On Monday, October 13, the Legal Affairs Committee of the European Parliament voted to relax two laws on “sustainable development” for businesses. These two laws, which have been heavily criticized by the industry for being too stringent, are the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
The CSDDD aims to hold companies accountable for human rights and environmental violations in their global supply chains, while the CSRD requires companies to disclose detailed sustainability reports to enhance transparency.
Initially, the plan was for companies with 250 or more employees to implement these directives, but the latest decision significantly relaxed this restriction.
The latest decision states that the CSRD will apply to companies with over 1,000 employees and annual revenue of €450 million (approximately $521 million), excluding financial holding companies and listed subsidiaries. The CSDDD will apply to companies with 5,000 employees and annual revenue of €1.5 billion, eliminating a uniform civil liability system, whereby companies subject to the system must ensure their transition plans comply with EU climate laws and the Paris Agreement.
The European business community believed that the original versions of these directives were too stringent and could weaken the global competitiveness of businesses, especially in competition with the US and Asian markets.
This decision came as a result of intensive lobbying efforts by business groups over the past few months. Over thirty CEOs from Germany and France jointly wrote to French President Macron and German Chancellor Merz this month, urging the complete abolition of the CSDDD. The leaders of both countries had previously expressed willingness to review the directive.
The US also expressed strong concerns about these two directives. The US Chamber of Commerce warned in a report that the applicability of the CSRD and CSDDD to American companies constitutes “unprecedented overregulation.”
Under pressure from the EU’s major member states and the business community, the EU made significant adjustments to these laws to alleviate the burden on small and medium-sized enterprises, but this move also sparked backlash from sustainable development groups.
Despite some investors and non-profit organizations acknowledging the necessity of simplifying the directives, they warned that the extent of reduction was too great.
Susanna Arus, the EU Public Affairs Manager of the environmental organization Frank Bold, pointed out that the development of clean technology requires a large amount of data which will be reduced as a result of the narrowed scope of the directives.
(This article references relevant reports from Bloomberg)