Lawmakers in the European Parliament approved today a provisional agreement reached last week with EU member states to significantly scale back sustainability reporting and due diligence requirements for companies. The agreement was adopted with 428 votes in favor and 218 against, in addition to 17 abstentions.
The approval by MEPs forms one of the last steps towards the final adoption of the finalized Omnibus I package, launched by the EU Commission in February to simplify and reduce compliance burdens on companies across sustainability-focused regulations including the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). The agreement still requires approval by member states in the EU Council before entering into force.
The Commission’s initial proposal would have reduced the number of companies covered by the CSRD by approximately 80% by moving the regulation to cover only companies with more than 1,000 employees from the current 250 employee threshold, while retaining the CSDDD’s 1,000 employee threshold, in addition to shifting due diligence requirements to focus primarily at the level of direct business partners, unless the company has plausible information of adverse impacts further down the value chain. The initiative also introduced limits to the amount of information that could be requested from smaller value chain companies.
In forming their negotiating positions on the initiative, however, both the EU Parliament and member states in the European Council went much farther than the Commission’s initial proposals, resulting in sharper reductions in the number of companies covered by each regulation.
While retaining the initial proposal’s 1,000 employee cutoff for the CSRD, the agreement added a new threshold excluding companies with less than €450 million in annual revenues from being included in the regulation, removing an estimated 90% of companies from the sustainability reporting requirements.
The cuts to the CSDDD were even more drastic, with the co-legislators agreeing to raise the threshold for the sustainability due diligence regulation to 5,000 employees and €1.5 billion in revenue, removing the vast majority of companies.
Notably, the agreement includes review clauses for the CSRD and CSDDD, concerning a possible extension of the scope for both regulations.
In addition to reducing the number of companies covered by the CSRD and CSDDD, the agreement made additional changes to the current regulations, and to the Commission’s proposals, including removing the CSDDD’s obligation for companies to prepare climate transition plans. The agreement also eliminated the regulation’s EU-wide liability regime, and also lowered potential penalties under the regulation to a maximum cap of 3% of global revenues.
As proposed by the Commission, the agreement also limits the amount of information that companies under the scope of the regulations can request from smaller companies within their supply chains, allowing companies with under 1,000 employees to refuse to provide reporting information beyond that outlined in the voluntary sustainability reporting standard for SMEs (VSME), and directing companies under CSDDD to rely on primarily reasonably available information instead of systematically requesting information from smaller value chain companies.
Following the vote, Parliament’s Rapporteur Jörgen Warborn said:
”Parliament has listened to the concerns expressed by job creators across Europe. Backed by a broad majority, today’s vote delivers historic cost reductions while keeping Europe’s sustainability goals on track. This is an important first step in the ongoing efforts to simplify EU rules.”
