EU lawmakers have reached a provisional agreement on the future of the bloc’s sustainability reporting and due diligence laws, which will see their coverage slashed and transition plan requirements removed.
In the early hours of Tuesday morning, European Parliament and Council settled on a series of measures to simplify the Corporate Sustainability Due Diligence Directive (CS3D) and the Corporate Sustainability Reporting Directive (CSRD).
The European Commission published its legislative proposal in February, suggesting that CSRD should only apply to companies with more than 1,000 employees – up from 250 under the current law.
It said small and medium enterprises should be removed from the scope altogether, and given a voluntary reporting regime instead.
Council agreed with the 1,000 threshold, but Parliament went into yesterday’s negotiations calling for it to be lifted even higher, to 1,750.
Eventually, the co-legislators agreed to 1,000 employees. They also added a turnover threshold of €450m, as opposed to the current €50m. SMEs will be removed.
On CS3D, as expected, the pair agreed to lift the threshold so that only companies with more than 5,000 employees and €1bn in turnover fall under its scope.
“The co-legislators considered that such large companies have the biggest influence on their value chain and are best equipped to make a positive impact and absorb the cost and burdens of due diligence processes,” the EU said in a statement.
The provisional agreement postponed the deadline for member states to transpose CS3D into national law by another year, to July 2028 – meaning it won’t come into force until July 2029.
Due diligence
In a rare win for campaigners, Council and Parliament agreed to ditch an amendment introduced in the Commission’s proposal, which would have meant companies could only undertake due diligence on their own operations and tier-one suppliers.
“The provisional agreement removes this limitation,” explained the EU’s statement.
“Instead, companies can focus on the areas of their chains of activities where actual and potential adverse impacts are most likely to occur.”
CS3D will also impose looser requirements around how to conduct the due diligence: firms will no longer need to map all their risks, but can rely on a “general scoping exercise” based on “reasonably available information”.
No transition plan requirements
One of the biggest battlegrounds for CS3D was the role of climate transition plans. Under the current law, companies are required to publish and implement a strategy that will help them align with the goals of the Paris Agreement.
The Commission proposed a dilution of this requirement in February, but Council and Parliament have agreed to remove it altogether.
The plans for a harmonised civil liability regime have also been removed, and a new maximum penalty cap of 3% of global turnover has been agreed – rather than the original 5%.
The provisional agreement must now be formally endorsed by Council and Parliament before it can be officially adopted.
Reactions to the deal differ strongly.
At campaign group ShareAction, interim head of EU policy Richard Gardiner said the compromise “remains an alarming dismantling of good policymaking and removes some of the most important tools Europe had at its disposal”.
He suggested the value-chain due diligence aspect of the deal should now be a priority: “If governments and supervisors take this seriously, it could still strengthen both accountability and long-term economic resilience and give investors and stakeholders the leverage they need to drive real change.”
At the banking trade body AFME, however, Oliver Moullin, managing director for sustainable finance, hailed the agreement as “a welcome step towards cutting complexity in EU sustainability reporting and due diligence requirements across the EU”.
He said that despite the cuts, the “EU’s sustainable finance framework is set to remain the most ambitious and comprehensive globally”.
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