The European Union’s recent decision to relax corporate sustainability reporting rules has ignited a heated debate among policymakers, industry stakeholders, and environmental advocates. The alterations, encapsulated in the Omnibus package, promise to significantly reshape the landscape of corporate sustainability obligations across the bloc, raising concerns about their potential impact on climate action and human rights protections. Critics argue that by easing these rules, the EU risks undermining its own ambitious climate goals and the integrity of human rights standards in global supply chains.
CSRD Changes: Narrowing the Scope
One of the most significant revisions within the Omnibus package pertains to the downsizing of the Corporate Sustainability Reporting Directive (CSRD). Should the proposal pass the European Parliament, nearly 80% of the companies that were initially required to adhere to mandatory CSRD requirements will be exempt. This shift in focus is primarily aimed at only the largest companies, thus alleviating smaller businesses of what could have been a considerable regulatory burden. Additionally, the deadlines for compliance have been pushed back to 2028 for those companies initially slated for 2026 or 2027.
Furthermore, an essential modification is that businesses will no longer be required to report on the impact and activities of their suppliers unless those suppliers are large enough to be subjected to mandatory reporting themselves. According to the Commission, this change is designed to prevent sustainability reporting requirements from becoming an undue burden on smaller companies within their supply chains. Despite these changes, the principle of double materiality, which dictates that businesses should disclose not only their impact on the environment and society but also how these external factors may influence financial performance, remains intact. The Commission has pledged to provide additional guidance on implementing this concept, thus maintaining its critical role in sustainability reporting.
Recent studies suggest that many companies operating within or selling to the EU market have proactively begun preparing for the CSRD. Regardless of potential amendments, several companies remain committed to enhancing their sustainability disclosures. Investors also support stringent disclosure requirements, with over 160 investors managing around €6.6 trillion urging the EU earlier this year not to dilute negotiations on the green finance taxonomy and corporate Environmental, Social, and Governance (ESG) reporting mandates.
EU Taxonomy: Simplifying Compliance
The changes to the EU Taxonomy will similarly limit the scope of reporting requirements, mandating compliance only from the largest companies, specifically those with over 1,000 employees and turnovers exceeding €450 million. Smaller firms, although exempt from mandatory compliance, are offered the option to report voluntarily. The revision includes a reduction of approximately 70% in reporting templates, making the process considerably easier for companies attempting to align with sustainability criteria.
Additionally, a new provision allows companies to report partially aligned activities with the EU Taxonomy, facilitating a phased transition towards full compliance with established sustainability criteria. The “Do No Significant Harm” (DNSH) criteria explicitly related to pollution prevention and control, particularly with chemicals, will undergo simplification. Banks stand to benefit as well since they can exclude exposures from their Green Asset Ratio (GAR) calculations if companies fall outside the future scope of the CSRD. These changes aim to make the sustainability reporting process more manageable while still promoting alignment with environmental objectives.
However, critics argue that such exemptions and simplifications might dilute the effectiveness of the EU’s sustainability goals. By limiting the reporting obligations to only the largest companies, some believe that smaller firms might overlook crucial sustainability practices. The reduced complexity in reporting templates, while beneficial for operational efficiency, could also mean less comprehensive disclosures, challenging stakeholders’ ability to gauge a company’s actual sustainability impact.
CSDDD: Reducing Due Diligence
Modifications to the Corporate Sustainability Due Diligence Directive (CSDDD) will result in a more focused mandate, covering only “direct business partners” rather than the entire supply chain. This change aims to reduce the burden on companies while still addressing significant human rights and environmental risks. Periodic assessments are set to decrease in frequency from annually to once every five years, supplemented by ad-hoc assessments when necessary. These adjustments are intended to ease the compliance workload for companies, particularly smaller entities that could struggle with frequent reporting.
Moreover, the Commission plans to limit the volume of information that large companies can request from smaller firms during value chain mapping. This ensures that smaller companies are not overwhelmed by excessive data requests. Additionally, civil liability conditions under the CSDDD will be removed. According to the Commission, companies will still need to compensate victims for damages stemming from non-compliance. However, this revision is designed to protect businesses from over-compensation under the diverse civil liability regimes of Member States.
Such changes have provoked significant concern among civil society organizations, especially those from the Global South. Critics argue that the oversimplification of due diligence requirements and the removal of civil liability conditions could severely undermine human rights and environmental standards within global supply chains. These organizations point out that smaller firms in developing countries might be particularly vulnerable to these weakened standards, potentially leading to increased instances of exploitation and environmental degradation.
