EU Proposes Major Roll-Back of Global ESG Regulations

This week, the European Commission proposed loosening ESG rules for businesses in Europe, aiming to address the bloc’s slowing economy and enhance competitiveness with China and the U.S. Pending approval of the European Parliament and a majority of EU member countries, the changes will ease burdens on U.S. companies.  

Why it matters: With Trump dismantling numerous Biden ESG initiatives, we expect a looser ESG regulatory environment worldwide in the coming years – and even the EU is not immune. 

The Corporate Sustainability Reporting Directive (CSRD) requires new ESG disclosures from many U.S.-based companies, including those with securities listed on a regulated EU market or who run significant operations in the EU by 2026.  

Proposed changes: The proposed law will only be for companies with more than 1,000 employees and either turnover above €50 million or a balance sheet above €25 million, which excludes an estimated 80% of the originally covered companies.  

• Companies will no longer be obligated to obtain data from small or medium-sized suppliers that are not covered by CSRD. 

• The deadline will be postponed by two years for large companies that have not yet begun implementing the CSRD, including most large U.S. companies.  

• However, the type of information (including DEI metrics and pay gap) required to be disclosed will not be impacted. 

The Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to identify and address human rights and environmental issues in supply chains by 2027. This includes non-EU companies with at least 1,000 employees and a net EU turnover of at least €450 million.  

Proposed changes: The deadline will be postponed to 2028 (for those with more than 5,000 employees), 2029 (3,000 employees) or 2030 (1,000 employees). Otherwise, the number of companies impacted remains the same. 

• Companies need only provide information regarding direct suppliers, excluding other subcontractors and suppliers further down the supply chain. 

• Companies need only evaluate supply chains every five years instead of annually.  

• Companies can suspend contracts with suppliers that violate the rules, rather than terminate them.

The bottom line: The European Commission president promised to simplify burdensome requirements and reduce administrative costs by 25%, even as opponents at the Climate Action Network complained she is making “a dangerous misstep.”