Pressure has increased to reduce the number of European companies subject to sustainability due diligence requirements, after a report that recommends it should apply only to businesses with 5,000 employees or more and a turnover of €1.5 billion.

The report, from the European Council, sets the scene for negotiations at the highest levels in Brussels that now seem poised to drastically reduce the scope of requirements in the Corporate Sustainability Due Diligence Directive (CSDDD) as part of the so-called “omnibus” project to simplify the EU approach to sustainability reporting.

The original European Commission proposals from February were to lift the scope from companies with 500 employees to 1,000. This month, the European Parliament issued a report with a recommendation that the threshold for implementation should be 3,000. The European Council’s report takes changes to the scope even further.

Shrinkage in the supply chain

The Council also changes tack on how companies should undertake sustainability due diligence. The omnibus proposes companies examine their most immediate suppliers—an “entity-based” approach—much reduced from an initial mandate to examine the entire supply chain. However, the Council wants this to change to a “risk-based approach, focusing on areas where actual and potential adverse impacts are more likely to occur.”

Adam Szłapka, Polish minister for the EU, says: “We are taking a decisive step towards our common goals to create a more favourable business environment to help our companies grow, innovate and create quality jobs.”

Danish academic and EU expert Andreas Rasche on LinkedIn that the proposals “significantly reduce the scope of due diligence, even to an extent where one needs to question its impact overall”.

The Council has backed lifting the scope for the corporate Corporate Sustainability Reporting Directive (CSRD) to 1,000 employees and a turnover threshold of €450 million.

The Council’s report now sets the stage for negotiations with the European Parliament to reach an agreed position on the omnibus.

Meanwhile, there have been warnings that the Council’s measures could further increase the risk of a legal challenge to the reforms.

Is it legal?

NGO campaign group ClientEarth says it has legal advice saying changes in the regulation through the omnibus process “may violate several EU Treaty provisions”, including the Charter of Fundamental Rights of the European Union.

Amandine Van Den Berghe, a senior lawyer at ClientEarth, says: “The omnibus proposal raises serious legal concerns.

“The omnibus is legally fragile, not only because the policymaking process was rushed, but also because the proposed changes lack clear justification and are unsupported by evidence, disregarding the EU treaties.”

Van Den Berghe adds that the omnibus is “riddled with legal uncertainty”.

“The omnibus not only undermines the EU’s climate objectives but also leaves businesses and citizens exposed to the real risk of regulatory instability,” she says.

A final form of the omnibus is yet to emerge but signs that big changes are on the way are now clear.