CBAM: Exemptions for Small Importers
The Carbon Border Adjustment Mechanism (CBAM) faces proposed changes that include exemptions for small importers, specifically targeting small and medium-sized enterprises (SMEs) and individual traders. A newly introduced cumulative annual threshold of 50 tonnes of embedded emissions per importer will liberate roughly 182,000 importers, many of whom are SMEs, from CBAM obligations. These exemptions are intended to ease the regulatory burden on smaller importers, which may lack the capacity to meet stringent CBAM requirements.
For companies that remain within the CBAM’s purview, the rules will undergo simplification. This includes revisions to the authorization process for CBAM declarants and adjustments to the methods of calculating embedded emissions and reporting requirements. Additionally, the Commission plans to expand the CBAM’s scope to encompass other sectors within the EU Emissions Trading System (ETS) and downstream goods, with new legislative proposals expected in early 2026. These changes endeavor to ensure that the CBAM remains a practical tool for regulating emissions without imposing excessive burdens on smaller businesses.
However, some experts argue that exempting a significant portion of importers could undermine the CBAM’s overall effectiveness. By excluding many SMEs from the obligations, there is a risk that the mechanism may fail to comprehensively cover all emissions associated with imported goods. This could potentially lead to loopholes where smaller importers exploit these exemptions, diminishing the mechanism’s intended impact on reducing global emissions associated with EU imports.
Political Showdown: Resistance in Parliament
The legislative proposals now face the scrutiny of the European Parliament and the Council, where they are expected to encounter significant debate and resistance. The Commission has urged lawmakers to expedite the package, particularly the provisions that delay disclosure requirements under the CSRD and postpone the transposition of the CSDDD. However, the Commission’s closed-door approach to developing these proposals has raised eyebrows among several Members of the European Parliament (MEPs) and non-governmental organizations (NGOs) who previously endorsed stricter corporate sustainability rules.
Some lawmakers and stakeholders have been vocal in their opposition, questioning the rationale behind the Commission’s decision to ease these sustainability regulations. Critics argue that the proposed changes contradict the EU’s broader environmental and social objectives and represent a step back in the fight against climate change. Many fear that by prioritizing ease of business and reducing compliance costs, the EU is compromising the integrity of its sustainability framework.
Robin Hodess, the chief executive of the Global Reporting Initiative (GRI), stressed the critical importance of maintaining the ambition of the CSRD. Hodess contended that reducing the directive’s scope would be counterproductive to European business competitiveness, emphasizing that robust sustainability data is vital for driving innovation and attracting investment in Europe. Further debate in parliamentary sessions is likely to focus on these contrasting viewpoints, setting the stage for potential amendments to the proposals.
Concerns from Civil Society and NGOs
Civil society organizations, especially those advocating for developing countries, have raised alarms over the proposed changes. Critics argue that simplifying the due diligence requirements and removing civil liability conditions could significantly compromise human rights and environmental standards in supply chains, particularly in the Global South. They argue that such changes could hinder the progress made in ensuring ethical practices and environmental responsibility among businesses operating or sourcing materials from developing countries.
Beate Beller, a campaigner with Global Witness, has been particularly critical of the Commission’s actions, describing them as an attack on the EU’s sustainability agenda. Beller contends that these modifications will enable Europe’s largest polluters to evade climate action responsibilities and make it more challenging to hold mining giants accountable for environmental and human rights abuses outside the EU. Beller’s critique signals a broader anxiety among many NGOs and activists that these regulatory relaxations would create a loophole for large corporations to circumvent rigorous sustainability practices.
The overarching sentiment among these groups is that the proposals represent a significant backslide in the EU’s commitment to sustainability and corporate accountability. They call for a re-evaluation of the changes and urge the European Parliament and Member States to uphold the original intent and robustness of the laws.
Balancing Business Competitiveness and Sustainability
The European Union’s decision to ease corporate sustainability reporting rules has sparked a heated debate among policymakers, industry leaders, and environmental advocates. These changes, outlined in the Omnibus package, are set to substantially transform the responsibilities of companies concerning sustainability across the EU. There’s growing concern about how these relaxed regulations might affect climate action and the protection of human rights. Critics emphasize that by making these rules more lenient, the EU risks jeopardizing its own aggressive climate objectives. They argue that this move could also undermine the integrity of human rights standards within global supply chains. The challenge lies in balancing the need for business flexibility with the pressing demands of environmental sustainability and human rights. How the EU navigates this contentious issue could have far-reaching implications, not just for Europe but globally, as entities worldwide often take cues from EU regulations on these critical matters.
