EU strikes deal to weaken corporate sustainability laws

The European Union has reached a political agreement to significantly weaken its corporate sustainability laws following sustained pressure from businesses and some governments. The changes raise the eligibility thresholds for two major frameworks - the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) - meaning far fewer companies will be subject to the rules.

Under the agreement, only companies with more than 1,000 employees and substantial turnover will be obliged to report on environmental and social impacts, sharply reducing the number of firms covered compared with earlier proposals.

Due diligence obligations to identify and address human rights and environmental harms in supply chains will be restricted to only the largest firms, excluding the majority of companies originally targeted. A requirement for firms to produce formal climate transition plans has also been dropped.

Proponents of the deal argue that scaling back these frameworks will ease administrative burdens on Europe’s corporate sector and boost competitiveness. However, critics - including environmental campaigners, investor groups and some EU member states - warn that weakening the rules undermines transparency, weakens accountability for environmental and human rights risks, and could jeopardise the bloc’s broader climate and sustainability commitments.

The changes are still subject to formal approval by the European Parliament and EU member states before they can become law. Opponents say that if approved, the watered-down regime will make it harder to track and compare companies’ sustainability performance and could reduce incentives for meaningful action on climate and supply-chain impacts.

The omnibus deal narrows scope but retains the substantive obligations, and out-of-scope companies with EU customer or investor exposure still face voluntary disclosure pressure that hasn't gone anywhere. Our ESG-strategy and sustainability-due-diligence teams help clients evaluate what these changes mean for reporting infrastructure and value-chain due diligence.