Proposes Over 900 Alterations for Sustainability Reporting Legislation by European Parliament
The future of sustainability reporting in the European Union hung in the balance as legislators debated far-reaching changes to the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directives. The European Commission had unveiled proposed reforms in its Omnibus Simplification Package, which was now in deliberation within the Parliament and Council.
As part of the European Green Deal, a trio of directives were passed by the EU to urge businesses to confront climate change and report greenhouse gas emissions. A taxonomy for sustainable activities introduced a classifying system for businesses and investors to identify environmentally friendly activities. The Corporate Sustainability Reporting Directive (CSRD) mandated companies to document GHG emissions and other environmental, social, and governance actions. The Corporate Sustainability Due Diligence Directive (CSDDD), also known as the CS3D, imposed additional reporting obligations and legal responsibility for companies in relation to their supply chain.
However, the burdens on businesses and potential broader impacts on the EU economy emerged as a theme during the 2024 elections. The shift towards the right in EU politics bolstered opposition to the European Green Deal directives. Consequently, the Commission proposed a suite of new directives to "lessen the burden" on businesses.
The Omnibus Simplification Package was officially adopted by the Commission back in February and was now under consideration in the Council and Parliament. In the Parliament, the debate was open to the public and played out through various committees, allowing stakeholders and Members of the European Parliament (MEPs) to voice opinions.
The Committee on Legal Affairs, known as JURI, was the primary committee tasked with producing the legislation that would be put to a vote in the Parliament. Related committees would draft opinions to be considered during the process. The committees operated independently, but there would be coordination with party leaders and a cross-over of committee members.
Both the Committee on Economic and Monetary Affairs (ECON) and the Committee on the Environment, Climate, and Food Safety (ENVI) had posted amendments proposed by their respective members. These were presented in three documents. ECON had proposed 514 amendments and ENVI had proposed 473 amendments, divided into 1-206 and 207-473.
These amendments modified the language of the Omnibus Simplification Package as conceived by the Commission. The sheer volume of amendments was more an aspect of procedure than a reflection of divergent opinions. Instead, every alteration to every subparagraph was offered separately as an amendment. In ENVI, this resulted in 473 amendments, which could be grouped into 13 core proposals.
The biggest common theme among the amendments touched upon the employee thresholds under the CSRD and CSDDD. The Commission proposal had raised the threshold to 1,000 employees. Many of the proposed amendments in both committees referenced the 1,000 employee threshold a total of 350 times.
Numerous amendments proposed lowering the employee threshold from 1,000 to 500. There were also multiple amendments that sought to raise the threshold from 1,000 to 3,000, while some went as far as suggesting raising the threshold to 5,000 employees. One amendment even proposed lowering the threshold to 250, while in the case of the CSDDD, Amendment 31 in the ECON attempted to raise the value chain requirement from 1,000 employees to 10,000.
Other amendments tackled specific aspects of the CSRD and CSDDD, including the nature of reporting required and what standard of evaluation should be applied by businesses to determine whether information was significant. The debate's extremes pitted those fighting to save the original directives against those advocating for a complete repeal.
In Amendment 2 in the ENVI, a group of MEPs from The Left, including Lynn Boylan, Emma Fourreau, Carola Rackete, Jonas Sjöstedt, Sebastian Everding, Anja Hazekamp, and Li Andersson, made a convincing case against the Omnibus Simplification Package. Their objection pointed out that this "drastic deregulation" of the CSRD and CSDDD concentrated on narrow-minded competitiveness, sacrificing human rights in the process. They argued that European businesses were already experiencing the impacts of climate change, and the environmentally friendly transformation of companies was integral to achieving climate and environmental goals. They suggested that discarding the bulk of corporate sustainability requirements at that point was short-sighted and reckless.
This same group of MEPs offered a proposal that appeared to reference a recent complaint filed by the European Ombudsman. The complaint maintained the Commission had strayed from key procedural requirements stipulated in the Better Regulation Guidelines and neglected to pursue a public consultation and impact assessment without a substantial justification.
In contrast, Amendment 340 in the ECON, proposed by MEPs Christophe Gomart, François-Xavier Bellamy, Laurent Castillo, and Angelika Niebler, of the European People's Party, urged for a full repeal of the CSDDD. Their reasoning held that the Commission had fixed a clear objective of simplifying the regulatory environment to reduce administrative burdens by at least 25% (35% for SMEs). They argued that the changes proposed by the Commission for the CS3D only partly addressed the concerns of the 5,300 European companies directly affected and their subcontractors, who would continue to face the risk of costly administrative burdens and legal uncertainty (with fines of up to 5% of their turnover for noncompliance). A simple delay or weakening of the directive was deemed unsatisfactory to achieve the EU's objectives of simplification and competitiveness.
MEPs from the Patriots of Europe Group and European Conservatives and Reformists Group presented similar repeals of the CSRD and CSDDD.
In the ECON Committee amendments, around 25% of the proposals originated from political parties. The Left Group offered 60 amendments through MEP Manon Aubry, while the Greens/EFA Group presented 63 Amendments through MEP Bas Eickhout. The remaining proposals were fragmented, with MEPs from the same party forming alliances based on individual amendments.
Key leaders to follow within the ECON Committee included Aurore Lalucq (S&D), Chair of the Committee, Janusz Lewandowski (EPP), rapporteur for the opinion, Lara Wolters (S&D), shadow rapporteur in JURI, and Pascal Canfin (Renew), shadow rapporteur in JURI.
The committees had approximately a month to debate the amendments with the committee opinions due in mid-July. Ultimately, the fate of the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive would lie in the hands of the Committee on Legal Affairs and the full vote of the Parliament. Negotiations would continue in the coming months, with consensus needed from the Council, Commission, and Parliament before the final Omnibus Simplification Package could be approved.
In the public debates within the European Union, various amendments have been proposed to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). These amendments, such as Amendment 2 in the ENVI by a group of MEPs, emphasize the importance of environmental science education and self-development. They argue that understanding and addressing climate change is crucial for achieving the EU's climate and environmental goals, and thus, corporate sustainability reporting should not be compromised.
The debate also highlights the need for science-backed corporate sustainability due diligence. For instance, Amendment 31 in the ECON proposed by MEPs from the European People's Party suggests a value chain requirement of 10,000 employees for the CSDDD, emphasizing the need for companies to consider their societal and environmental impact beyond their immediate operations. This underscores the importance of Environmental-Science within the context of Environmental Social and Governance (ESG) considerations.
