ICYMI, the European Commission has decided to simplify the rules it had planned to introduce on sustainability reporting and due diligence.  

It comes against the background of geopolitical change and trade upheaval and aims to reduce the complexity of EU requirements for all businesses, while focusing the regulatory framework on the largest companies which it says are likely to have a bigger impact on the climate and the environment.  The key changes relate to the controversial Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), among other things. 

The CSRD requires companies in-scope to report both on how sustainability issues affect their performance, position, and development and on their own impact on the environment and people. The CSDDD contains a framework for sustainability due diligence for large EU companies and non-EU companies with significant EU activity.

Sustainability reporting

Among other things, the new package:

• Removes around 80% of companies from the CSRD's scope, focusing the sustainability reporting obligations on the largest companies which are more likely to have the biggest impacts on people and the environment;
• Aims to ensure that sustainability reporting requirements on large companies do not burden smaller companies in their value chains; 
• Postpones by two years (until 2028) the reporting requirements for companies currently in the scope of CSRD and which are required to report as of 2026 or 2027; and
• Provides for voluntary reporting.

Sustainability due diligence

Some of the key changes are:

• Simplifying sustainability due diligence requirements so that companies in scope avoid unnecessary complexities and costs, for example, by focusing systematic due diligence requirements on direct business partners (rather than, for example, partners' subcontractors) and by reducing the frequency of periodic assessments and monitoring of their partners from annual to five years, with ad hoc assessments where necessary;
• Reducing burdens and trickle-down effects for smaller organisations by limiting the amount of information that may be requested as part of the value chain mapping by large companies;
• Further harmonising due diligence requirements to ensure a level playing field across the EU; and
• Giving companies more time to prepare to comply with the new requirements by postponing the application of the sustainability due diligence requirements for the largest companies by one year (to 26 July 2028), while advancing the adoption of the guidelines by one year (to July 2026).

The legislative proposals will now be submitted to the European Parliament and the Council for their consideration and adoption.  Following last year's elections, the European Parliament has a significantly different political makeup to the previous one which passed the CSRD and CSDDD and this will probably affect the final legislation.  

Questions arise about whether the EU is watering down sustainability laws aimed to facilitate the net zero transition. Many organisations have already begun preparing for and, in some cases, complying with the legislative requirements that the revised package now aims to significantly alter. Despite the aim being to reduce compliance burdens, many organisations are worried that substantial expenses have already been incurred in anticipation of this legislation, potentially rendering those efforts and investments futile.

The Council has adopted its position on the revised rules and the European Parliament has overwhelmingly agreed to delay their application as well.  To enter into force, the draft rules now require formal approval by the Council.