EU Council Adopts Position On Reduced Sustainability Reporting Requirements

Forbes

7 hours ago

People walk by a European flag. (Photo by)
On June 23, the Council of the European Union announced the adoption of their official position on reductions to sustainability reporting requirements. In February, the Commission proposed an Omnibus Simplification Package to reduce the requirements in both the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. The Council's position mostly followed the Commission on the CSRD, but greatly reduced the scope of the CSDDD. Now all eyes shift the Parliament as they debate their position before the three bodies begin final negotiations.
The EU adopted a series of directives to force businesses to address climate change and report greenhouse gas missions. The CSRD created requirements for businesses to report GHG emissions and other environmental, social, and governance actions. The CSDDD created additional reporting requirements, as well as legal liability, for companies in relation to their supply chain.
However, the cost of these proposals on businesses and the possible impact on the EU economy became a theme during the 2024 elections. The shift to the right in EU politics embolden opponents to the European Green Deal directives. As a result, the Commission proposed a package of new directives to 'reduce the burden' on businesses. The Omnibus Simplification Package was officially adopted by the Commission in February.
Once legislation is proposed by the Commission, the Parliament and the Council adopt positions. In the Parliament, the process is a typical legislative process with committees and members proposing amendments. The Council engages in negotiations behind closed doors, only releasing periodic updates. Once the three adopt positions, they enter into a 'trialogue' to negotiate the final directive.
The Parliament is actively engaged in the process to adopt their position. On June 23, the Council announced their final position.
Corporate Sustainability Reporting Directive
The current CSRD uses a two out of three criteria test to determine if a company must report. The Commission proposes raiding the employee threshold. Stating 'to be subject to the reporting requirements an undertakings must have an average of more than 1000 employees during the financial year and either a net turnover above €50 million or a balance sheet total above €25 million.' Bringing it in line with the CSDDD.
The Council's proposal uses the 1000 employee threshold, but raises the annual turnover to €450 million. They also add "a review clause concerning a possible extension of the scope to ensure adequate availability of corporate sustainability information"."
Corporate Sustainability Due Diligence Directive
The current CSDDD requires companies to execute due diligence in ensuring that companies along the value chain are in compliance with environmental and human rights requirements. The Commission did not propose changes to the scope, but the Council wants to raise the employee threshold to 5000 employees and an annual net turnover of €1.5 billion.
One key aspect of the CSDDD is that it holds businesses accountable for the actions of other companies along their value chain. The Commission proposal limits that responsibility of Article 8 to direct business partners. Indirect business partners may still fall under the scope, "where a company has plausible information that suggests that adverse impacts at the level of the operations of an indirect business partner have arisen or may arise, it shall carry out an in-depth assessment."
The Council proposes to change 'the focus from an entity-based approach to a risk-based approach, focusing on areas where actual and potential adverse impacts are most likely to occur. Companies should no longer be required to carry out a comprehensive mapping exercise, but instead, conduct a more general scoping exercise. To provide for a significant burden relief, the Council maintains the limitation of the relevant obligations to the 'tier 1'. In-scope companies are supposed to base their efforts on reasonably available information.'
The next steps to reduce sustainability reporting
It is clear that the EU will significantly reduce the scope of businesses that fall under both the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. The Parliament should adopt a final position in October. Then the trialogue will commence. The Commission is pushing for the final changes to be adopted by December, although negotiations may spill over into January.