EU Member States have agreed to significantly dilute the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) in a pivotal move away from Europe’s corporate sustainability ambitions.
The decision, revealed in a press release published by the Council on 23 June, tears apart legislation that took years to carefully design and negotiate. Rather than providing clarity, it introduces confusion and legal uncertainty across the EU’s sustainability rulebook.
“Disguising their actions as ‘simplification’, the Council has chosen to prioritise short-term profits over meaningful action for long-term economic and climate resilience. Through an extremely rushed process that sidelined expert judgment and replaced technical discussions with political posturing, the EU is taking another step backwards, at the expense of environmental protection, climate action, and people’s health”, said Thibault Girardot, Sustainable Finance Policy Officer at WWF EU. “It also betrays the many EU companies that have invested in compliance, developed credible transition plans, and now face unfair competition in a distorted market. To stay competitive and deliver on the EU’s climate goals, these companies need legal certainty and a level playing field, not a regulatory race to the bottom,” added Girardot.
With the scope of both Directives drastically reduced, thousands of companies will fall outside of reporting and due diligence obligations. By limiting the CSDDD to companies with more than 5,000 employees and €1.5 billion in net turnover, a significant number of very large firms will be left completely unchecked.
The Member States’ agreement clearly distorts the concept of risk-based due diligence, originally designed to address the most severe risks wherever they occur in the value chain, as it deliberately limits its application to direct suppliers (Tier 1). In doing so, the agreement borrows the language of internationally recognised standards while discarding their core intent. Additionally, requirements for companies to adopt climate transition plans – one of the only provisions directly linking corporate behaviour to the EU’s climate goals – are sliced. Not only are companies no longer required to implement them, but they also no longer need to demonstrate how their business models and strategies are compatible with the Paris Agreement.
“What remains can no longer be called a transition plan in any meaningful sense. At a time when credible transition planning is becoming a global norm, the Council’s text lowers the bar and sends the signal that companies can continue with business-as-usual under the cover of box-ticking exercises”, noted Thibault Giradot.
The Council’s decision negatively affects investors and businesses alike. By confirming the Commission’s proposal to introduce a value chain cap in the CSRD, the Council is placing legal limits on how far companies can go in collecting sustainability data from their business partners. In doing so, Member States are effectively denying investors access to sustainability data they need to assess risk and allocate capital, and are actively legislating against voluntary disclosure and sustainable business action.
WWF urges Members of the European Parliament to reject this regressive position and uphold the ambition and coherence of the EU’s financial sustainability framework. The Parliament must now act as a safeguard for climate alignment, accountability, and a stable transition to a sustainable economy.
