European sustainability reporting is entering a more focused phase. The reporting landscape still requires companies to understand their material environmental, social, and governance impacts, risks, and opportunities. The operating model for collecting value-chain information is becoming more proportionate.
The EU sustainability reporting value chain cap is one of the most important changes introduced through the Omnibus I simplification package. It limits the sustainability information that companies subject to the Corporate Sustainability Reporting Directive can require from value-chain partners with 1,000 employees or fewer.
This change matters for large reporting companies, smaller suppliers, non-EU exporters, procurement teams, sustainability professionals, and businesses that receive increasingly detailed ESG questionnaires from customers, banks, and commercial partners.
The new rules reduce excessive information requests. They do not remove the need for credible sustainability data. Companies should now focus on collecting information that is relevant, proportionate, decision-useful, and connected with material business risks.
Key Takeaways
The European Union introduced the Omnibus I simplification package to reduce complexity, administrative burden, and the indirect reporting pressure placed on smaller businesses.
On 24 February 2026, the Council of the European Union gave its final approval to legislation simplifying the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.
The updated CSRD scope is narrower than the original framework.
Area | Updated Position |
EU companies within mandatory CSRD scope | Companies with more than 1,000 employees and more than €450 million in net annual turnover |
Third-country parent undertakings | Companies with more than €450 million in EU net turnover |
Relevant EU subsidiary or branch threshold for third-country undertakings | More than €200 million in generated turnover |
Wave-one transition relief | Certain companies that reported for financial year 2024 but fall outside the revised scope receive an exemption for 2025 and 2026 |
Smaller value-chain partners | Protected through the new value chain cap where they have 1,000 employees or fewer |
The Council of the European Union explained that the package aims to reduce unnecessary barriers, improve efficiency, and limit the trickle-down effect on smaller companies.
This is a significant recalibration of the EU sustainability-reporting framework. Companies should assess how the revised thresholds affect their reporting obligations, customer requests, supplier-data systems, and ESG readiness plans.
Companies subject to the CSRD must report material sustainability risks, impacts, and opportunities, including relevant issues arising across their value chains.
This can require information from suppliers, service providers, contractors, and other business partners. Before the Omnibus I changes, smaller companies frequently received extensive ESG questionnaires because larger businesses needed information for reporting, risk management, financing, or customer requirements.
The European Commission describes this indirect pressure as the trickle-down effect.
The EU sustainability reporting value chain cap limits this pressure. A company subject to the CSRD cannot require a value-chain partner with 1,000 employees or fewer to provide more sustainability information than the voluntary reporting standard permits.
The European Commission’s May 2026 explanatory guidance makes the position clear:
This distinction is essential. The value chain cap creates proportionality. It does not remove sustainability information from commercial decision-making.
The original CSRD framework created practical challenges for smaller companies outside mandatory reporting scope.
A business with a limited sustainability team could receive multiple questionnaires from customers, lenders, investors, and commercial partners. Each request could use a different format, terminology, reporting boundary, and level of detail.
The burden increased where businesses had to respond to:
The issue was especially relevant for smaller suppliers serving several large companies.
The revised framework introduces a standardised boundary for CSRD-related requests. This should help reduce duplication and encourage a more consistent approach.
The European Commission stated that the draft voluntary standard is intended to support companies outside mandatory CSRD scope while protecting smaller value-chain partners from excessive requests.
The value chain cap depends on a voluntary reporting standard for companies outside mandatory CSRD scope.
The European Commission published its original VSME recommendation in July 2025. The VSME was developed by EFRAG as a simplified reporting tool for small and medium-sized undertakings.
In May 2026, the Commission published a draft voluntary standard that builds on the VSME approach. The draft is designed to support smaller businesses and define the maximum information that CSRD-reporting companies can require from protected value-chain partners.
The draft standard contains two modules:
Module | Purpose |
Basic Module | Designed as an accessible starting point, including for micro-undertakings |
Comprehensive Module | Builds on the Basic Module and provides additional information for companies with greater reporting needs |
The draft also categorises disclosures as:
Disclosure Category | Meaning |
Necessary | Information a company applying the standard is expected to report |
Necessary if applicable | Information required when relevant conditions apply |
Voluntary | Information a company may provide at its discretion |
Consideration when reporting sector information | Additional information that may be important for a specific sector |
The European Commission’s explanatory guidance states that only disclosures marked as necessary fall within the value chain cap.
This means that CSRD companies cannot require smaller suppliers to provide every possible disclosure contained in the voluntary standard. They should request information that is genuinely needed for their reporting obligations.
The European Commission also published draft revised European Sustainability Reporting Standards in May 2026. The revised ESRS aim to improve usability and reduce excessive complexity.
According to the European Commission, the draft revised standards:
These changes are important for companies that remain within mandatory CSRD scope. They also matter for value-chain partners because simplified reporting requirements should influence the type and volume of supplier information requests.
The revised framework still requires disciplined reporting. A smaller number of datapoints does not reduce the importance of data quality, governance, traceability, and materiality.
Materiality remains central to sustainability reporting.
Companies should identify which environmental, social, and governance matters are relevant to their impacts, risks, opportunities, strategy, and financial performance. This means supplier information should be requested where it supports a clear reporting need.
A procurement team should be able to explain:
The purpose of simplification is to create a more targeted system. Large companies should avoid sending standardised questionnaires that collect information without a clear reporting purpose.
Companies that remain within mandatory CSRD scope need to revise their supplier-data strategies.
