EU Reaches Agreement To Simplify Sustainability Reporting And Due Diligence Requirements For Corporations

The European Union has reached a tentative agreement to streamline sustainability reporting and due diligence rules, aiming to enhance EU competitiveness. This deal simplifies corporate sustainability reporting (CSRD) and corporate sustainability due diligence (CS3D) by easing the reporting load and reducing obligations for smaller firms.

Under this new arrangement, only EU companies with over 1,000 employees and a net annual turnover exceeding €450 million will be required to report on social and environmental matters. For non-EU companies, the threshold for sustainability reporting is set at €450 million in turnover generated within the EU.

The agreement further simplifies reporting requirements, making them more quantitative. Sector-specific reporting will become optional. Smaller companies with fewer than 1,000 employees are shielded from additional reporting responsibilities. They can decline to provide information beyond voluntary standards.

Additionally, the European Commission will establish a digital portal offering businesses access to templates and guidelines on both EU and national reporting requirements. This aims to assist companies in navigating the updated rules efficiently.

According to the agreement, only large EU corporations with more than 5,000 employees and a net annual turnover over €1.5 billion must conduct due diligence to reduce their negative impact on people and the environment. The same rules apply to non-EU corporations with equivalent turnover within the EU.

Companies are encouraged to adopt a risk-based approach in their operations. They should avoid requesting unnecessary information from entities not covered by these regulations. Businesses under these revised due diligence rules are exempt from preparing a transition plan aligning their business model with the Paris Agreement.

Liability and Compliance

Firms will remain liable at the national level for any non-compliance issues rather than at the EU level. They could face fines of up to 3 percent of their net worldwide turnover if they fail to comply with these regulations. Guidance on this will be provided by both the Commission and member states.

This provisional agreement marks a significant step towards simplifying sustainability practices while ensuring that larger corporations remain accountable for their environmental impact.

With inputs from WAM