The 'S' in ESG After Omnibus: Human Rights and Living Wage Disclosure Expectations in 2026

Brussels cut roughly 70 per cent of the companies out of its corporate human rights due diligence law this year.

In the same year, 53 investors managing more than 8 trillion euros wrote to the world's largest companies about living wages, citing research that fewer than 5 per cent of the 2,000 most influential companies commit to paying one to their own direct employees. Three per cent report acting on it in their supply chains.

The rulebook shrank. The scrutiny did not. Anyone treating Omnibus as permission to stand down on social performance has read only half the file.

What Actually Survived CSDDD

Directive (EU) 2026/470 was published in the Official Journal on 26 February 2026 and entered into force on 18 March. Transposition runs to 26 July 2028, with application for all in-scope companies from 26 July 2029.

Scope is where the cut landed. EU companies now need more than 5,000 employees and over 1.5 billion euros in net worldwide turnover, up from 1,000 employees and 450 million euros. Non-EU companies need 1.5 billion euros of net turnover generated within the EU, up from 450 million. That is roughly a 70 per cent reduction in the population, with analysis of the final thresholds putting around 2,900 companies in scope across some 1,400 corporate groups.

First reports fall due for financial years beginning on or after 1 January 2030, and the Commission is due to publish guidelines in July 2027.

Three things died. The harmonised EU-wide civil liability regime was removed entirely, so breaches now fall to each member state's national rules and the uniform route to judicial remedy is gone. The mandatory obligation to adopt and implement a Paris-aligned climate transition plan was deleted outright, though CSRD-scope companies that maintain such plans still report on them. And the original tighter thresholds went with them.

What survived is the core duty. The directive kept risk-based human rights and environmental due diligence across the chain of activities rather than collapsing to tier one. But the mechanics are narrower than that headline suggests. Companies first scope using information already reasonably available, and only the most likely and severe adverse impacts proceed to detailed assessment. Direct business partners take priority, and information requests must be targeted, reasonable and proportionate. A value chain cap stops companies requesting more from partners averaging 1,000 employees or fewer than the Voluntary Sustainability Standard for SMEs contains.

The Commission must review implementation effectiveness by 26 July 2031 and every five years after. Worth noting for anyone hoping the liability question reopens on a timetable: the mandatory review of the civil liability rules specifically was removed.

The Scope Cut Is Not A Reprieve For Suppliers

This is the inference most suppliers are drawing and it is wrong.

Falling below 5,000 employees removes your own direct obligation. It does not remove you from someone else's chain of activities. An in-scope customer still has to conduct risk-based due diligence that reaches you, and the 1,000-employee information cap is a default setting rather than a prohibition. It governs what a company can require under the directive. It says nothing about what a purchase agreement can negotiate.

The CSRD value chain cap works identically, and the pattern by now is familiar. Regulatory relief flows to the regulated entity. The information request arrives anyway, dressed as a contract term.

ESRS Social Standards Got Shorter, Not Softer

The revised ESRS delegated act was adopted on 3 July 2026, enters into force on 20 November 2026 and applies to financial years beginning on or after 1 January 2027. Several advisers report that voluntary early application for 2026 is available, which is worth confirming against the final text before relying on it.

The cut is real. Mandatory datapoints are down by more than 60 per cent and total datapoints by more than 70 per cent, with the Commission estimating roughly 30 per cent lower reporting cost per company. Every voluntary datapoint was removed rather than retained as optional.

EFRAG's own figures for the social standards, taken from its 2025 exposure drafts, give a sharper picture than the headline: datapoints down 53 per cent in S1, 60 per cent in S2, 62 per cent in S3 and 64 per cent in S4, with word counts down between 67 and 79 per cent.

In ESRS S1 the trimming shows up in specific places. Employee age distribution came out of diversity reporting. Retirement was removed as a major life event for social protection, and parental leave narrowed. Non-employee worker information was consolidated, applying where contractors or agency staff make up a significant part of the workforce or business model. The concept of severe human rights incidents was dropped, and S1-16 on incidents of discrimination and other human rights incidents now requires only substantiated and verified instances rather than complaints received.

That last change cuts both ways. It removes a metric that punished companies with functioning grievance channels, because more complaints logged looked worse than none. It also removes the number that told a reader whether the channel worked at all.

ESRS S2 on value chain workers was restructured rather than gutted. Policies now address material impacts instead of enumerating everything. Grievance mechanisms and remediation were merged into S2-2 and S2-3. Alignment with the UN Guiding Principles and OECD due diligence guidance was strengthened, and targets may be qualitative or quantitative rather than following a prescribed form.

The Living Wage Requirement Went The Other Way

Here is the part that has been almost entirely missed in coverage of the simplification package.

Adequate wages survived the cull and came out stronger. The disclosure was renumbered from S1-10 to S1-9, and its substance was tightened rather than loosened.

Under the 2023 ESRS, a company could benchmark non-EU employees against a statutory minimum wage without any test of whether that minimum supported a decent standard of living. EU employees were measured against adequacy. Non-EU employees could be measured against whatever the local floor happened to be. The asymmetry was built into the standard.

The revision removes it. All benchmarks, wherever the employee sits, must be grounded in a decent standard of living. Two routes qualify: a statutory or collectively bargained minimum wage demonstrated to meet living wage criteria under ILO principles, or a living wage estimate reflecting ILO estimation principles.

What S1-9 asks for in practice is specific. Identify the lowest wage paid in each country, excluding interns and apprentices. Compare it against the chosen benchmark. Where a gap exists, name the countries affected and state the percentage of employees paid below the benchmark.

