Two EU regulations are beginning to have direct implications for Japanese companies through 2025–2026: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Both are often viewed as measures targeting large European corporations, but through contractual and disclosure requirements imposed on Japanese suppliers and business partners, the chain of obligations extends indirectly to mid-sized companies and SMEs.
CSRD and CSDDD — Core Regulatory Framework
The CSRD requires large EU-based companies and certain non-EU companies to disclose environmental, social, and governance (ESG) information under the European Sustainability Reporting Standards (ESRS). Sustainability information must be disclosed with the same rigor as financial reporting, and third-party assurance must be obtained.
The CSDDD requires companies to identify, prevent, mitigate, and account for adverse human rights and environmental impacts across their own operations, subsidiaries, and value chains. The 2025 Omnibus I amendment revised the applicability criteria: only large EU companies with more than 5,000 employees and net turnover exceeding €1.5 billion are directly subject to the directive. Directors are also subject to individual obligations to integrate due diligence into corporate strategy.
Understanding the "Indirect Impact" on Japanese Companies
While direct CSDDD applicability targets EU large companies, its effects reach across the entire supply chain through business relationships. Large EU trading partners may request information from business partners with fewer than 5,000 employees. Under CSRD, the scope of data collection from SME suppliers is limited to the VSME (voluntary SME) standard, but in practice, questionnaire and audit requests from CSRD-compliant companies are increasing.
Integration into Procurement Criteria
EU automotive and machinery manufacturers are adding proof of human rights due diligence compliance to supplier selection criteria; companies that have not addressed this face the risk of disqualification from bidding. This trend is expected to accelerate after 2026.
Changes in Contract Terms
CSDDD compliance clauses are increasingly being added to master agreements, incorporating rights to price adjustment and contract termination for violations. Companies risk being required to respond rapidly at the time of contract renewal.
Cascading Disclosure Requirements
Because Japanese companies' emissions and labor condition data are incorporated into EU companies' sustainability reports, providing Scope 3 data and facility-level energy consumption figures is becoming a condition for continuing business relationships.
How the Omnibus I Amendment Changed the Implementation Timeline
The Omnibus I amendment significantly revised the CSDDD implementation schedule, which had originally called for phased expansion between 2024 and 2026. At present, only very large companies exceeding 5,000 employees and €1.5 billion in turnover are directly subject, and the timeline for extending coverage to mid-sized companies is under review. However, the intent of the amendment was to limit direct burdens on SMEs — it did not alter the structure through which contractual obligations flow down from large companies. Interpreting this as a "relaxation of regulations" is dangerous; the transfer of obligations continues at the operational level.
Practical Response Steps for Japanese Companies
Companies currently implementing compliance with the LkSG (German Supply Chain Act) can use that framework as a starting point for CSDDD compliance.
Value Chain Risk Mapping
Document human rights and environmental risks extending beyond Tier 1 suppliers to Tier 2 and Tier 3 procurement sources. Use region, industry, and contract type as filtering criteria to identify high-risk areas.
Policy Updates
Align human rights and environmental policies with CSDDD requirements and obtain board approval. Policies must explicitly state coverage of the entire value chain.
Establishing a Grievance Mechanism
Set up an internal channel through which workers and local residents can submit complaints, and simultaneously establish processes for investigation, remediation, and record-keeping. Both CSDDD and the LkSG require disclosure of this mechanism.
Data Integration with Suppliers
Develop ESG data collection systems covering Scope 3 emissions and labor practices to build the capacity to respond promptly to requests from EU customers. Organizing information in ESRS-compliant formats reduces the effort required for responses.
On disclosure and reporting: CSDDD requires companies to publish the status of due diligence implementation on their website or in annual reports. Even when Japanese companies are not directly obligated, they are increasingly being asked by EU business partners to provide equivalent levels of disclosure.
Connecting with SSBJ — Responding to Domestic Disclosure Obligations
In Japan, the Sustainability Standards Board of Japan (SSBJ) published climate-related disclosure standards in March 2025, with application to Prime-listed companies scheduled from the fiscal year ending March 2027. As detailed GHG emissions disclosure is required, precise calculation of Scope 3 — in addition to Scope 1 and 2 — becomes essential for domestic disclosures as well. Building a unified data infrastructure that covers both EU regulatory compliance and domestic SSBJ compliance can substantially reduce duplicated effort.
Conclusion
Although the Omnibus I amendment narrowed the scope of direct applicability, the chain of obligations flowing through the supply chain remains unchanged. Companies with existing LkSG compliance experience can prepare for CSDDD with two additional steps: expanding value chain scope and extending coverage to environmental risks. Designing a unified data infrastructure that integrates SSBJ compliance from the outset will determine competitive positioning in procurement and contract negotiations in 2026–2027.