A significant compromise has been reached in Brussels, watering down the incoming EU Corporate Sustainability Due Diligence Directive (CS3D), a key piece of legislation intended to safeguard human rights and environmental protections across global supply chains. Negotiators from the EU member states and the European Parliament finalized the agreement late Monday night, signaling a retreat from the directive’s original, more ambitious scope.
The revised agreement primarily aims to streamline reporting requirements linked to the Corporate Sustainability Reporting Directive (CSRD), effectively limiting the directive’s impact on both EU-based and international businesses. The changes represent a clear concession to pressure from industry lobbies concerned about the potential compliance burdens and costs.
Under the tweaked regulations, comprehensive social and ecological reporting obligations now apply only to EU companies employing over 1,000 individuals and generating annual revenues exceeding €450 million. A similar threshold applies to non-EU companies operating within the EU, triggering reporting obligations if their EU-generated revenue surpasses €450 million. This represents a considerable reduction in the number of companies initially slated for reporting.
Further easing the compliance burden, smaller businesses employing fewer than 1,000 individuals are now entirely exempt from reporting mandates. Companies retain the discretion to withhold information extending beyond voluntary standards, potentially hindering transparency and limiting public scrutiny of their supply chains.
Perhaps most critically, the legally binding due diligence obligations-the core of the CS3D-will now only apply to large EU corporations with more than 5,000 employees and annual revenues surpassing €1.5 billion. This narrowing of scope significantly decreases the number of companies subjected to the directive’s most stringent requirements, leaving many vulnerable populations and environmental risks exposed. Non-EU companies meeting that revenue threshold operating within the EU are also affected.
While the agreement stipulates potential national-level liabilities and fines-capped at up to 3% of a company’s global net annual turnover-for non-compliance, critics contend that the weakened obligations ultimately render the directive less effective in preventing human rights abuses and environmental degradation within global supply chains. The compromise raises questions about the EU’s commitment to upholding its stated values of responsible business conduct and its ability to translate those values into legally enforceable standards.
The agreement now requires formal approval from both the Council and the European Parliament, a procedural step expected to be largely routine, but one that is sure to draw further scrutiny regarding the diminishing impact of a directive once heralded as a potential benchmark for global corporate accountability.