90% of Former CSRD Reporters Now Exempt Under New €450M Turnover Threshold
The Omnibus I Directive (Amendment Directive EU 2026/470), published in the Official Journal of the European Union on 26 February 2026 and entering into force on 18 March 2026, represents the most consequential recalibration of EU sustainability regulation since the CSRD’s inception. The Directive raises the CSRD reporting threshold for EU-based companies to a dual condition: net turnover exceeding €450 million and more than 1,000 employees — both conditions must be met simultaneously. This replaces the original CSRD scope, which applied to companies meeting either 250+ employees or €40 million in net turnover using a broad “or” logic. The result: approximately 90% of entities previously subject to mandatory reporting now fall outside the scope, according to Arthur Cox’s authoritative analysis published on 4 March 2026.
This structural narrowing is designed to concentrate regulatory burden on large, systemically significant enterprises, effectively decoupling sustainability disclosure obligations from mid-market and SME-tier firms that form the operational backbone of European supply chains. For procurement teams at multinationals, the practical impact is significant: fewer Tier-1 suppliers will demand ESG questionnaires, fewer audits will trigger sustainability clause reviews, and fewer contracts will require embedded carbon accounting clauses tied to CSRD compliance. Arthur Cox confirms this is “not a marginal adjustment” but a material evolution of the EU’s sustainability landscape aimed at reducing administrative burdens while maintaining core objectives of transparency and double materiality.
Non-EU Companies Face New Dual Test: €450M EU Turnover Plus €200M Subsidiary Threshold
For multinational enterprises headquartered outside the EU — including those in China, the United States, and Southeast Asia — the Omnibus I Directive introduces a layered, jurisdictionally precise scope test. Non-EU parent companies now fall within CSRD scope only if they meet two cumulative conditions: their aggregate EU net turnover exceeds €450 million, and at least one EU-established subsidiary or branch generates €200 million or more in EU net turnover. This departs significantly from the original CSRD’s extraterritorial reach, which captured non-EU parents with €150 million EU turnover regardless of subsidiary structure. The new €200 million subsidiary threshold acts as a substantive filter, shielding global conglomerates whose EU operations are distributed across numerous smaller entities each below the €200M line.
For supply chain practitioners managing cross-border manufacturing networks, this threshold has immediate practical implications. A Chinese electronics group with a single integrated German subsidiary generating €210 million in EU turnover triggers full CSRD reporting obligations — including value chain disclosures — while an equivalent group with three subsidiaries averaging €130 million each remains entirely outside scope, even if aggregate EU exposure is higher. This structural nuance demands precise legal mapping of subsidiary turnover flows before confirming compliance obligations. Arthur Cox emphasises that the Directive preserves the requirement for non-EU reporters to appoint an EU-based legal representative, ensuring enforceability. However, with the substantive threshold raised substantially, the practical incidence of that appointment requirement drops significantly for most global supply chain participants.
“The Omnibus amendments went much further in cutting sustainability reporting and due diligence obligations than the package initially proposed by the European Commission in early 2025.” — Arthur Cox, 4 March 2026
It is important to note that for Chinese enterprises with substantial EU operations, the Omnibus I amendments do not signal a complete exemption. Those whose EU subsidiaries cross the €200 million threshold remain in scope and should actively monitor Member State transposition progress — Member States must complete CSRD-related transposition by 19 March 2027. Compliance officers at major global trading groups should conduct immediate threshold mapping to determine exposure under both the entity-level and consolidated-group tests, particularly given the interaction between CSRD scope and the separately running Carbon Border Adjustment Mechanism (CBAM) obligations.
Wave 1 Relief, Wave 2 Continuity: Bifurcated Reporting Timelines Through 2028
The Omnibus I Directive delivers asymmetric treatment across CSRD implementation waves. “Wave 1” companies — originally scheduled to report for financial years beginning on or after 1 January 2024 — that no longer meet the revised thresholds are potentially exempt from FY2025 and FY2026 reporting obligations, subject to national transposition. Member States retain discretion in implementation, meaning some jurisdictions may allow retroactive de-registration while others may require formal notification. In contrast, “Wave 2” companies still within scope must deliver their first CSRD report in 2028 for financial years beginning on or after 1 January 2027, locking them into a fixed, non-deferrable timeline.
From a supply chain systems perspective, this divergence demands careful GRC (governance, risk, compliance) platform management. Procurement departments must maintain parallel tracking: Wave 1 entities decommissioning CSRD workflows, and Wave 2 entities accelerating integration of ESRS-aligned data collection modules. The 2028 Wave 2 deadline also interacts with assurance requirements: limited assurance remains mandatory, and auditors face surging demand from newly scoped-in firms as the window shortens. For Tier-1 suppliers preparing for downstream due diligence requests, the split timeline creates inconsistent ESG data availability across peer groups, complicating benchmarking and collaborative target-setting exercises.
Value Chain Caps and ESRS Simplification: Containing Disclosure Burden Downstream
A defining feature of Omnibus I is its explicit limitation on information that reporting companies may request from supply chain partners. The Directive now caps the data requests reporting companies can make to undertakings with fewer than 1,000 employees in their value chain. This statutory cap directly addresses long-standing industry complaints about disproportionate data demands on small suppliers that lack dedicated ESG staff or digital reporting infrastructure. Under the prior framework, a large OEM could lawfully require a small Tier-3 component supplier with only 87 employees to disclose Scope 1–3 emissions, human rights due diligence findings, and biodiversity assessments. The new restriction forces large companies to adopt proportionate, risk-based approaches — focusing data requests on high-impact tiers (such as raw material processors) while exempting small-employee-count partners from exhaustive reporting mandates.
