector, do not constitute such provisions.

(39)

Article 5 of Directive (EU) 2024/1760 obliges Member States to ensure that large companies above a certain size conduct human rights and environmental due diligence. Article 8 of that Directive requires those companies to take appropriate measures to identify and assess adverse impacts, taking into account relevant risk factors. Companies should be required to conduct a scoping exercise, based solely on reasonably available information, to identify general areas across their own operations, those of their subsidiaries and, where related to their chains of activities, those of their business partners where adverse impacts are most likely to occur. When conducting the scoping exercise, companies are not required to systematically identify adverse impacts at entity level, but rather are required to scope general areas. In the scoping exercise, companies should rely solely on information that is reasonably available to them, which will as a general rule preclude requesting information from business partners. Nevertheless, companies have flexibility in judging what information is reasonably available to them.

(40)

Based on the results of the scoping exercise, companies should be required to carry out an in-depth assessment in the areas where adverse impacts were identified to be most likely to occur and most severe. Companies should not be required to request any information from business partners where no likely and severe risks were identified. The in-depth assessment should be aimed at obtaining accurate and reliable information, in particular about the nature, extent, causes, severity and likelihood of the identified adverse impacts, to enable the company to conduct, where relevant, the prioritisation of identified actual and potential adverse impacts in accordance with Directive (EU) 2024/1760 and adopt appropriate measures to address them in accordance with that Directive. To provide companies with additional flexibility, where a company has identified adverse impacts that are equally likely or equally severe in several areas, that company should be able to prioritise assessing adverse impacts which involve direct business partners. Companies are only required to take appropriate measures to identify adverse impacts. They are thus not required to identify every adverse impact in their operations, those of their subsidiaries, and those of their business partners. In some cases, that could lead to such an impact not being identified and, therefore, not being prevented, mitigated, brought to an end or minimised, despite the company having complied in full with its obligations under Directive (EU) 2024/1760. It follows that companies would not be penalised under that Directive for such an impact.

(41)

To limit the trickle-down effect on other companies, including small and medium-sized undertakings and small mid-cap companies, when it comes to the in-depth assessment of business partners, companies subject to Directive (EU) 2024/1760 should only request information from business partners where that information is necessary. It is important that any request be targeted, reasonable and proportionate. In the case of business partners with fewer than 5 000 employees, companies should request information only where the information cannot reasonably be obtained by other means such as from information they have or other sources.

(42)

Article 8(3) of Directive (EU) 2024/1760 requires Member States to ensure that for the purpose of identifying and assessing the adverse impacts, companies are entitled to make use of appropriate resources, including independent reports and information gathered through the notification mechanism and the complaints procedure provided for in that Directive. To reduce compliance-related burden for companies and the relevant business partners, it should be specified that digital solutions, industry and multi-stakeholder initiatives could also constitute appropriate resources. Therefore, companies should be able to obtain the necessary information through industry and multi-stakeholder initiatives in order to avoid duplicative requests. However, companies also remain free to obtain the information individually.

(43)

As adverse impacts should be prioritised according to their severity and likelihood and addressed gradually, if it is not possible to address at the same time and to the full extent all adverse impacts it has identified, a company should not be penalised under Directive (EU) 2024/1760.

(44)

Companies might find themselves in situations where their production heavily relies on inputs from one or several specific suppliers. In particular, where the business operations of such a supplier are linked to severe adverse impacts, including child labour or significant environmental harm, and the company has unsuccessfully exhausted all due diligence measures to address such impacts, the company, as a last resort should suspend the business relationship while continuing to work with the supplier towards a solution, where possible using any increased leverage resulting from the suspension. The suspension should end once the adverse impact is addressed.

(45)

To reduce burdens on companies and make stakeholder engagement more proportionate, companies should only be required to engage with workers, their representatives, including trade unions, and individuals and communities whose rights or interests are or could be directly affected by the products, services and operations of the company, its subsidiaries and its business partners, and that have a link to the specific stage of the due diligence process being carried out. That includes individuals or communities in the neighbourhood of plants operated by business partners where those individuals or communities are directly affected by pollution, or indigenous people whose right to lands or resources are directly affected by how a business partner acquires, develops or otherwise uses land, forests or waters. Moreover, stakeholder engagement should only be required for certain parts of the due diligence process, namely at the identification stage, for the development of action plans and enhanced action plans and when designing remediation measures.

