The European Commission’s pledge to slash compliance costs associated with sustainability rules inched a step closer towards implementation today following the announcement of a provisional agreement between lawmakers and EU member states.
Representatives from the European Parliament and Council of the European Union have been engaged in trilogue discussions over the past three weeks on the extent to which the bloc’s sustainability reporting and due diligence would be stripped back as part of the sustainability Omnibus.
The outline presented today show key concessions extracted by both co-legislators despite broad alignment between their respective negotiating mandates.
The scope of the Corporate Sustainability Reporting Directive (CSRD) has now been restored to EU companies with 1,000 employees and a net annual turnover of over €450 million, as per proposals originally tabled by the Commission in February.
Members of the European Parliament had earlier agreed to reduce the number of companies captured by the legislation by raising the threshold to 1,750 employees – a vote seen as controversial due to the backing of far-right political parties for the measure. The European People’s Party (EPP), the largest group in Parliament and driving force behind negotiations, have historically avoided courting far-right support.
However, the Corporate Sustainability Due Diligence Directive (CSDDD) has been scrubbed of all references to climate transition plans in a major victory for parliamentary negotiators. Lead negotiator EPP MEP Jörgen Warborn has been opposed to any requirement for companies to establish transition plans due to perceived high costs.
A soft-touch approach to climate transition planning backed by member states, which removes the obligation to deliver on transition plans and introduces a two-year delay, was abandoned in its entirety.
The CSDDD will now, as expected, apply to companies with 5,000 employees and €1.5 billion net turnover, an outcome preferred by both lawmakers and member states. The deadline for compliance has been postponed by one year, to July 2029.
Companies will also be expected to carry out due diligence using a risk-based approach, focusing on areas where actual and potential adverse impacts are most likely to occur based on information already available.
The Commission had initially set out an alternative, “entity-based approach”, where companies would be asked to comprehensively map its operations, and that of subsidiaries and direct business partners for risks.
A new addition to the text, made at the Council’s request, is a review clause to be acted upon at a later date to ensure that the scope of both CSRD and CSDDD is fit for purpose.
Other changes include exemptions for subsidiaries, financial holdings and a requirement for the Commission to set up a “one-stop-shop” digital portal for businesses with access to templates and guidelines on EU and national reporting requirements.
Finally, the agreed text includes a maximum cap on fines for non-compliance with CSDDD amounting to 3 percent of net worldwide turnover, a reduction from a five percent cap on penalties set out in the original legislative text.
A version of the agreed text is expected to be published tomorrow following a vote by member states representatives (Coreper) to the EU to endorse the deal.
MEPs will vote on the agreement at committee level this Thursday, with a parliament-wide vote scheduled on 16 December.
Focus on ‘green jobs’
Representatives for Council and the European Parliament said that estimates on the number of EU companies that would fall out of scope under the revised thresholds for CSRD and CSDDD were between 80-87 percent.
The co-legislators estimated that around 1,500 EU companies would be expected to comply with CSDDD.
Morten Bødskov, a Danish government minister representing the EU presidency, said that legislative simplification was essential for creating green jobs and that an earlier perception that green rules would have the same effect was mistaken.
“For too long, we have thought that green rules and regulations were the way to create green jobs. It is exactly quite the opposite,” said Bødskov.
“What we have done with the Omnibus 1 package is to pass the way for more green investment, creating more green growth and creating more green jobs.”
Bødskov linked regulatory cuts to the creation of green jobs on at least three more occasions, marking a subtle shift from previous communication from the EU which had emphasised the benefits of boosting competitiveness more generally for EU companies.