ESG Streamlining: EU Council Approves New Rules for Sustainability Reporting and Due Diligence

The Council of the European Union has approved new rules to make it easier for companies to report on sustainability and follow due diligence requirements. These changes are part of a wider plan to make the EU economy more competitive. The reform updates two main laws, the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. The goal is to reduce complicated rules and paperwork, especially for smaller companies, while still keeping important environmental and social standards.

One key change is that fewer companies will need to report. Only large companies with more than 1,000 employees and over €450 million in yearly turnover will be included. There are also clearer rules for companies based outside the EU. They will only need to report if they make more than €450 million in the EU and if their EU branch or subsidiary makes more than €200 million. This focuses the rules on big companies that have the resources to handle them.

There are also temporary exceptions for companies that were preparing to report under the old rules but will no longer need to. Some financial holding companies will no longer have to produce group sustainability reports. These changes are meant to avoid unnecessary costs and give businesses more certainty.

The due diligence rules have also been limited to very large companies. Now, only companies with more than 5,000 employees and over €1.5 billion in turnover are included. The idea is that the biggest companies have the most influence over global supply chains and are better able to manage risks related to human rights and the environment.

Companies will also have more flexibility in how they check for risks. Instead of reviewing everything, they can focus on areas where problems are most likely. They can also rely on available information and focus more on direct business partners. This should reduce pressure on smaller suppliers.
To further reduce the burden, companies no longer need to create a formal climate transition plan under these rules. The EU has also removed a plan for a common system of legal liability across all member states. Instead, each country will decide its own rules. Companies that break the rules can still be fined, with a maximum penalty of 3% of their global turnover.

The timeline has been extended. EU countries now have more time to put these rules into national law, and companies will have until July 2029 to fully comply.

These changes are part of a bigger effort to simplify EU regulations and support businesses. EU leaders have called for simpler rules to help companies grow, invest, and compete globally.

Overall, the reform tries to balance two goals: keeping strong sustainability standards while making the rules easier and more practical for businesses to follow.