EU Member States Weigh Diluting CSRD and CSDDD Rules
- The European Council agrees to tone down sustainability disclosure laws under the guise of simplifying them.
- More companies are likely to go off the sustainability radar, impacting global climate targets.
- Sustainability advocates are urging the European Parliament to reject the Council's decision.
In a body blow to sustainability disclosure, EU Member States have agreed to dampen two central sustainability laws: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
The laws were enacted to make EU businesses more transparent and accountable for their environmental and human rights commitments. A dilution of these laws will reduce the number of companies following these rules and undermine the EU's earlier climate and sustainability goals.
Ostensibly, the changes were proposed to simplify the rules, but critics say that this is misleading.
READ MORE: The Rise of Mandatory ESG Reporting Under CSRD: What Organizations Need to Know
The process was carried out quickly, rushed, and politically driven, without expert input, notes WWF EU. The group also added that this is being done to prioritise short-term profits over long-term environmental and social benefits.
This will also put businesses that are already complying on the back foot, as they now have to compete unfairly with companies that are not held to the same standards.
A major alteration is that the scope of the directives has been narrowed, meaning only companies with over 5,000 employees and €1.5 billion in turnover need to follow the CSDDD — ruling out many large businesses, which are now excluded from the system and no longer required to report on sustainability risks.
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In addition, due diligence requirements covering the entire supply chain will now only apply to direct suppliers (Tier 1), raising more concerns as environmental and human rights risks often occur in the supply chain.
Another change is the removal of the requirement for climate transition plans. Under the original rules, businesses had to disclose how aligned they were with the Paris Agreement. However, under the new proposal, they are no longer required to adopt or explain such plans.
WWF again points out that this will decimate the concept of corporate transition planning and make it more like a box-ticking exercise.
Investors are also operating from a position of weakness. With the Council now setting caps on how much sustainability data a company can collect from business partners, investors will grapple with the lack of information or data and be unable to evaluate risks or invest responsibly.
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Sustainability cohorts are now rolling up their sleeves and urging the European Parliament to step in immediately and reject the Council's decision. They demand that lawmakers uphold the original ambitions of the EU's sustainability framework.
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