The new framework requires proportionality, transparency, and better coordination between sustainability, finance, legal, procurement, risk, and supply-chain teams.
Step 1: Review Supplier Questionnaires
Existing ESG questionnaires should be assessed against the new value chain cap.
Questions should be divided into three categories:
Category | Action |
Within the value chain cap | Retain where relevant and necessary |
Beyond the value chain cap but commercially useful | Clearly label as additional and inform suppliers of their right to decline where required |
Not clearly linked with reporting or risk management | Remove or reconsider |
This exercise can reduce unnecessary supplier burden and improve data quality.
Step 2: Identify Protected Suppliers
Companies should determine which suppliers and value-chain partners have 1,000 employees or fewer. The supplier master data should record:
This creates a more defensible and auditable information-request process.
Step 3: Define Material Data Needs
Sustainability teams should identify the minimum information needed for CSRD reporting.
Examples may include:
The appropriate level of detail depends on the company’s material topics and reporting boundary.
Step 4: Update Procurement Policies
Procurement documents should explain how sustainability information will be requested and used.
Supplier onboarding forms, tender requirements, contractual clauses, codes of conduct, and periodic review processes should align with the revised framework.
Step 5: Train Commercial Teams
Procurement managers, supplier-relationship teams, legal teams, and sustainability professionals should understand the cap.
Training should cover:
Step 6: Maintain an Evidence Trail
Companies should document the purpose of sustainability data requests. A clear audit trail can explain:
This improves governance and reduces the risk of excessive or inconsistent requests.
The value chain cap provides protection, but smaller businesses should still prepare a practical sustainability data pack. A company may receive ESG requests from:
Some requests may be linked with CSRD reporting. Others may relate to financing, procurement, due diligence, contractual requirements, risk management, or market access.
A smaller supplier should build a proportionate reporting system that can answer recurring questions efficiently.
Step 1: Establish a Basic ESG Data File
A practical data file can include:
Area | Example Information |
Company profile | Employees, sites, activities, and major markets |
Energy | Electricity and fuel consumption |
Emissions | Available Scope 1 and Scope 2 emissions data |
Water | Water consumption and relevant exposure |
Waste | Waste volumes, disposal routes, and recycling data |
Workforce | Employees, health-and-safety indicators, training, and diversity information |
Policies | Environmental, health-and-safety, labour, ethics, and supplier policies |
Certifications | ISO certifications, environmental accreditations, and sector-specific evidence |
Governance | Management responsibility for sustainability and compliance |
Targets | Practical improvement goals and planned actions |
This can reduce response time when customers request sustainability information.
Step 2: Distinguish Mandatory and Additional Requests
Suppliers should review incoming questionnaires carefully.
For each request, the business should ask:
A structured review process helps management make informed decisions.
Step 3: Use the Voluntary Standard as a Practical Starting Point
The voluntary reporting standard can help suppliers organise their sustainability information.
The standard provides a common language that can reduce duplication. It can also improve responses to banks, customers, investors, and procurement teams.
Step 4: Avoid Unsupported Claims
Smaller businesses should provide accurate information and disclose limitations.
A company should avoid presenting broad sustainability claims without evidence. Data should be supported by records, invoices, internal systems, calculations, or recognised methodologies.
The revised EU framework is relevant beyond Europe.
Many UAE and GCC businesses export goods, provide services, operate within global supply chains, supply multinational groups, or engage with banks and investors that use EU-aligned sustainability frameworks.
A UAE-based company may fall outside direct CSRD scope while still receiving ESG information requests from European customers.
This can affect sectors such as:
The value chain cap gives smaller businesses greater protection from excessive CSRD-related requests. It also encourages companies to organise their ESG information in a more structured format.
For GCC businesses, this creates a practical opportunity. A supplier with a clear sustainability data pack can respond efficiently, improve customer confidence, and strengthen its position in international procurement processes.
The value chain cap limits the sustainability information that companies subject to CSRD reporting can require from value-chain partners with 1,000 employees or fewer. The maximum required information is defined through the voluntary reporting standard.
No. The cap applies in the context of information requests for CSRD sustainability reporting. Requests connected with other regulatory, contractual, financing, due-diligence, or procurement purposes may still apply.
Where a CSRD-reporting company requests information beyond the value chain cap for CSRD reporting purposes, the supplier has a statutory right to decline the additional request.
No. The VSME recommendation and the future voluntary reporting standard are intended to support companies outside mandatory CSRD scope. Their use is voluntary.
The European Commission stated that the draft revised ESRS reduce mandatory datapoints by more than 60% and total datapoints by more than 70%.
Yes. Companies outside the EU may still supply European groups, operate within international value chains, or receive ESG requests from customers, banks, and investors. A proportionate sustainability data system can improve readiness.
The revised EU framework changes the way companies should think about sustainability data collection.
Large reporting companies need more targeted supplier-information systems. Smaller businesses need proportionate ESG data packs. Procurement teams need clearer request protocols. Sustainability teams need stronger materiality filters.
The next phase of sustainability reporting will reward organisations that collect useful information, maintain credible evidence, and understand which requests are genuinely necessary.
IFRSLAB supports companies in translating sustainability-reporting requirements into practical business systems. A structured approach can help your organisation reduce unnecessary reporting pressure, improve supplier engagement, and strengthen the quality of sustainability information.
Connect with IFRSLAB to assess your ESG data systems and prepare for the revised EU sustainability-reporting landscape.
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