Highlights

• EU ESG directives dialuted: CSRD applies to companies with 1,000+ employees, CSDDD to 5,000+ employees.
• Corporate sustainability rules face cuts as business groups push for limits on compliance.
• NGOs say that restricted coverage may weaken corporate accountability and data availability.

EU lawmakers have agreed to sharply reduce the scope of ESG directives, which is a turning point in European sustainability regulations.

After pressure from the bloc’s largest member states, the Corporate Sustainability Reporting Directive (CSRD) will now apply only to companies with at least 1,000 employees and €450 million in annual revenue, while the Corporate Sustainability Due Diligence Directive (CSDDD) will target companies with at least 5,000 employees and €1.5 billion in revenue.

Read More: EU Member States Weigh Diluting CSRD and CSDDD Rules

Initially, both directives were designed for companies with at least 250 employees to improve corporate accountability on environmental and human rights matters.

The decision comes on the heels of extensive lobbying from business groups claiming that the original rules could harm European competitiveness.

CSDDD, which seeks to hold companies responsible for violations in their supply chains, became particularly contentious. In addition to narrowing the scope, lawmakers decided to drop a common civil-liability framework, which would have allowed victims of corporate abuse easier access to justice.

Companies within the new thresholds will need transition plans aligned with EU climate law and the Paris Agreement.

International reactions have emerged as well

The United States has expressed concern that the directives could impact American companies operating in Europe.

Meanwhile, German and French businesses have criticised the rules, with over thirty CEOs calling for CSDDD to be abolished. NGOs and sustainability-focused organisations warned that reducing the number of companies subject to these rules will limit access to essential data needed for scaling up clean technologies and monitoring emissions.

Also Read: EU Delays Offer Firms Breathing Room for Better Sustainability Reporting

Negotiations between EU lawmakers and the 27 member states are expected to begin next week, with a final agreement aimed by the end of the year. Critics view the decision as giving large companies more freedom while weakening corporate accountability, calling it a setback for European efforts to manage human rights and environmental violations within supply chains.

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Source: Bloomberg