• Scope of EU due diligence rules reduced to firms with 5,000+ employees and €1.5 billion ($1.8 billion) turnover, significantly shrinking coverage.
• Compliance deadline pushed to 2029 and requirement for climate transition plans removed.
• Reporting rules also tightened, raising thresholds and reshaping transparency expectations for investors.

European Union member states have given final approval to scale back landmark corporate sustainability rules, narrowing the scope of supply chain due diligence and reporting obligations after sustained pressure from industry groups and foreign governments.

EU ministers meeting in Brussels endorsed amendments to the Corporate Sustainability Due Diligence Directive (CSDDD), following negotiations between EU governments and the European Parliament last year. The changes reduce the number of companies required to address environmental and human rights risks in their supply chains and delay compliance timelines.

The revisions reflect mounting concerns among European industries that regulatory burdens could weaken competitiveness against foreign rivals. However, environmental advocates and some institutional investors warn the changes could complicate efforts to identify companies with credible sustainability practices.

Scope Reduced to Largest Corporations

Under the revised framework, the CSDDD will apply only to EU companies with more than 5,000 employees and annual turnover exceeding €1.5 billion ($1.8 billion). Foreign firms generating equivalent turnover within the EU will also fall under the rules.

Companies found in breach may face fines of up to 3 percent of net global turnover.

“We are reducing unnecessary and disproportionate burdens on our businesses, with simpler, more targeted and more proportionate rules,” said Marilena Raouna, Cyprus’s deputy EU affairs minister, who chaired the meeting.

The move significantly narrows the directive’s reach compared with earlier proposals that would have covered thousands more companies across the bloc.

Geopolitical Pressure and Energy Security Concerns

External pressure played a role in shaping the final outcome. The United States and Qatar urged the EU to scale back the directive, warning that strict due diligence requirements could disrupt energy supply chains, particularly gas exports to Europe.

Industry actors have also weighed in. U.S. oil and gas major ExxonMobil criticised the revised framework as insufficient, arguing that compliance complexity remains a concern for global operators.

The episode illustrates the growing intersection of climate policy, trade relations, and energy security, as Europe balances sustainability ambitions with strategic supply needs.

Compliance Delayed and Climate Plan Requirement Dropped

The EU has extended the compliance deadline to mid-2029, compared with a previous target of mid-2027 for larger companies. Lawmakers also removed a requirement for companies to adopt climate transition plans aligned with global temperature goals.

For corporate boards, the delay provides additional time to adapt governance systems and supply chain oversight frameworks. For climate advocates, the removal of transition planning obligations weakens alignment with global decarbonisation pathways and frameworks such as the Paris Agreement.

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Sustainability Reporting Thresholds Also Tightened

The amendments extend to the Corporate Sustainability Reporting Directive (CSRD), which requires companies to disclose environmental and social impacts to improve transparency for investors and consumers.

Under the revised rules, reporting obligations will apply only to companies with more than 1,000 employees and annual net turnover exceeding €450 million, as well as non-EU companies with equivalent turnover within the bloc. Previously, the threshold included firms with more than 250 employees.

The higher threshold will substantially reduce the number of companies required to report, potentially limiting the volume of ESG data available to markets while easing compliance costs for mid-sized firms.

What Executives and Investors Should Watch

For multinational corporations, the revised rules reduce immediate compliance pressure but maintain significant obligations for the largest global players. Supply chain due diligence remains a material governance issue, with potential fines tied to global revenue.

Investors face a shifting transparency landscape. Fewer reporting entities could constrain ESG data comparability, complicating risk assessment and sustainable investment screening.

From a policy perspective, the EU’s recalibration highlights the tension between regulatory ambition and economic competitiveness. It also signals a more pragmatic phase in sustainability governance as geopolitical pressures, trade dynamics, and energy security concerns reshape climate policy implementation.

Globally, the decision may influence how other jurisdictions design due diligence and reporting frameworks, particularly as companies navigate overlapping regulatory regimes across Europe, North America, and emerging markets.

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