EU member states weaken laws on corporate sustainability

EU member states have given their final approval to a proposal that significantly weakens corporate sustainability reporting requirements, reducing the scope and level of detail of environmental, social and governance (ESG) information that companies are required to provide.

This move marks a step back from previous ambitions to make sustainability reporting more comprehensive and mandatory across the European Union.

Restricted tools and raised reporting threshold

The final agreement raises the threshold for mandatory sustainability reporting, meaning that fewer companies are subject to the rules than in the European Commission’s original proposal. The changes also give companies greater discretion in choosing which sustainability standards to apply.

By easing these constraints, the effect of the Corporate Sustainability Due Diligence Directive (CSDDD) will only affect large European companies, i.e. those with more than 5,000 employees and an annual turnover of €1.5 billion.

The same rules will apply to foreign companies whose turnover in the EU exceeds this figure. In the event of a breach of the rules, they could face financial penalties of up to 3% of their global net turnover.

Countries such as the United States and Qatar had already called for the measures contained in the directive to be scaled back, fearing that it could have negative repercussions on their gas supplies to Europe. Several oil companies, including ExxonMobil, have criticised the changes, considering them too timid.

Other relevant changes

The EU has also postponed the deadline for compliance with the CSDDD to mid-2029, compared to mid-2027 as previously planned for large companies, and has removed the obligation for companies to adopt climate change transition plans.

The changes also affect the EU’s Corporate Sustainability Reporting Directive, which requires companies to measure and disclose their environmental and social impact to ensure greater transparency for investors and consumers.

The EU has agreed that such reporting will only apply to companies with more than 1,000 employees and an annual net turnover of €450 million, as well as non-EU companies with this turnover within the bloc, compared to companies with more than 250 employees.