AUSTRIA Trends and Developments Contributed by: Horst Ebhardt, Philipp Kapl, Hartwig Kienast and Matija Bernat, Kinstellar
the narrowing scope, investor and market-driven ESG expectations are likely to remain robust. PE investors should therefore continue to treat sustainability report - ing and climate-related risk disclosures as a core ele - ment of due diligence, particularly for exit readiness and financing purposes. As part of its broader “competitiveness agenda”, the European Commission has proposed substantial revisions to the CSDDD, aiming to simplify corporate obligations and reduce compliance costs. These pro - posed changes, introduced within the EU’s “Omnibus Directive” package, include the following. • Narrowed scope of due diligence obligations: com - panies would only be required to assess adverse human rights and environmental impacts within their own operations, subsidiaries and direct busi - ness partners, excluding indirect suppliers unless there are clear risk indicators. • Reduced data collection from SMEs: companies would no longer be allowed to demand ESG data from direct business partners with fewer than 500 employees beyond what is required under the CSRD VSME standard. This significantly reduces the reporting burden on smaller entities within PE portfolios. • Elimination of mandatory contract terminations: the original requirement to terminate business relation - ships in the event of serious violations would be scrapped. Companies may instead temporarily suspend contracts and work with suppliers on cor - rective measures, mitigating disruption in critical supply chains. • Stakeholder engagement requirements cut back: the directive would limit stakeholder engagement to directly affected individuals and their representa - tives, reducing procedural complexity and legal exposure in transactional due diligence.
• Reduced monitoring frequency: companies would need to conduct internal effectiveness reviews of their due diligence only every five years, rather than annually, unless there is a concrete trigger event. • Weaker climate plan requirements: while compa - nies must still develop climate transition plans with targets and measures, the actual implementation of those measures would no longer be mandatory, removing a key liability risk. • Less stringent sanctions and liability: the EU would drop the mandatory minimum fine of 5% of global turnover. EU member states would have greater discretion on penalties and could choose not to impose civil liability for non-compliance, providing legal certainty for PE investors during acquisitions. • More harmonised but focused implementation: while giving EU member states more flexibility in enforcement, the EU seeks greater harmonisation in core areas such as group-wide due diligence, stakeholder complaints and impact identification, ensuring consistency across jurisdictions. For PE investors and their portfolio companies, these revisions provide regulatory relief and longer lead times, particularly in complex cross-border invest - ment structures. The shift to a direct supplier focus, the relaxation of liability, and limited ESG data obliga - tions for SMEs reduce transactional and post-acqui - sition compliance burdens. However, ESG remains a key diligence item, especially in sectors with elevated environmental or social risk profiles. Portfolio companies should continue to build robust governance and risk frameworks, as evolving EU expectations may tighten further in future revi - sions.
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