EU agrees to scale back sustainability reporting requirements

The compromise, finalised in a trilogue negotiation between the EU Commission, Parliament, and member states, significantly reduces the scope of mandatory ESG disclosures for companies. “This agreement brings historic cost reductions,” Parliament negotiator Jorgen Warborn said, noting that the cuts went further than those initially proposed by the European Commission, which had estimated they would reduce companies’ administrative costs by €4.5 billion.

The changes weaken such rules for a large majority of businesses now covered, following criticism from some industries that EU red tape and strict regulation hindered competitiveness with foreign rivals.

CSDDD changes: Narrower scope and delayed compliance

Under the revised Directive, the EU will limit coverage to only the largest EU corporations—those with more than 5,000 employees and €1.5 billion annual turnover.

The same rules will cover foreign companies whose EU turnover exceeds that amount. Companies could face fines of up to 3% of net global turnover for breaching the law, which requires them to fix human rights and environmental issues in their supply chains. The EU also delayed the deadline to comply with CSDDD—which came into force last year—to mid-2029, and dropped a requirement for companies to adopt climate change transition plans.

CSRD threshold changes

The deal also covers the CSRD, which requires companies to disclose their environmental and social impact to make this more transparent to investors and consumers. The EU agreed that such reporting will cover only companies with more than 1,000 employees and €450 million annual net turnover—plus non-EU firms with this turnover inside the bloc—versus companies with more than 250 employees previously.

International pressure and domestic opposition

The United States and Qatar pressured Brussels to scale back the due diligence law, warning that the rules risked disrupting liquefied natural gas trade with Europe. The leaders of Germany and France had sought to scrap the law entirely, citing concerns about business competitiveness.

The push to weaken the laws had dismayed environmental campaigners, some investors and governments including Spain, which had urged Brussels to maintain the rules to support European priorities on sustainability and human rights. “This is counter-productive for businesses, weakens accountability, and jeopardises the EU’s own plans and objectives on climate and the industrial transition,” said to Reuters Julia Otten, senior policy officer at law firm and advocacy group Frank Bold.

The EU Parliament and EU countries must each give formal approval for the changes to become law, usually a formality that waves through pre-agreed deals.

About the Sustainability Omnibus

The sustainability omnibus is part of the EU’s broader effort to consolidate ESG-related legislation, including the Corporate Sustainability Reporting Directive⁠ and the Corporate Sustainability Due Diligence Directive⁠. It aims to harmonise rules whilst reducing complexity for businesses operating across the single market.

Legislative context: The omnibus package represents a significant rollback of the EU’s Green Deal ambitions. Both directives were originally designed to make companies more accountable for their environmental and social impact throughout their value chains, but faced immediate pushback from industry and some member states after the CSDDD entered into force in 2024.

Broader EU context: This retreat reflects a growing tension within the EU between maintaining climate leadership and addressing competitiveness concerns vis-à-vis the United States and China. The changes align with calls from the Draghi Report and other assessments arguing that excessive regulation hampers European businesses.