Dive Brief:
- The European Council and European Parliament — co-legislators for the European Union — announced Tuesday they had reached an agreement to alter the scope and requirements for the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive.
- The agreement alters the compliance thresholds for the two corporate sustainability laws to largely align with a version that the European Parliament passed last month. However, the CSRD will apply to companies with more than 1,000 employees, rather than the 1,750 employee threshold Parliament voted to approve.
- The revised compliance 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 in a Tuesday blog.
Dive Insight:
The agreement between the European Council and Parliament is largely consistent with what passed Parliament last month, with the exception of the reduced employee threshold for CSRD compliance. Under the agreement, publicly listed small and medium entities will also be removed from the law’s scope.
The agreement alters the CSRD’s scope to apply to EU-based companies with more than 1,000 employees and 450 million euros (over $523 million) in revenue, as well non-EU entities which generate over $523 million in revenue in the EU, according to the European Parliament. The CSDDD’s revised scope would apply to companies in the bloc with more than 5,000 employees and 1.5 billion euros (over $1.7 billion) in revenue, as well as non-EU entities that generate more than $1.7 billion in revenue in the EU.
Marie Bjerre, minister for European affairs for Denmark — which currently holds the European Council’s rotating presidency — said Tuesday the agreement delivers on a “promise to remove burdens and rules and boost EU’s competitiveness.”
“This is an important step towards our common goal to create a more favorable business environment to help our companies grow and innovate,” Bjerre said in the Council’s press release.
“We have secured a very good compromise,” Jörgen Warborn, a member of the European People’s Party, said in a separate release from Parliament. “We are making the sustainability rules easier to comply with, delivering historic cost reductions for businesses.”
The Dec. 9 agreement also exempts financial holdings from the CSRD and creates a transition period for wave one reporting companies — which have reported since 2024 — that fall out of scope. The agreement also eliminates the requirement for CSDDD reporting companies to issue climate transition plans.
The legislators also agreed to eliminate EU-level liability for the CSDDD and cap penalties at 3% of a company’s global net revenue. Review clauses were inserted for the CSDDD’s EU harmonized liability regime and the scope of the both sustainability reporting laws, providing for the possibility of the reinsertion of bloc-level liability and expanding the laws’ scope.
EU legislators have worked on simplifying the bloc’s corporate sustainability laws since February, when the European Commission adopted an omnibus package that included proposals to streamline reporting requirements and remove 80% of companies from the CSRD’s scope. After the European Council and Parliament separately passed reporting delays for the CSRD and CSDDD in the spring, Parliament was initially split on how to alter the underlying reporting requirements.
The European Parliament voted in November to approve changes to the CSRD and CSDDD that would have left just 5% of the original CSRD population in scope, KPMG Global Head of Corporate & Sustainability Reporting Mark Vaessen told ESG Dive last month.
The focus on EU revenue as the sole compliance threshold for non-EU entities comes after the European Union reached a trade agreement with the United States over the summer that included a promise to reduce the administrative burden of the bloc’s sustainability reporting laws on U.S. companies.
Following the agreement, the deal will need to be formally endorsed and approved by the full bodies of both European co-legislators. Parliament’s Legal Affairs Committee plans to hold a vote on the agreement on Dec. 11, with the full Parliament to vote on it during its plenary session running from Dec. 15-16, according to Parliament’s release. A Council vote is expected Dec. 10, with formal adoption later this month or early January, according to legal experts from Ropes & Gray.
