EU Parliament votes to weaken corporate sustainability laws – ESG Dive

Report on European Parliament’s Revisions to Corporate Sustainability Directives and Implications for Sustainable Development Goals

Executive Summary

The European Parliament has voted to significantly revise the European Union’s primary corporate sustainability laws, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). These changes, aimed at simplification and reducing administrative burden, raise the compliance thresholds for companies, delay reporting timelines, and remove key climate-related obligations. This report analyzes these legislative changes and their direct impact on the advancement of the United Nations Sustainable Development Goals (SDGs), particularly those concerning responsible production, climate action, and decent work.

Key Legislative Changes and SDG Alignment

The approved revisions represent a substantial scaling back of the original scope and ambition of the EU’s sustainability framework. The primary modifications are as follows:

• Raised Compliance Thresholds: The directives will now apply to a much smaller pool of companies, significantly reducing the number of entities mandated to report on and conduct due diligence regarding their sustainability impacts.
  • CSRD: Applicability is raised to companies with over 1,750 employees and 450 million euros in revenue.
  • CSDDD: Applicability is limited to companies with more than 5,000 employees and 1.5 billion euros in net revenue.
• Delayed Implementation: Mandatory reporting for newly covered companies under both directives is postponed until 2028, delaying corporate accountability and transparency.
• Removal of Climate Action Mandate: A critical requirement for companies under the CSDDD to develop and issue climate transition plans aligned with the Paris Agreement has been removed.

These changes directly affect the EU’s capacity to drive corporate contributions towards the 2030 Agenda for Sustainable Development.

Impact on Sustainable Development Goal 12: Responsible Consumption and Production

The CSRD and CSDDD were designed to be key instruments for achieving SDG 12 by mandating corporate transparency on supply chains and production impacts. The recent revisions present a challenge to this goal.

1. Reduced Corporate Transparency: By raising the compliance thresholds, an estimated 80-95% of companies originally covered will be exempt. This limits the availability of standardized, comparable data on corporate sustainability performance, hindering efforts to promote sustainable production patterns.
2. Weakened Due Diligence: The CSDDD’s higher threshold means fewer companies are legally obligated to identify, prevent, and mitigate adverse human rights and environmental impacts in their value chains, a core target of SDG 12.

Implications for Sustainable Development Goal 13: Climate Action

The legislative amendments directly weaken corporate accountability for climate change, representing a significant setback for SDG 13.

• The removal of the requirement for companies to adopt climate transition plans compatible with the Paris Agreement eliminates a crucial mechanism for ensuring the business sector contributes to global climate targets.
• Critics, including the World Wildlife Fund (WWF), argue that this vote signals a retreat from climate leadership, reducing the directives to “performative exercises” with little effect on the urgent need for climate action.

Setbacks for Sustainable Development Goal 8: Decent Work and Economic Growth

The due diligence directive was intended to protect human and labor rights within corporate value chains, a key component of SDG 8. The simplification measures may undermine this objective.

• With the CSDDD applying only to the largest corporations, oversight of labor conditions and human rights in the supply chains of thousands of smaller, yet significant, companies is diminished.
• Liability for due diligence failures will be managed at national levels rather than the EU level, potentially leading to inconsistent enforcement and weaker protections for workers globally.

Stakeholder Perspectives and Future Outlook

The decision has elicited varied responses, highlighting the tension between economic competitiveness and robust sustainability governance.

• Proponents of Simplification: Supporters, such as members of the European People’s Party, argue the changes are necessary to cut costs and enhance competitiveness, allowing businesses to grow and create jobs (aligning with one aspect of SDG 8).
• Critics and Environmental Groups: Organizations like the WWF have condemned the move, stating the European Parliament has turned “its back on climate and nature.”
• Industry Analysts: Experts from firms like PwC and KPMG note that despite the legislative rollback, market pressure from investors, regulators, and customers for credible sustainability information remains strong. They advise multinational businesses to continue developing robust data, reporting, and governance structures.

The legislative process will now proceed to negotiations between the EU member states, the European Parliament, and the European Commission, with a final agreement anticipated by the end of the year. The European Council has previously indicated a stance favorable to simplification.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article discusses the European Parliament’s decision to scale back corporate sustainability laws, specifically the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). This decision directly impacts several Sustainable Development Goals (SDGs) by altering the requirements for companies to be transparent and accountable for their environmental and social impacts.

