Dive Brief:
- The European Council approved the simplification of the European Union’s corporate sustainability reporting laws on Tuesday, greenlighting changes the bloc’s co-legislators agreed to in December.
- In addition to changing the scope and requirements of the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive, the Council will give member states additional time to incorporate the CSDDD’s changes into their national regulatory framework. The first wave of companies will have to comply with the due diligence law in 2029, according to a Feb. 24 press release.
- The new employee and revenue thresholds are expected to remove 90% of companies from the scope of the CSRD and 70% of companies from the CSDDD’s scope, law firm Ropes & Gray estimated after legislators reached an agreement. The European Parliament approved the package of changes in December.
Dive Insight:
The Council’s approval signals the conclusion of a simplification process — at least for these two laws — that began nearly a year ago, when the European Commission proposed altering the scope of the CSRD and other sustainability reporting requirements for the bloc in an omnibus package. Last spring, the bloc’s co-legislators delayed the reporting timelines for the CSRD and CSDDD while changes were worked out. The next wave of CSRD companies will have until 2028 to comply, while Tuesday’s approval further delays CSDDD reporting until 2029.
Under the adopted changes, the CSRD will apply to companies with over 1,000 employees and €450 million ($531 million) in revenue. Non-EU companies with a parent entity that has over €450 million in EU revenue and EU-based subsidiaries with over €200 million ($236 million) in revenue will also have to comply.
The CSDDD scope was changed to apply to EU companies with over 5,000 employees and €1.5 billion ($1.77 billion) in revenue. Non-EU entities with over €1.5 billion in EU revenue will also have to report under the CSDDD. The modified CSDDD also removes the requirement for companies to adopt and share a transition plan.
Marilena Raouna, the deputy minister of European affairs for Cyprus — which holds the Council’s rotating presidency — said in the release that the adopted package reduces “unnecessary and disproportionate burdens on our businesses, with simpler, more targeted and more proportionate rules, both for [EU] companies and [EU] citizens.”
The package also gives companies who were in the first wave of CSRD reporting companies but have fallen out of scope with the changes an exemption. The CSDDD changes also removed EU-level liability and capped penalties for violation at 3% of a company’s global net revenue. “Businesses will be liable at a national level for failure to apply the rules correctly,” according to the release.
The updated legislation will be published and come into force over the next month and, once in effect, EU member states will have a year to integrate the changes to the CSRD into their national laws, and will have until July 26, 2028, to integrate the CSDDD changes.
Whether member states meet that deadline is a different matter. In October 2024, before the bloc began the simplification process, the European Commission chastised 17 member countries for failing to fully incorporate the CSRD into their national laws.
