The European Union has recently faced criticism for its decision to weaken corporate sustainability laws, a move that has sparked debate among environmentalists, investors, and governments worldwide. The deal, reached after months of pressure from companies and governments, including the United States and Qatar, aims to reduce the burden of EU red tape and strict regulation on businesses, particularly those with fewer employees and lower turnover. This decision comes in response to concerns from industries that EU regulations hinder their competitiveness with foreign rivals.
The changes include dropping the requirement for climate transition plans and lowering the threshold for corporate sustainability reporting. The EU's corporate sustainability reporting directive (CSRD) now only applies to companies with more than 1,000 employees and an annual net turnover exceeding 450 million euros ($524 million), a significant reduction from the previous threshold. For non-EU firms, the turnover threshold is set at 450 million euros generated within the bloc.
The deal also limits the EU's corporate sustainability due diligence directive (CSDDD) to the largest EU corporations, which have more than 5,000 employees and an annual turnover exceeding 1.5 billion euros. Non-EU companies with EU turnover above this level will also be covered by these rules.
This decision has been met with concern from environmental campaigners and some investors, who argue that it undermines the EU's commitment to sustainability and human rights. The push to weaken the laws had dismayed these groups, who urged Brussels to maintain the rules to support European priorities. However, Denmark's European affairs minister, Marie Bjerre, and Swedish lawmaker Jorgen Warborn view the agreement as a positive compromise, aiming to create a more favorable business environment for European companies.
The United States and Qatar have been vocal in their pressure on Brussels to scale back the due diligence law, warning of potential disruptions to liquefied natural gas trade with Europe. Companies like Exxon Mobil and the leaders of Germany and France have also sought deeper cuts, including the complete scrapping of the due diligence law, citing its negative impact on European business competitiveness.
Despite the controversy, the EU Parliament and EU countries must still give formal approval for the changes to become law. This process is expected to be a formality, as the deal was pre-agreed upon. The Thomson Reuters Trust Principles will guide the reporting process, with compliance required by July 2029, and penalties capped at 3% of companies' global turnover for non-compliance.
