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The European Parliament has reached a compromise to scale back key EU sustainability regulations, significantly narrowing the scope of corporate reporting and due diligence requirements. The agreement affects the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD), both central pillars of the EU’s broader ESG policy framework.
Under the new deal, the CSDDD will only apply to the largest companies: those with over 5,000 employees and more than €1.5 billion in revenue. This marks a dramatic shift from earlier drafts that would have included mid-sized firms. The CSRD will retain its 1,000-employee threshold but now includes an added €450 million revenue requirement, further limiting its reach.
In addition to narrowing the scope, the deal also modifies the methodology. Due diligence will now follow a risk-based approach rather than an entity-based one, aiming to reduce compliance burdens on smaller actors within supply chains. This shift has been framed as a compromise between regulatory ambition and business feasibility.
The new position is set to move through the Legal Affairs Committee before facing a full Parliament vote later in the month. If passed, it will become the European Parliament’s official stance in upcoming negotiations with the EU Council.
The political debate around the deal was contentious. Left-leaning lawmakers argued to maintain more robust ESG obligations, while far-right factions pushed to dismantle the directives altogether. The final agreement represents a middle ground, though it has been criticized for weakening the EU’s climate and human rights agenda.
While supporters say the revisions restore regulatory balance and reduce administrative overload, critics argue they undermine the EU’s credibility and effectiveness in promoting sustainable business practices. By exempting thousands of mid-sized firms, the new thresholds could allow significant ESG risks going unmonitored, particularly in complex global supply chains.
This development marks a significant recalibration of the EU’s ESG trajectory and will likely influence the global conversation on corporate accountability and sustainability governance.
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