EU parliament reduces corporate reporting rules

Lawmakers in the European Parliament have agreed to substantial reductions in the EU’s sustainability reporting and due diligence regulations. This includes significant cuts in the number of companies subject to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), alongside the removal of the obligation for companies to develop climate transition plans.

The decision, backed by 382 Members of the European Parliament (MEPs) against 249, follows last month’s rejection of a compromise deal on the European Commission’s Omnibus I initiative. This earlier proposal aimed to introduce less drastic changes to sustainability regulations. The European People’s Party (EPP) subsequently partnered with further-right parties to establish Parliament’s official negotiating stance.

The Omnibus package, introduced by the Commission in February as part of its agenda to enhance European competitiveness and alleviate compliance burdens, proposed various regulatory changes. These included modifications to the CSRD, CSDDD, the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM).

Initially, the Commission suggested limiting the CSRD’s scope to companies with over 1,000 employees, down from the current threshold of 250, while maintaining the CSDDD’s 1,000-employee threshold. The proposal also aimed to concentrate due diligence requirements on direct business partners, unless a company has credible information of adverse impacts further along the value chain. Additionally, it introduced restrictions on the information smaller value chain companies could be asked to provide.

Negotiations within Parliament revealed deep divisions, with left-leaning parties advocating for minimal reductions in regulations, while further-right parties sought to abolish the CSRD and CSDDD entirely. In October, the EPP threatened to collaborate with further-right parties, prompting left and centre parties to agree to a compromise. This retained the CSRD’s 1,000-employee scope but added a €450 million revenue threshold, significantly raising the CSDDD threshold to cover only companies with 5,000 employees and over €1.5 billion in revenues. This compromise was narrowly defeated, with Omnibus rapporteur Jörgen Warborn of the EPP attributing the failure to insufficient support from centre-left MEPs.

The newly adopted position aligns with the EPP’s previous agreement with further-right parties. It drastically reduces the CSRD’s coverage to companies with 1,750 employees and €450 million in revenues, and limits the CSDDD to the largest companies, with thresholds of 5,000 employees and revenues exceeding €1.5 billion.

Companies below these thresholds are shielded from requests for additional information beyond voluntary sustainability reporting standards. Furthermore, companies under the CSDDD are instructed to utilise existing information rather than systematically requesting data from smaller value chain partners, only doing so as a last resort.

The adopted position also removes the requirement for companies to create a transition plan aligning their business model with the Paris Agreement and shifts liability for due diligence non-compliance to the national level, away from the EU level.

Sustainable investment groups have sharply criticised the vote. Richard Gardiner, Interim Head of EU Policy at ShareAction, stated that it “risks not only gutting the impact of landmark laws like the CSDDD and CSRD but drives a stake through the heart of Europe’s wider sustainability agenda.” Gardiner further commented on the alliance of political forces fundamentally opposed to sustainability.

This new position places Parliament at odds with the stance adopted by the EU Council in June, which had been more in line with the previously rejected compromise. Negotiations between Parliament and the Council are set to commence next week, aiming to finalise the legislation by year-end.