EU Eases Corporate Due Diligence Rules for Businesses
The European Union has taken a significant step towards easing corporate due diligence rules, aiming to support businesses and enhance the region’s competitiveness. This move comes as part of a broader effort to reduce the administrative burden on companies, particularly those involved in sustainability and human rights reporting.
According to recent decisions made by the European Parliament, only large corporations with more than 5,000 employees and annual revenues exceeding €1.5 billion will now be required to comply with the bloc’s corporate due diligence law. This is a notable shift from the previous threshold of 1,000 employees and €450 million in turnover. The change was approved by 17 votes in favor and six against during a vote in the legal affairs committee.
This law mandates that companies assess their supply chains for any unethical environmental or labor practices. The intention behind this regulation was to prevent future disasters similar to the Rana Plaza collapse in Bangladesh in 2013, which resulted in over 1,000 fatalities. However, since its adoption in May 2024, the law has faced criticism from various business groups, who argue that it imposes an excessive burden on companies and undermines the EU’s global competitiveness.
Pressure from Washington, especially during ongoing trade negotiations, is also believed to have influenced the EU’s decision to revise these sustainability regulations. In response, the European Commission proposed administrative simplifications in February through what is known as the Omnibus package. This initiative aims to reduce the reporting obligations under several EU sustainability laws, including the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).
Predictability for Companies
Swedish MEP Jörgen Warborn, a member of the European People’s Party (EPP), played a key role in shaping the new due diligence rules. He emphasized that the changes would provide predictability for European companies. Warborn’s approach was firm, as he threatened to align with far-right factions if the left-wing parties did not make concessions to reach a compromise. This led to the resignation of Lara Wolters, a Dutch lawmaker co-leading the negotiations.
The push to weaken the sustainability rules has been supported by a significant number of European companies, including TotalEnergies and Siemens. These firms have urged German Chancellor Friedrich Merz and French President Emmanuel Macron to abolish the corporate due diligence rules. Additionally, US oil and gas giant Exxon Mobil has been actively lobbying both US lawmakers and EU institutions to ease these regulations, according to reports from the Centre for Research on Multinational Corporations.
Criticism and Concerns
Despite the changes, some experts and officials have raised concerns about the implications of these revisions. Ann Mettler, former Commission director-general and vice president for Europe at Breakthrough Energy, expressed disappointment over the lack of supportive mechanisms for growing companies. She highlighted the punitive nature of the current schemes, which impose additional compliance requirements on larger firms.
Mettler also criticized the EU’s reliance on cheap Chinese products while simultaneously demanding clean supply chains. “What is adding insult to injury, however, is first making our companies dangerously dependent on ‘cheap’ made-in-China products and now demanding a squeaky-clean supply chain via (the EU’s corporate due diligence law),” she said.
Diverging Views on Competitiveness
Not everyone agrees that simplifying these crucial rules will benefit the EU’s competitiveness. Former European leaders, such as Finland’s Sanna Marin and the EU’s Josep Borrell, signed a letter urging the bloc to maintain its sustainability rules. They rejected the idea that there is a false dichotomy between sustainability and efficiency.
Enrico Giovannini, a former Italian Minister, emphasized that weakening sustainability rules could come at a high cost. “Sustainability isn’t the burden — the burden is not being sustainable,” he stated.
Legal and Environmental Concerns
The Swedish law firm Cirio has pointed out that the Commission’s proposal to simplify sustainability rules conflicts with EU law, as it lacks any impact assessment. This claim was supported by a preliminary legal analysis conducted by Baldon Avocats, commissioned by the non-profit ClientEarth.
Audrey Changoe, trade and investment policy coordinator at Climate Action Network Europe (CAN), described Monday’s vote as a “clear win for Big Oil.” She argued that the removal of implementation requirements reduces the law to a mere greenwashing paperwork exercise. “EU lawmakers are losing sight of both their democratic duty and the climate reality, siding with fossil fuel giants while ignoring the majority of EU citizens who want stronger climate action,” she added.
Next Steps
While the report, which will initiate inter-institutional talks, retains mandatory climate transition plans and maintains a relatively robust due diligence framework for companies, the increase in the company size threshold does not improve the civil liability regime. This marks a significant setback for enforcement and corporate accountability.
After Monday’s vote in the Parliament, lawmakers will need to ratify the decision during a plenary session in Strasbourg, likely scheduled for 20 October. Once the full house has cast its vote, negotiations between the Council, the Parliament, and the Commission will begin.
