EU Member States reduce corporate due diligence rules to a shadow of their former self

On 15 March, the EU countries agreed to massively dilute the Corporate Sustainability Due Diligence Directive (CSDDD), removing roughly two-thirds of the companies from the law’s scope and weakening the law’s ability to combat climate change.

This agreement sends a horrendous signal to those suffering from corporate abuses and severely harms the EU’s commitment to ensuring a level playing field, as well as its credibility as a legislative force.

Breaking the earlier agreement made with the European Parliament, the EU Member States in the Council opted for a substantial reduction in the law’s scope, limiting its applicability to companies with over 1,000 employees and EUR 450m net turnover. These thresholds, significantly higher than the previous figures, eliminate almost 70% of companies from the scope of the directive.

Uku Lilleväli, Sustainable Finance Policy Officer at WWF European Policy Office expressed concern: “The EU countries endorsed the much-needed due diligence law, but at what cost? We’re left with bare bones, with an already weak framework that now covers only a fraction of all large companies. By succumbing to the flawed narrative of “disproportionate burdens” on SMEs and severely shrinking the number of companies covered, the EU governments killed two-thirds of the law, and with it the real impact it could have had.”

The reduction means fewer companies will be obligated to set emission reduction targets and adopt and implement climate transition plans. Among other losses, the Council discarded the critical provision requiring companies to provide financial incentives to managers for implementing their climate transition plans and achieving their climate targets.

Uku Lilleväli added: “This spineless deal completely disregards the needs of both companies and communities to effectively tackle the impacts of climate change. Restricting robust transition plans to only a small share of companies and neglecting to link managers’ paychecks to these plans undermines the integration of sustainability into firms’ DNA and hinders their ability to address long-term impacts and risks.”

Despite the substantial concessions, there remains a need for standardised rules and expectations for businesses to minimise their adverse impacts. WWF therefore calls upon the Members of the European Parliament to secure the due diligence law in the upcoming committee and plenary votes - but also to require rapid review clauses to tighten the law and close its many loopholes.

Source: WWF European Policy Office