Countries within the European Union reach consensus on tightening business sustainability regulations

The European Union's efforts towards enhancing corporate sustainability have taken a significant step back, as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) have been agreed to be diluted by EU Member States.

The dilution of these directives signifies a shift in Europe's approach to corporate sustainability, raising concerns among environmental groups and sustainability advocates. Thibault Girardot, Sustainable Finance Policy Officer at WWF EU, has expressed his concern that the dilution could undermine Europe's efforts towards sustainable corporate practices.

The CSRD and CSDDD are directives aimed at enhancing corporate sustainability in Europe. However, the decision to dilute them has been criticized for introducing confusion and legal uncertainty across the EU's sustainability rulebook. The scope of both Directives has been drastically reduced, potentially leaving thousands of companies outside of reporting and due diligence obligations.

One of the most significant changes is the slicing of requirements for companies to adopt climate transition plans, which link corporate behavior to the EU's climate goals. The Member States' agreement also distorts the concept of risk-based due diligence, limiting its application to direct suppliers (Tier 1).

Moreover, the CSDDD will only apply to companies with more than 5,000 employees and €1.5 billion in net turnover, excluding a significant number of very large firms from oversight. This decision places legal limits on how far companies can go in collecting sustainability data from their business partners, potentially denying investors access to necessary data for risk assessment and capital allocation.

Germany and certain other EU countries have decided to significantly dilute the CSRD and CSDDD, a move that has been opposed by the international human rights NGO Article 19. They have called for stricter safeguards to be implemented by member states to ensure the directives remain effective in promoting corporate sustainability.

WWF urges Members of the European Parliament to reject the regressive position and uphold the ambition and coherence of the EU's financial sustainability framework. The weakening of the CSRD and CSDDD signals a reduction in Europe's commitment to corporate sustainability, and could potentially undermine Europe's efforts towards sustainable corporate practices.

The Council published a press release on 23 June, revealing the dilution of the CSRD and CSDDD. As the EU moves forward, it is crucial to maintain a strong and coherent approach to corporate sustainability to ensure long-term economic and climate resilience.

Countries within the European Union reach consensus on tightening business sustainability regulations