EU Lawmakers Strike Deal to Scale Back Sustainability Reporting & Due Diligence Rules

Key Takeaways

• CSRD Scope Narrowed: Sustainability reporting will apply only to companies with more than 1,000 employees and annual turnover above €450 million, significantly reducing the number of firms impacted.
• CSDDD Limited to Corporate Heavyweights: Due diligence obligations now focus solely on companies with over 5,000 employees and €1.5 billion in turnover, including non-EU firms operating in the EU.
• Transition Plans Dropped: Businesses will no longer be required to adopt Paris-aligned climate transition plans as part of due diligence obligations.
• Compliance Streamlined: Sector-specific reporting becomes voluntary, and a new digital portal will offer templates and guidance to simplify requirements.

Deep Dive

Brussels has taken a noticeable step back from some of its most far-reaching sustainability ambitions. After a marathon round of negotiations, EU lawmakers reached a provisional deal to trim down the scope of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), a course correction shaped by delays, industry pressure, and a shifting political mood.

The agreement, struck Tuesday between Parliament negotiators on the Legal Affairs Committee and EU governments, is part of the Commission’s Omnibus I effort to simplify rules before they fully land on companies’ desks. The message is that sustainability isn’t going anywhere, but neither is competitiveness.

CSRD: Fewer Firms, Simpler Files

Under the political compromise, sustainability reporting will apply only to companies that truly sit at the top of the size spectrum:

• More than 1,000 employees
• Annual net turnover above €450 million

That same €450 million turnover threshold will apply to foreign companies active in the EU as well.

Rather than expanding new reporting chapters, lawmakers want leaner, more quantitative disclosures going forward, with sector-specific reporting becoming voluntary. To help businesses stay on track, the Commission will roll out a digital reporting portal that gathers EU and national requirements in one place.

And one detail that didn’t slip through was that companies under 1,000 employees can refuse sustainability data demands from partners if they go beyond voluntary standards. That’s meant to keep reporting duties from quietly cascading down supply chains.

CSDDD: Due Diligence Reserved for the True Giants

CSDDD, once expected to apply broadly, will now touch only the very largest firms operating in Europe. Companies with more than 5,000 employees and over €1.5 billion in annual turnover will remain responsible for identifying and mitigating human-rights and environmental risks in their operations and value chains. That includes non-EU companies doing significant business inside the bloc.

One major shift is that businesses will no longer be required to develop climate transition plans aligned with the Paris Agreement, which was a signature element of earlier drafts. Enforcement stays at national level, with potential fines of up to 3% of global turnover for companies that fall short. Regulators are pushing a risk-based approach to ensure firms outside the scope aren’t burdened with unnecessary information requests.

One of the most debated features didn’t survive the talks: mandatory climate transition plans tied to the Paris Agreement. Enforcement will remain at national level, and fines of up to 3% of global turnover remain part of the toolkit.

Regulators say the risk-based approach should also prevent unnecessary paperwork landing on companies outside the directive’s scope.

A Win for Competitiveness or a Retreat on Climate?

As is often the case in Brussels, the same deal is being celebrated and criticized for opposite reasons. Jörgen Warborn (EPP, Sweden), who led the negotiations for Parliament, insisted the EU had found the sweet spot:

“We are making the sustainability rules easier to comply with, delivering historic cost reductions for businesses, and still delivering for European citizens. This is a win for competitiveness and a win for Europe.”

But for those who saw CSRD and CSDDD as pillars of the EU’s climate leadership, removing transition plans and shrinking the scope risks turning a flagship agenda into something much smaller, even if the official line is “simplification.” The divide captures Europe’s current balancing act of climate ambition one day and economic caution the next.

The Legal Affairs Committee is set to vote on the deal 11 December 2025, with a final Parliament vote expected later in the month in Strasbourg. If approved, the shift could redraw sustainability compliance planning for 2026 and spark a new round of debate over whether Europe is recalibrating or retreating.

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