The familiar objection, that credible benchmarks are unavailable for the countries that matter, has stopped working. WageIndicator publishes more than 3,000 living wage benchmarks covering the relevant countries, updated regularly, at no cost.

A company that discloses a country list and a percentage under S1-9 has published something an investor can act on. A company that reports compliance with local minimum wage has, under the revised standard, not answered the question.

Enforcement Moved While Disclosure Retreated

Two developments run in the opposite direction to the simplification narrative.

Regulation (EU) 2024/3015 on prohibiting products made with forced labour on the Union market dates from 27 November 2024, entered into force on 13 December 2024 and becomes enforceable on 14 December 2027. It applies to companies of every size, with no turnover or headcount threshold, and it bars products made with forced labour from entering or leaving the EU market. National competent authorities investigate, coordinating through the Union Network against Forced Labour Products, and the Commission maintains a risk database flagging products and geographies with elevated exposure.

Read the mechanism carefully, because it is not a disclosure instrument. The sanction is that your goods stop moving. No report satisfies it, no materiality assessment excuses it, and being too small for CSDDD is irrelevant.

Germany illustrates the same split from the other side. The LkSG reporting obligation to BAFA was abolished retroactively from 1 January 2023, and the digital reporting form was switched off on 7 November 2025. The fine categories were narrowed. But the core duties persist for companies with 1,000 or more German employees: risk management and analysis, preventive and remedial measures, a complaints procedure, and documentation. The government also declined to raise the threshold to the European 5,000.

The paperwork went. The duty stayed. Those are not the same thing, and a German mid-cap that dismantled its due diligence function when the reporting form disappeared has a problem.

Investors Did Not Get The Memo

The Platform Living Wage Financials statement landed on 30 June 2026 at the IDH Living Wage and Living Income Summit in Rotterdam. Fifty-three investors, more than 8 trillion euros in assets, asking companies to disclose living wage commitments for direct employees and to support living wage and income initiatives across supply chains.

The research underneath it is the more useful number. Fewer than 5 per cent of the world's 2,000 most influential companies commit to a living wage for their own direct workforce. Three per cent report taking action on it in supply chains.

Those figures describe an unusually low bar. In most disclosure areas, differentiation requires real investment. Here, a credible country-level wage gap disclosure with a named benchmark would place a company in a small minority immediately, and the data required is the same data S1-9 will compel from 2027 anyway.

A Footnote On What Adequacy Means

The Grand Chamber ruled on 11 November 2025 in Case C-19/23, Denmark against the Parliament and Council, on Directive (EU) 2022/2041. It annulled Article 5(1) in part, Article 5(2), the list of criteria member states must consider when setting statutory minimum wages, and the closing words of Article 5(3), the prohibition on reducing statutory minimum wages where automatic indexation applies. The question was whether the EU had exceeded its competence under Article 153 TFEU, which expressly excludes pay from Union competence. The rest of the directive stood, including the procedural framework for adequacy, periodic updates and consultative bodies. The Commission's position is that national transposing legislation is unaffected.

For reporting teams the ruling changes little directly. What it usefully underlines is that the statutory minimum wage is a legal floor set through a national political process, not a measure of whether anyone can live on it. That distinction is precisely what S1-9 now forces companies to confront, and the Court's reasoning about the limits of harmonising wage-setting makes it less likely that the gap will be closed by legislation any time soon.

What To Build Before 2027

Start with a country-level register of the lowest wage actually paid, interns and apprentices excluded. Most HR systems can produce this and almost none have been asked to.

Select the benchmark per country and document why it reflects a decent standard of living. The justification is the disclosure, not the number.

Calculate the gap and the affected headcount percentage now, while it is an internal finding rather than a published one. If the number is bad, you want the remediation plan running before the first disclosure, not after.

Map which of your business partners average 1,000 employees or fewer. That determines where the CSDDD value chain cap applies by default and limits you to what the Voluntary Sustainability Standard for SMEs covers, which in turn tells you where you will need a contractual route instead.

Keep the cap and the contract in separate columns. They are different questions and conflating them is how companies end up promising data they have no mechanism to collect.

And check the Commission's forced labour risk database against your sourcing geographies well before December 2027. That is a customs and market access exposure, and it sits outside every threshold discussed above.

The simplification package reduced what companies must say. It did not reduce what they must do, and on wages it narrowed the gap between the two. The firms that quietly kept their social due diligence teams through 2026 are going to look considerably better in 2029 than the ones that read a 70 per cent scope cut as a verdict on whether any of it mattered.

Position as of 28 September 2026. Directive (EU) 2026/470 requires national transposition and member state implementation may vary. The revised ESRS delegated act was subject to Council and Parliament scrutiny, and disclosure numbering and content should be confirmed against the final published text. German LkSG amendments and the EU Forced Labour Regulation implementation continue to develop. Confirm current requirements against the European Commission, EFRAG, BAFA and your national authorities, and take professional advice for your circumstances.

Sources

Directive (EU) 2026/470, Official Journal of the European Union, European Commission, Business and Human Rights Resource Centre, Covington and Burling, Clifford Chance, Cooley, Deloitte, Voluntary Sustainability Standard for SMEs, Taylor Wessing, Bundesamt fuer Wirtschaft und Ausfuhrkontrolle, Regulation (EU), Court of Justice of the European Union, Ius Laboris, Shift Project, WageIndicator Foundation, Platform Living Wage Financials, IDH Living Wage and Living Income Summit, International Labour Organization

This article is intended for general professional information and does not constitute legal, financial, or investment advice.