Complementing this operational restraint is the removal of sector-specific European Sustainability Reporting Standards (ESRS), with the European Commission now mandated to adopt revised, streamlined ESRS by 18 September 2026 — exactly six months after Omnibus I enters into force. The European Financial Reporting Advisory Group (EFRAG) released its draft simplified ESRS on 3 December 2025, and the Commission is currently preparing the corresponding Delegated Act. The elimination of sector-specific standards simplifies cross-industry comparability but shifts the analytical burden: a single generalised ESRS framework now governs both semiconductor fabs and logistics operators, requiring firms to develop their own sector-contextualised materiality assessments rather than following prescriptive sector checklists. The revised ESRS is expected to apply starting with the FY2027 reporting period.
On the assurance side, the Directive retains third-party verification but keeps it at limited assurance only, with no progression to the more rigorous reasonable assurance standard originally planned. This decision lowers barriers to entry for third-party verifiers and reduces compliance costs, while maintaining a foundational layer of data credibility. For supply chain buyers evaluating supplier ESG data quality, this means calibrating expectations accordingly: limited assurance confirms no material misstatement was identified, but does not provide the positive confirmation of accuracy associated with reasonable assurance. Updating supplier contract annexes to reflect this distinction is recommended before the 2028 reporting cycle begins.
CSDDD: €1.5B Threshold, Climate Plan Scrapped, EU Liability Regime Dismantled
The Corporate Sustainability Due Diligence Directive (CSDDD) undergoes even more pronounced scaling back under Omnibus I. Its scope threshold for EU companies rises to net turnover exceeding €1.5 billion and more than 5,000 employees. For non-EU companies, the test is €1.5 billion in EU net turnover on a standalone or consolidated basis. This narrows CSDDD applicability dramatically compared to the original proposal, which covered companies with 500+ employees or €150 million turnover. The practical effect is that full-scale global supply chain human rights and environmental due diligence obligations will apply only to the largest corporations operating in European markets.
Equally significant is the removal of the mandatory climate transition plan requirement. Under the original CSDDD, in-scope companies were required to adopt and put into effect time-bound climate change mitigation transition plans aligned with the Paris Agreement. Omnibus I eliminates this as a binding obligation, although voluntary adoption remains incentivised through green financing and investor expectations. The Directive also removes the EU-harmonised civil liability regime: liability determinations now revert to national Member State law, preserving jurisdictional diversity in tort frameworks, burden-of-proof standards, and limitation periods. For supply chain legal teams, this transformation demands jurisdiction-specific compliance protocols — France’s 2017 Duty of Vigilance Law, for example, continues to apply independently of the CSDDD changes, creating a multi-layered risk environment.
Transposition deadlines reflect this complexity. Member States must enact CSDDD provisions by 26 July 2028, with compliance obligations commencing in July 2029. This timeline provides critical preparation space for legal departments to map jurisdictional variations and update contractual indemnities — particularly in procurement agreements governing raw material sourcing from high-risk geographies. Companies currently investing in supply chain due diligence platforms should maintain momentum: even with the EU threshold raised, voluntary frameworks and investor ESG requirements continue to demand robust supply chain transparency capabilities.
Strategic Roadmap: CBAM Interaction, ESG Financing, and 2026–2029 Key Milestones
Omnibus I does not insulate firms from all EU sustainability cost mechanisms. While CSRD reporting is narrowed, the Carbon Border Adjustment Mechanism (CBAM), which entered full implementation in January 2026, remains in force for importers of iron, steel, cement, aluminium, fertilisers, electricity, and hydrogen — regardless of company size. This creates a parallel, product-level compliance track that operates independently of the entity-level CSRD threshold. A company with €300 million in turnover may no longer file CSRD reports, yet still faces mandatory CBAM declarations for each shipment of covered goods entering the EU. Integrated carbon accounting platforms capable of feeding data into both CBAM registries and (where applicable) CSRD reports are therefore increasingly valuable as cross-functional compliance infrastructure.
- 18 March 2026: Omnibus I Directive enters into force
- 18 September 2026: Commission deadline to adopt revised ESRS Delegated Act
- 19 March 2027: Member States’ deadline to transpose CSRD-related Omnibus I provisions
- 2028: Wave 2 in-scope companies file first CSRD report (covering FY2027)
- 26 July 2028: Member States’ deadline to transpose CSDDD-related provisions
- July 2029: In-scope companies begin mandatory CSDDD compliance
On financing, ESG ratings and sustainability-linked lending remain influential even for companies outside the CSRD threshold. Institutional lenders increasingly integrate CDP Supply Chain Program data and SASB-aligned metrics into bond covenants and credit facilities regardless of regulatory scope. For Chinese and Asian manufacturers active in European supply chains, the Omnibus I recalibration represents a strategic window: exempt from mandatory CSRD filing, but still exposed to customer-driven ESG requirements and CBAM carbon pricing. The recommended approach is a three-track response — confirm threshold status, map CBAM product exposure, and assess whether major EU buyers will impose simplified ESG templates on sub-1,000-employee suppliers under the new value chain cap rules. Arthur Cox summarises the outlook clearly: the next six to twelve months, as Member States transpose and revised ESRS standards are adopted, will be critical for planning and compliance readiness across the global supply chain ecosystem.
This AI-assisted article was generated with AI support and reviewed by the SCI.AI editorial team before publication.
Source: arthurcox.com
