Highlights

• Sustainability reporting confine to companies with over 1,000 employees and €450 million turnover.
• Due diligence rules apply only to large companies with more than 5,000 employees and €1.5 billion turnover.
• Companies must prepare a transition plan pursuant to the Paris Agreement.

The European Parliament’s Legal Affairs Committee has approved new draft rules on sustainability reporting and due diligence to simplify obligations for companies.

With 17 votes for, 6 against, and 2 abstentions, MEPs have agreed to reduce the scope of reporting and limit compliance for firms. The draft rules come on the back of calls for fewer obligations on smaller businesses, while still paying attention to environmental and social impacts.

Read More: CSRD and CSDDD Thresholds Raised Amid Business Pressure

Fewer companies have to report

Under the new rules, social and environmental reporting requirements would apply only to companies with over 1,000 employees and a net annual turnover above €450 million.

Smaller firms would report on a voluntary basis pursuant to EU Commission guidelines, and they would not be required to collect information from their business partners beyond these voluntary standards.

The standards also make sustainability reporting easier under taxonomy laws, which focus on quantitative data, and reduce administrative and cost burdens.

Also Read: EU Urged by Investors to Swiftly Enforce Methane Emissions Rules

Through a digital portal, companies have free access to templates, instructions, and details of EU reporting obligations, which complements the European Single Access Point.

Due diligence rules clearer

Only large EU businesses with over 5,000 employees and a net turnover above €1.5 billion, along with foreign companies meeting the same threshold in the EU, would need to comply with.

Businesses would use a risk-based strategy, where they ask partners for information only when a negative effect seems likely. Companies that don't fit these requirements would have fewer responsibilities.

All firms must have a transition plan aligning strategies with a sustainable economy and the Paris Agreement. Liability for breaches would fall under national law, with fines capped at 5% of global turnover, and guidance on penalties would come from the Commission and member states.

See Also: What is Sustainability Reporting? Meaning, Types, and Benefits

The new draft rules mark a shift in EU corporate sustainability rules, which make sustainability reporting and due diligence simpler for smaller and mid-sized companies.

In the meantime, obligations are concentrated on large firms with the greatest potential environmental and social impact.

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Source: European Parliament