EU Parliament Agrees to Further Roll Back Corporate Sustainability Rules

After months of debate and political bargaining, the European Parliament’s main factions have reached an agreement to reduce the scope of the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD). The revision represents one of the most significant rollbacks of corporate environmental and human rights rules in the bloc’s recent history and reflects mounting political pressure to ease regulatory burdens on European industry.

A Narrower Law

The CSDDD was designed to make companies accountable for human rights and environmental impacts throughout their supply chains. Initially, it was expected to apply to companies with 1,000 or more employees and annual turnover above €450 million, covering tens of thousands of firms operating in or trading with the EU.

However, under the new political deal struck between the European People’s Party (EPP) and centrist groups, the scope will shrink considerably. The revised directive will now apply only to corporations with at least 5,000 employees and €1.5 billion in annual turnover. This change removes the vast majority of medium-sized companies from the legislation’s reach.

The modification also reduces the level of due diligence required. Companies will still have to identify and mitigate severe risks to human rights and the environment, but the reporting depth and liability measures have been softened. Sanctions for non-compliance may now be determined more flexibly by member states, rather than through a unified EU framework.

According to Business of Fashion, which first reported the political agreement, the compromise is part of a broader effort to “simplify” the EU’s sustainability rules under the so-called Omnibus I initiative. Lawmakers argue that the goal is to reduce the administrative burden on companies struggling with regulatory complexity and economic pressures.

Political Dynamics

The EPP, the Parliament’s largest bloc, led the effort to dilute the rules, warning that overregulation could harm competitiveness, particularly in the manufacturing, energy, and textile sectors. EPP MEP Jörgen Warborn of Sweden, who is steering the file through the Parliament, is expected to present the revised version to journalists on October 13, ahead of a vote by the Legal Affairs (JURI) Committee.

However, not all members of the Parliament support the move. Lara Wolters, a Dutch Socialist who previously led negotiations on the directive, resigned from her role in protest, saying the weakened version “undermines years of work” and risks turning sustainability obligations into a hollow formality. Green and left-wing lawmakers have warned that the directive, in its current state, may fail to deliver on its original promise of holding corporations accountable for abuses in their supply chains.

Implications for Business and the Climate Agenda

The CSDDD was seen as a cornerstone of the EU’s Green Deal framework, complementing the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation. By requiring companies to assess and act on their environmental and human rights risks, it aimed to push sustainability deep into corporate governance structures.

The revised version now dramatically reduces the number of firms covered: from roughly 16,000 under the original scope to fewer than 5,000, according to analysts. This change could create a “compliance gap” across supply chains, where smaller suppliers and contractors operate outside regulatory scrutiny. Larger firms will still be expected to monitor their suppliers, but with fewer legal tools to enforce sustainability standards downstream.

Critics argue that this could slow progress toward Europe’s net-zero targets by allowing loopholes in industries linked to deforestation, carbon-intensive production, and labor exploitation. Human rights organizations and environmental NGOs warn that it could also weaken Europe’s leadership role in global sustainability governance, just as the United States and Asia intensify competition in green manufacturing and investment.

Economic and Political Context

The rollback comes amid economic uncertainty, high energy costs, and growing political pressure from industry groups. Many companies have lobbied to simplify or delay sustainability legislation, claiming that the current pace of regulation risks stifling innovation and growth.

Supporters of the changes argue that fewer, clearer rules will help firms focus on achieving real impact rather than navigating complex compliance systems. Opponents counter that the timing, as the world faces mounting climate risks, sends the wrong signal and undermines long-term investor confidence in sustainable business models.

The European Commission insists that the revision remains consistent with the EU’s broader climate commitments, but it acknowledges that the balance between ambition and feasibility is shifting. The bloc’s 2030 emissions-reduction target and 2050 net-zero goal remain in place, yet many analysts view this decision as a political concession to economic and electoral realities.

Next Steps

The revised CSDDD text will now go before the full European Parliament for a vote later this month. If passed, it will proceed to negotiations with the EU Council, where member states may make further adjustments before final adoption.
Implementation will depend on how each member state transposes the directive into national law, leaving room for variation and potential dilution.

Businesses already preparing for compliance, especially large fashion houses, energy conglomerates, and manufacturing giants, will need to revisit their due diligence strategies. Meanwhile, advocacy groups are likely to intensify efforts to push for voluntary corporate commitments and stronger national standards to fill the regulatory gaps.

The debate over the CSDDD underscores a growing tension within the EU: how to remain a global sustainability leader while addressing internal economic challenges. Whether this recalibration will strengthen or weaken Europe’s long-term transition to a fair and climate-resilient economy remains uncertain, but the signal to the market is clear: the political appetite for heavy green regulation is waning.

Source: businessoffashion.com