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The European Commission is moving to reduce the number of companies required to comply with EU sustainability reporting rules, according to a draft proposal seen on 22 February. The plan, which is expected to be officially presented next week, aims to cut bureaucratic red tape for businesses while enhancing European industry competitiveness.
However, the changes have sparked divisions among EU member states, with some advocating for a rollback and others insisting on maintaining strict sustainability commitments.
Changes to Sustainability Reporting Requirements
The proposal introduces higher thresholds for companies required to disclose sustainability-related information under the Corporate Sustainability Reporting Directive (CSRD). Currently, firms with more than 250 employees and a 40-million-euro turnover must comply. Under the new draft, only companies with more than 1,000 employees and a 450-million-euro turnover would be subject to the rules.
Additionally, the European Commission plans to cancel sector-specific reporting standards, which were set to be introduced by June. The draft proposal states, “The EU would also cancel its plans to adopt sector-specific reporting standards by next June.”
Loosening Due Diligence Obligations
Another key modification affects the Corporate Sustainability Due Diligence Directive (CSDDD), which is designed to hold businesses accountable for human rights and environmental violations in their supply chains.
The draft proposal narrows the scope of due diligence obligations, requiring companies to conduct assessments only on direct business partners and subsidiaries, while excluding subcontractors and lower-tier suppliers.
This represents a major departure from previous EU efforts to enforce sustainability across supply chains. The draft document outlines the change, stating that companies will only need to conduct “in-depth assessments of their direct business partners, and subsidiaries, leaving out other subcontractors and suppliers in their supply chains.”
Political Divisions Among EU Member States
The proposal has revealed deep divisions within the EU. Germany and France support scaling back sustainability rules, arguing that excessive regulations increase costs and reduce competitiveness for European businesses. On the other hand, Spain and other EU nations oppose the rollback, insisting that strong sustainability rules are necessary to uphold EU values on environmental protection and human rights.
Why Is the EU Making These Changes?
The European Commission’s push to simplify sustainability rules aligns with its broader efforts to boost European industry competitiveness. The plan also reflects international influences, particularly from the United States, where former President Donald Trump has promised deregulation for businesses.
Brussels’ strategy is clear: reducing corporate compliance burdens to make European industries more attractive to investors and prevent companies from relocating to countries with weaker regulations.
A draft document states, “Brussels plans to publish next week an ‘omnibus’ proposal to simplify green rules for businesses, aiming to make local industries more competitive and respond to U.S. President Donald Trump’s promise to scrap regulations.”
Potential Impact on Businesses and Sustainability Goals
The proposed changes would reduce the number of companies required to report sustainability data, easing compliance costs for businesses.
However, environmental advocates warn that the new approach weakens corporate accountability and reduces supply chain transparency.
Critics argue that excluding subcontractors and lower-tier suppliers from due diligence requirements could allow unethical practices to go unnoticed. Without a strong oversight, companies may have less incentive to address human rights violations or environmental harm in their supply chains.
Next Steps and Future Debates
The draft proposal is not yet final and is expected to face strong opposition from environmental groups and some EU member states. The final version of the plan will be revealed soon, with further negotiations likely before implementation.