European Parliament Formally Approves Scaled-Back Sustainability Reporting & Due Diligence Rules

Key Takeaways

• Parliament Confirms Earlier Deal: The European Parliament has formally approved the provisional agreement reached earlier this month to scale back sustainability reporting and due diligence rules.
• Reporting Scope Narrowed: Mandatory sustainability reporting will apply only to companies with more than 1,000 employees and over €450 million in annual turnover.
• Due Diligence Limited to Largest Firms: Only companies with more than 5,000 employees and €1.5 billion in turnover will face mandatory due diligence obligations.
• Transition Plans Officially Removed: Climate transition plans are no longer part of the due diligence framework.
• Delayed Application: Due diligence requirements will not apply until 26 July 2029.

Deep Dive

The European Parliament has formally approved a revised sustainability reporting and due diligence framework, giving legal and political backing to a deal EU lawmakers struck earlier this month to narrow the scope of the bloc’s corporate sustainability obligations.

The vote, held Tuesday in plenary, confirms the provisional agreement reached between Parliament negotiators and EU governments as part of the European Commission’s Omnibus I simplification package. The reforms significantly reduce the number of companies subject to mandatory sustainability reporting and confine due diligence obligations to only the largest corporate groups operating in or into the EU.

The text was adopted with 428 votes in favor, 218 against, and 17 abstentions. It must still receive formal approval from the Council before entering into force.

Reporting Obligations Formally Limited

Under the approved framework, sustainability reporting will be required only for EU companies with more than 1,000 employees and net annual turnover exceeding €450 million. The same turnover threshold will apply to non-EU companies generating more than €450 million in EU turnover, as well as their EU subsidiaries and branches with turnover above €200 million.

The Parliament’s vote locks in earlier political commitments to simplify reporting requirements. Sector-specific reporting will become voluntary, and the European Commission will establish a digital portal to centralize templates and guidance on EU and national reporting obligations.

Crucially for smaller firms, the final text confirms that companies with fewer than 1,000 employees cannot be compelled by larger business partners to provide sustainability information beyond what is included in voluntary reporting standards. Lawmakers framed this as a safeguard against reporting obligations quietly cascading down supply chains.

Due Diligence Confined to Corporate Heavyweights

The approved reforms also confirm that due diligence obligations under the Corporate Sustainability Due Diligence Directive (CSDDD) will apply only to very large companies.

Only EU companies with more than 5,000 employees and net annual turnover above €1.5 billion will be required to identify and address adverse human rights and environmental impacts across their operations and chains of activities. The same threshold applies to non-EU companies generating equivalent turnover within the EU.

Companies within scope will be required to carry out scoping exercises to identify risks, but may request information from smaller business partners only where it cannot reasonably be obtained through other means. Mandatory transition plans aligning business models with the shift to a sustainable economy, one of the most debated elements of earlier drafts, have been formally removed.

Enforcement will remain at national level, with companies facing potential fines of up to 3% of their net worldwide turnover for non-compliance.

The due diligence rules will apply from 26 July 2029, a delayed start date intended to give affected companies time to adjust.

Lawmakers Frame Vote as Certainty, Not Retreat

Jörgen Warborn, rapporteur for the Parliament’s Legal Affairs Committee, said the vote reflects lawmakers’ response to concerns from businesses about regulatory burden while keeping sustainability objectives intact.

“Parliament has listened to the concerns expressed by job creators across Europe,” Warborn said. “Backed by a broad majority, today’s vote delivers historic cost reductions while keeping Europe’s sustainability goals on track. This is an important first step in the ongoing efforts to simplify EU rules.”

While critics continue to argue that scaling back CSRD and CSDDD weakens the EU’s climate leadership, supporters say the formal adoption provides long-awaited clarity for companies that have been planning for years amid shifting timelines and political uncertainty.

The revised directive must now be formally approved by the Council. Once published in the Official Journal, it will enter into force 20 days later.

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