By Abbas Nazil
The European Union has significantly reduced the scope of its key sustainability disclosure rules, sparking concern among investors over decreased transparency for low-carbon operations.
The changes affect the Corporate Sustainability Reporting Directive (CSRD), which requires large companies to report detailed environmental, social, and governance (ESG) information, and the Corporate Sustainability Due Diligence Directive (CSDDD), which mandates companies to assess their supply chains for human rights abuses and environmental harm.
Under the revised rules, the obligation for firms to have and implement climate transition plans aimed at achieving net-zero emissions has been removed, a move that investors say will make it harder to identify companies genuinely progressing toward sustainable operations.
Investors and analysts warned that watering down the disclosure requirements could weaken the comparability and reliability of sustainability information, leaving stakeholders with less insight into corporate efforts to cut emissions and manage climate risks.
Eleanor Fraser-Smith, Head of Sustainability at Victory Hill Capital Partners, said the changes will leave investors with poorer information for decision-making, emphasizing that clearer guidance, rather than dilution of rules, would have been a better solution.
Carlota Garcia-Manas of Royal London Asset Management noted that the removal of transition plan requirements could reduce visibility on corporate progress and hinder access to transition finance, highlighting the importance of credible plans for evaluating climate risks and opportunities.
The new thresholds for reporting have also been raised, with CSRD now covering companies with over 1,000 employees and revenues above 450 million euros, while CSDDD applies only to firms with more than 5,000 employees and 1.5 billion euros in turnover, with breaches handled at the national level.
Industry groups welcomed the reduction in reporting burden, describing it as relief from one of the world’s most complex sustainability regimes, although some economists warned that essential protections against child labor, environmental damage, and supply chain exploitation have been weakened.
Hans Stegeman of Triodos Bank described the legislation as significantly diluted, noting that critical rules intended to hold businesses accountable for sustainability and social responsibility have been drastically limited.
The revisions follow months of lobbying by companies and governments, including the U.S. and Qatar, who argued that strict disclosure requirements could disrupt European gas supplies, highlighting the tension between regulatory ambition and business pressures.
Despite the scale-back, officials insist the EU framework remains ambitious and comprehensive, though investors and sustainability experts warn that it will now require more effort to evaluate and verify corporate ESG commitments effectively.