EU Lawmakers Scale Back Sustainability Reporting & Due Diligence Rules

The European Parliament’s Committee on Legal Affairs has approved amendments to the Corporate Sustainability Due Diligence Directive (CSDDD), significantly reducing the number of companies subject to its sustainability reporting and due diligence requirements.

Under the revised rules, the obligations will apply only to firms with at least €1.5 billion in annual turnover and 5,000 or more employees. Additionally, the requirement for the EU to establish a civil liability regime has been eliminated, and companies are encouraged to adopt a risk-based approach to due diligence.

These changes aim to simplify compliance for businesses, particularly smaller firms, by narrowing the scope of the directive. While proponents argue that the amendments will reduce costs and enhance competitiveness, critics express concern that the reduced scope may undermine corporate accountability and transparency, potentially allowing human rights and environmental issues in supply chains to go unaddressed.

The vote on the amendments was passed with 17 in favor, 6 against, and 2 abstentions. Jörgen Warborn, the rapporteur for the directive and a member of the European People's Party, emphasized that the revisions would provide predictability for European companies while maintaining progress towards the EU's green transition goals.

The revised CSDDD thresholds (€1.5 billion turnover and 5,000 employees, versus original €450 million and 1,000 employees) would dramatically narrow the directive's practical reach. The removal of the civil-liability regime requirement and shift to risk-based due diligence further reduces compliance obligations for in-scope companies. Collectively these changes represent one of the more substantial retreats from previously-adopted EU sustainability regulation.

The 17-6-2 committee vote signals divisions within the European Parliament that mirror broader EU political dynamics around Omnibus simplification. Predictability arguments have real merit - companies have built compliance infrastructure around earlier rule expectations. Accountability concerns also have merit - narrower scope means more supply-chain human-rights and environmental issues potentially fall outside enforcement.

For corporates preparing for CSDDD implementation, financial institutions with cross-border operations and their advisors, Cognitud's sustainability due diligence, ESG strategy and transformation and market intelligence teams help clients navigate the evolving CSDDD landscape, evaluate exposure to threshold changes, and structure compliance programmes robust across both current and prospective rule versions to protect long-term operating flexibility and stakeholder credibility.