The European Union member states have approved revisions to the Corporate Sustainability Due Diligence Directive (CSDDD) and related reporting rules.
The EU has given its final approval to scale back rules that require companies to address environmental and human rights risks in their supply chains, after months of pressure from businesses and governments.
The changes, approved by European Union ministers at a meeting in Brussels, weaken the rules for most businesses currently covered. EU governments and the European Parliament negotiated the amendments last year.
They follow criticism from some industries that EU red tape and strict regulation hindered competitiveness with foreign rivals. But the weaker laws have dismayed environmental campaigners and some investors who said it would become harder to identify genuinely sustainable companies.
Under the changes, the EU will limit its CSDDD to only the largest EU corporations – those with more than 5,000 employees and EUR 1.5 billion (USD 1.8 billion) annual turnover.
The same rules will cover foreign companies whose EU turnover exceeds that amount. They could face fines of up to 3% of net global turnover for breaching the rules.
“We are reducing unnecessary and disproportionate burdens on our businesses, with simpler, more targeted and more proportionate rules,” said Marilena Raouna, Cyprus’s deputy EU affairs minister, who chaired the meeting.
The U.S. and Qatar had demanded the EU scale back CSDDD, warning that it risked disrupting their gas supplies to Europe. U.S. oil and gas major ExxonMobil has criticised the changes as not going far enough.
The EU also delayed the deadline to comply with CSDDD to mid-2029 – versus mid-2027 previously for larger companies – and dropped a requirement for companies to adopt climate change transition plans.
The changes also cover the EU’s corporate sustainability reporting directive (CSRD), which requires companies to disclose their environmental and social impact to make this more transparent to investors and consumers.
The EU agreed that such reporting will cover only companies with more than 1,000 employees and 450 million euro annual net turnover – plus non-EU firms with this turnover inside the bloc – versus companies with more than 250 employees now.
EI Comment: The EU has scaled back its sustainability regulations because of industry pressure and competition fears. The original forms of CSDDD and CSRD would have placed a significant administrative burden on small-medium sized companies – those with over 250 staff and over EUR 450 sales revenues.
It is now implementing the sustainability regulation to large companies that do over EUR 1.5 billion sales and have over 5,000 employees. Whilst some would argue it should have maintained the original threshold, there were concerns that the additional ‘red tape’ would reduce the competitiveness of European companies. In North America and Asia, there are no such mandatory sustainability regulations, meaning European companies would have to invest significantly more in sustainability reporting and due diligence.