(46)

To reduce administrative burdens on companies, the Commission should adopt general due diligence guidelines by 26 July 2027. In parallel, the application deadline for Directive (EU) 2024/1760 for all companies should be postponed to 26 July 2029. That two-year interval should provide companies with sufficient time to take into account the practical guidance and best practices included in the Commission’s guidelines when implementing due diligence measures.

(47)

The provisions of Directive (EU) 2024/1760 on the transition plan for climate change have been deemed to be disproportionate, particularly due to the administrative burden on companies and supervisory authorities, and could lead to legal uncertainty. It is necessary to repeal those provisions in order to streamline obligations and support a more targeted and efficient implementation of that Directive.

(48)

Article 27(1) of Directive (EU) 2024/1760 requires Member States to lay down effective, proportionate and dissuasive penalties. Article 27(2) of that Directive requires Member States, when deciding whether to impose penalties and when determining their nature and appropriate level, to take due account of a series of factors that establish the gravity of the infringement and aggravating or mitigating factors. Article 27(4) of that Directive requires Member States, when imposing pecuniary penalties, to base them on the net worldwide turnover of the company concerned. However, that requirement appears unnecessary and could be misinterpreted as requiring pecuniary penalties to be based solely or primarily on the net worldwide turnover. Instead, in accordance with the requirement that penalties be effective, proportionate and dissuasive, supervisory authorities are required to take appropriate account of the net worldwide turnover, or, in the case of companies belonging to a group, the net consolidated worldwide turnover of the ultimate parent company, in conjunction with the series of factors laid down in Article 27(2) of that Directive. Accordingly, the requirement to base pecuniary penalties on the net worldwide turnover should be removed. Conversely, to ensure a level playing field across the Union and in line with the objective of harmonisation, Member States should be required to set a uniform maximum limit of pecuniary penalties of 3 % of the net worldwide turnover. The application of that maximum limit to companies belonging to groups should be clarified. Moreover, to increase the consistency of enforcement practices across the Union, the Commission, in collaboration with the Member States, should develop guidelines to assist supervisory authorities in determining the level of penalties.

(49)

To better achieve the principle of subsidiarity, the specific, Union-wide liability regime currently provided for in Directive (EU) 2024/1760 should be removed. At the same time, as a matter of both international law and Union law, Member States should be required to ensure that victims of adverse impacts have effective access to justice and to guarantee their right to an effective remedy, as enshrined in Article 2(3) of the International Covenant on Civil and Political Rights, Article 8 of the Universal Declaration of Human Rights, Article 9(3) of the Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters (Aarhus Convention) and Article 47 of the Charter of Fundamental Rights of the European Union. Member States should therefore ensure that, where a company is held liable for a failure to comply with the due diligence requirements laid down in Directive (EU) 2024/1760, and that, where such failure caused damage, victims are able to receive full compensation. That compensation should be granted in accordance with the principles of effectiveness and equivalence. In view of the different rules and traditions that exist at national level when it comes to allowing representative actions, the specific requirement in that regard set out in Directive (EU) 2024/1760 should be deleted. Such deletion is without prejudice to any provision of the applicable national law allowing a trade union, a non-governmental human rights or environmental organisation, any other non-governmental organisation or a national human rights institution to bring actions to enforce the rights of the alleged injured party, or to support such actions brought directly by such party. Furthermore, for the same reason, the requirement for Member States to ensure that the liability rules are of overriding mandatory application in cases where the law applicable to claims to that effect is not the national law of the Member State should be deleted. Such deletion does not restrict the possibility for Member States to provide that the provisions of national law transposing Directive (EU) 2024/1760 are overriding mandatory provisions as referred to in Regulation (EC) No 864/2007 of the European Parliament and of the Council (14), in cases where the law applicable to claims to that effect is not the national law of a Member State.

(50)

Article 36(1) of Directive (EU) 2024/1760 requires the Commission, by 26 July 2026, to submit a report to the European Parliament and to the Council on the necessity of laying down additional sustainability due diligence requirements tailored to regulated financial undertakings with respect to the provision of financial services and investment activities, and the options for such due diligence requirements and their impacts. As the deadline for such a review does not leave enough time to take into account the experience with the newly established general due diligence framework, the provisions on review and reporting in Directive (EU) 2024/1760 should be amended.

(51)

The transposition deadline should be postponed by one year and the dates from which Member States are to apply Directive (EU) 2024/1760 should be unified for all companies within the scope of that Directive in order to give companies more time to prepare for the requirements of that Directive. Additionally, several other dates in that Directive should be amended to reflect that one-year postponement, as well as the postponement specified in Directive (EU) 2025/794.

