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On October 13, the Legal Affairs Committee of the European Parliament approved a compromise to reduce sustainability reporting requirements. In February, the commission proposed an Omnibus Simplification Package to reduce the requirements in both the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. In June, the Council adopted their position. After months of deliberation, the Parliament took a major step towards their final proposal. A full vote is expected October 20.
As part of the European Green Deal, the EU adopted a series of directives to force businesses to address climate change and report greenhouse gas missions. The CSRD created requirements for businesses to report GHG emissions and other environmental, social, and governance actions. The CSDDD created additional reporting requirements, as well as legal liability, for companies in relation to their supply chain.
However, the cost of these proposals on businesses and the possible impact on the EU economy became a theme during the 2024 elections. The shift to the right in EU politics embolden opponents to the European Green Deal directives. As a result, the Commission proposed a package of new directives to “reduce the burden” on businesses. The Omnibus Simplification Package was officially adopted by the Commission in February.
Once legislation is proposed by the Commission, the Parliament and the Council adopt positions. In the Parliament, the process is a typical legislative process with committees and members proposing amendments. The Council engages in negotiations behind closed doors, only releasing periodic updates. After all the three adopt positions, they enter into a “trilogue” to negotiate the final directive.
In the Parliament, the debates have been public and contentious. In June, the European Parliament’s Committee of Legal Affairs known as JURI, met to discuss initial proposals. At the time, sustainability advocates were optimistic the Parliament would take a more neutral approach. However, the proposal aligned with the Council’s position.
Left leaning parties were adamant the CSRD and CSDDD should face little reforms. Positions from other committees called for minimal changes. Far right parties called for the full abolition of sustainability reporting and a dismantling of the European Green Deal. In early October, the European People’s Party, the majority party leading the negotiations, released two proposals. One closely aligned with the Council’s proposal. The other was aligned with the far right. Given the choice of compromise or total failure, left leaning parties caved, meeting the EPP’s demands and cutting off the far right’s agenda. On October 13, JURI formally adopted a compromise position. It will go before the Plenary on October 20.
Once adopted by the full body, the Council, Parliament, and Commission will enter into trilogue negotiations. It is anticipated they will adopted the final reforms by the end of 2025 or January 2026. Below is a comparative look at the three proposals.
Corporate Sustainability Reporting Directive
The current CSRD uses a two out of three criteria test to determine if a company must report. The Commission proposes raising the employee threshold. Stating “to be subject to the reporting requirements an undertakings must have an average of more than 1000 employees during the financial year and either a net turnover above €50 million or a balance sheet total above €25 million.” Bringing it in line with the CSDDD.
The Council’s proposal uses the 1000 employee threshold, but raises the annual turnover to €450 million. They also add “a review clause concerning a possible extension of the scope to ensure adequate availability of corporate sustainability information.”
The Parliaments position closely follows the Council’s proposal, with more exceptions. The Parliament uses a 1000 employee threshold and raises the annual turnover to €450 million, but also creates exemptions for financial holdings and listed subsidiaries.
All three proposals cap information that may be requested by small and-medium sized enterprises along the value chain, limiting them to the VSME standard.
Addressing required sector-specific standards, the Commission proposed a full deletion of the provision. The Council proposed a deletion, but drafting general guidance for business in those sectors. The Parliament proposes voluntary sector-specific guidelines.
Corporate Sustainability Due Diligence Directive
The current CSDDD requires companies to execute due diligence in ensuring that companies along the value chain are in compliance with environmental and human rights requirements. The Commission did not propose changes to the scope, but the Council wants to raise the employee threshold to 5000 employees and an annual net turnover of €1.5 billion. The Parliament compromise mirrored the Council proposal.
One key aspect of the CSDDD is that it holds businesses accountable for the actions of other companies along their value chain. The Commission proposal limits that responsibility of Article 8 to direct business partners. Indirect business partners may still fall under the scope, “where a company has plausible information that suggests that adverse impacts at the level of the operations of an indirect business partner have arisen or may arise, it shall carry out an in-depth assessment.”
The Council proposes to change “the focus from an entity-based approach to a risk-based approach, focusing on areas where actual and potential adverse impacts are most likely to occur. Companies should no longer be required to carry out a comprehensive mapping exercise, but instead, conduct a more general scoping exercise. To provide for a significant burden relief, the Council maintains the limitation of the relevant obligations to the ‘tier 1’. In-scope companies are supposed to base their efforts on reasonably available information.”
The Parliament follows the Council’s risk-based approach, but adds stricter restrictions on what information can be requested along the value chain.
All three eliminate the civil liability regime that allowed for class action style lawsuits against companies for violation relating to sustainability reporting, environmental actions, climate change, and human rights.