• SDG 12: Responsible Consumption and Production

  This goal is central to the article, as the CSRD and CSDDD are primary mechanisms for encouraging companies to adopt sustainable practices and integrate sustainability information into their reporting. By weakening these directives, the EU is reducing the scope of corporate accountability for sustainable production.

• SDG 13: Climate Action

  The article explicitly mentions the removal of a requirement for companies to “issue transition plans compatible with the Paris Agreement.” This directly weakens corporate commitments to climate action. The World Wildlife Fund’s criticism that the Parliament “turn[s] its back on climate and nature” further underscores the connection to this goal.

• SDG 8: Decent Work and Economic Growth

  Corporate due diligence laws like the CSDDD are designed to address human rights and labor standards within corporate value chains. Scaling back the applicability of this directive means fewer companies are legally obligated to identify, prevent, and mitigate adverse impacts on workers’ rights, which is a core component of ensuring decent work.

• SDG 16: Peace, Justice and Strong Institutions

  This goal includes the development of effective, accountable, and transparent institutions at all levels. Corporate sustainability reporting is a key tool for making corporations, as powerful institutions, more transparent and accountable to the public, investors, and regulators. The simplification and raising of compliance thresholds reduce this transparency and accountability.

2. What specific targets under those SDGs can be identified based on the article’s content?

The article’s focus on changes to corporate reporting and due diligence regulations allows for the identification of several specific SDG targets that are being directly affected.

1. Target 12.6: Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle.

   This is the most directly relevant target. The entire purpose of the CSRD is to mandate the integration of sustainability information into corporate reporting. The article details how the changes significantly reduce the number of companies required to do this. It states that an earlier proposal “would have removed an estimated 80% of companies from the law’s scope,” and a KPMG expert notes the new changes reduce the covered companies to “just 5% of the original population.” This is a direct scaling back of efforts to achieve Target 12.6.

2. Target 13.2: Integrate climate change measures into national policies, strategies and planning.

   The EU’s directives are a form of regional policy and strategy. The article highlights a specific setback for this target by stating that the changes “include the removal of a requirement for CSDDD companies to issue transition plans compatible with the Paris Agreement.” This removes a key corporate climate action measure from the EU’s regulatory framework, undermining the integration of climate goals into corporate strategy.

3. Target 8.8: Protect labour rights and promote safe and secure working environments for all workers…

   The CSDDD is fundamentally linked to this target by requiring companies to conduct due diligence on human rights and labor issues in their supply chains. By raising the compliance threshold to only include companies with “more than 5,000 employees and 1.5 billion euros in net revenue,” the revised law exempts a vast number of large companies from these obligations, thereby weakening the protection of labor rights within their global operations.

4. Target 16.6: Develop effective, accountable and transparent institutions at all levels.

   The move to “simplify” the CSRD and CSDDD by raising the compliance thresholds directly impacts corporate transparency and accountability. Fewer companies will be required to report on their sustainability performance, making them less transparent institutions. The article notes the goal is “simplifying rules, cutting costs,” which in this context comes at the expense of the accountability that these regulations were designed to foster.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

The article does not mention official SDG indicators, but it provides several clear, quantifiable metrics that can serve as proxy indicators to measure the impact of these legislative changes on the identified targets. These are implied by the specific details of the policy changes.

• Number and percentage of companies covered by sustainability reporting requirements.

  This is a direct indicator for Target 12.6. The article provides specific data points, stating that the changes to the CSRD reduce the number of covered companies to “just 5% of the original population.” This quantifiable reduction serves as a clear indicator of a regression from the target.

• Compliance thresholds for corporate sustainability laws.

  This indicator measures the scope and ambition of regulations related to Targets 12.6, 8.8, and 16.6. The article specifies the new thresholds:

  • CSRD: Companies with “more than 1,750 employees and 450 million euros in revenue.”
  • CSDDD: Companies with “more than 5,000 employees and 1.5 billion euros in net revenue.”

  These figures act as a direct measure of how many companies are being held accountable.

• Mandate for climate transition plans.

  This serves as an indicator for Target 13.2. The article explicitly states there was a “removal of a requirement for CSDDD companies to issue transition plans compatible with the Paris Agreement.” The existence or removal of such a mandate is a binary indicator of progress on integrating climate measures into corporate policy.

• Timeline for compliance.

  The delay in implementation is another implied indicator. The article notes that reporting for companies for both regulations was delayed “until 2028.” This timeline extension indicates a reduced urgency and slower progress towards achieving the related SDG targets.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

Source: esgdive.com