On 24 February 2026, the European Union (“EU”) adopted Directive (EU) 2026/470 (the “Directive”), amending, inter alia, Directive 2006/43/EC, Directive 2013/34/EU, Directive (EU) 2022/2464 and Directive (EU) 2024/1760, with a view to strengthening corporate sustainability reporting and due diligence requirements. It introduces mandatory human rights and environmental due diligence obligations for large companies operating in or with the EU.
With the entry into force of the Directive, companies should now assess whether their existing sustainability reporting or due diligence readiness plans remain necessary under the revised thresholds.
Impact for investment funds
Although the Directive does not directly apply to fund vehicles as such, its personal scope is of relevance to the asset management industry. The definition of “company” expressly includes regulated financial companies, including alternative investment fund managers ("AIFMs"), managers of EuVECA, EuSEF and ELTIF, as well as UCITS management companies.
Amendments to the Corporate Sustainability Due Diligence Directive (CSDDD)
Introduction of a new scope
The scope of the CSDDD has also been narrowed, with the thresholds now set at more than 5,000 employees and a net turnover exceeding EUR 1.5 billion for EU-companies and to non-EU companies to an identical threshold of more than EUR 1,5 billion net turnover generated in the Union.
What are the major changes?
Streamlining information requests
The Directive limits the type and volume of information companies may request from their business partners. Indeed, requests shall now assess what is strictly necessary to carry out due diligence obligations.
To that end, where an entity has fewer than 5,000 employees, information can only be sought if it cannot reasonably be obtained through alternative sources. This aims to reduce the administrative burden on smaller entities while maintaining the integrity of the due diligence process.
These changes significantly reduce both the breadth and frequency of information requests directed at business partners.
Risk-based and proportionate due diligence approach
The Directive shifts the due diligence framework on a risk-based approach. Companies must identify and prioritise adverse human rights and environmental impacts across their chain of activities, paying particular attention to high-risk areas, direct business partners, and information that can reasonably be obtained. This ensures that due diligence efforts are targeted where they are most relevant and effective, rather than applying the same level of scrutiny regardless of the level of risk.
Redefining the scope of mandatory stakeholder consultation
Companies are no longer required to consult widely or at many different points in the process. They have now fewer people to consult and fewer moments when consultation is mandatory.
Instead, they must:
i. Only consult a limited group of people
employees and their representatives (e.g. unions or worker committees), and
people or communities directly affected by the company’s activities at a specific point in the supply chain or project.
ii. Only consult at specific stages of due diligence
Companies must involve those stakeholders only when they are:
identifying problems or risks (adverse impacts),
planning how to address those problems (action plans), and
deciding how to fix harm that has already occurred (remediation).
New monitoring frequency
The Directive modifies how often companies must assess the effectiveness of their due diligence measures. Instead of more frequent reviews, assessments are now required:
at least once every five years; and
without undue delay when a significant change occurs.
Removal of the obligation to develop a Climate Transition Plan
The Directive has removed the original CSDDD framework obligation that included a specific duty requiring companies to develop and implement a climate transition plan. This plan was intended to ensure that a company’s business model and strategy aligned with the sustainable economy and the objective of limiting global warming to 1.5°C.
Revision of the financial penalties
Key changes include:
removing the requirement that fines be calculated based on global net turnover;
replacing the previous minimum threshold of 5% with a maximum cap of 3%; and
mandating the European Commission to issue guidance to ensure more consistent application across Member States.
Deletion of the financial services review clause
The review clause in the original CSDDD, which had left open the possibility of extending due diligence rules to the financial services and investment sectors, has been removed. This makes clear that, under the amended framework, the rules will not be expanded to include financial intermediation or portfolio investment activities.
Timeline
The Directive delays the implementation schedule. Member States are now required to complete transposition by 26 July 2027, while companies within scope must apply the rules from 26 July 2029. In addition, reporting obligations under Article 16 will only become applicable for financial years beginning on or after 1 January 2030.
For more information you can also read our previous publications on the topic.
ESG - Omnibus Package I CSRD & Taxonomy changes | BSP
ESG - Omnibus Package | Changes to the Corporate Sustainability Due Diligence Directive | BSP
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