(52)

Since the objectives of this Directive cannot be sufficiently achieved by the Member States but can rather, by reason of the scale or effects of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.

(53)

Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 should therefore be amended accordingly,

(1)

in Article 3, paragraph 4 is replaced by the following:

(2)

in Article 24b(1), the second subparagraph is replaced by the following:

‘Member States shall ensure that, when the assurance of sustainability reporting is carried out by an audit firm, that audit firm designates at least one key sustainability partner who must satisfy at least the conditions imposed by Article 4 and Articles 6 to 12 and must be approved as statutory auditor in the Member State concerned. That key sustainability partner may be (one of) the key audit partner(s). The audit firm shall provide the key sustainability partner(s) with sufficient resources and with personnel that have the necessary competence and capabilities to carry out his, her or its duties appropriately.’

(3)

in Article 26a, paragraph 3 is replaced by the following:

(4)

Article 45 is amended as follows:

(5)

in Article 48a(2), the second subparagraph is replaced by the following:

‘The power to adopt delegated acts referred to in Article 26a(3) shall be conferred on the Commission for an indeterminate period of time.’.

(1)

Article 1 is amended as follows:

(2)

in Article 3, paragraph 13 is replaced by the following:

(3)

in Article 19(1), the fourth subparagraph is replaced by the following:

‘Undertakings which, on their balance sheet dates, exceed a net turnover of EUR 450 000 000 and an average number of 1 000 employees during the financial year shall report information on the key intangible resources and explain how the business model of the undertaking fundamentally depends on such resources and how such resources are a source of value creation for the undertaking.’

(4)

Article 19a is amended as follows:

(5)

Article 29a is amended as follows:

(6)

Article 29b is amended as follows:

(7)

Article 29c is deleted;

(8)

the following article is inserted:

(*4)  Commission Recommendation (EU) 2025/1710 of 30 July 2025 on a voluntary sustainability reporting standard for small and medium-sized undertakings (OJ L, 2025/1710, 5.8.2025, ELI: http://data.europa.eu/eli/reco/2025/1710/oj).’;"

(9)

Article 29d is replaced by the following:

(*5)  Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (OJ L 143, 29.5.2019, p. 1, ELI: http://data.europa.eu/eli/reg_del/2019/815/oj).’;"

(10)

the following chapter is inserted:

(11)

in Article 33, paragraph 1 is replaced by the following:

(12)

Article 34 is amended as follows:

(13)

in Article 40a, paragraph 1 is amended as follows:

(14)

Article 49 is amended as follows:

(1)

in Article 5, paragraph 2 is amended as follows:

(2)

in Article 6, paragraph 1 is amended as follows:

(1)

Article 1 is amended as follows:

(2)

Article 2 is amended as follows:

(3)

Article 3(1) is amended as follows:

(4)

Article 4 is replaced by the following:

(5)

Article 6 is amended as follows:

(6)

Article 8 is amended as follows:

(7)

in Article 9, the following paragraph is added:

(8)

in Article 10, paragraph 6 is replaced by the following:

(9)

in Article 11, paragraph 7 is replaced by the following:

(10)

in Article 13, paragraph 3 is amended as follows:

(11)

Article 15 is replaced by the following:

(12)

in Article 16, paragraph 3 is replaced by the following:

‘By 31 March 2029, the Commission shall adopt delegated acts in accordance with Article 34 in order to supplement this Directive by laying down the content and criteria for the reporting under paragraph 1, specifying, in particular, sufficiently detailed information on the description of due diligence, actual and potential adverse impacts identified, and appropriate measures taken with respect to those impacts. In preparing those delegated acts, the Commission shall take due account of, and align them as appropriate with, the sustainability reporting standards adopted pursuant to Articles 29b and 40b of Directive 2013/34/EU.

When adopting the delegated acts referred to in the first subparagraph, the Commission shall ensure that there is no duplication in reporting requirements for companies referred to in Article 3(1), point (a)(iii), that are subject to reporting requirements under Article 4 of Regulation (EU) 2019/2088, while maintaining in full the minimum obligations stipulated in this Directive.’

(13)

Article 17 is amended as follows:

(14)

Article 18 is replaced by the following:

(15)

Article 19 is amended as follows:

(16)

Article 22 is deleted;

(17)

Article 24 is amended as follows:

(18)

in Article 25, paragraph 1 is replaced by the following:

(19)

in Article 27, paragraph 4 is replaced by the following:

(20)

Article 29 is amended as follows:

(21)

Article 36 is amended as follows:

(22)

in Article 37, paragraph 1 is replaced by the following: