EU Plans to Walk Back Key Planks of Toughest ESG Legislation

The European Union’s executive arm is proposing that the bloc amend eight main points in the scope of the Corporate Sustainability Due Diligence Directive, according to a draft proposal seen by Bloomberg. The changes span everything from limiting corporate obligations to monitor potential ESG breaches in supply chains, to reducing potential fines.

The move follows intense pressure on the bloc — both from within and outside Europe — to rein in a piece of legislation whose early design was intended to expose companies to legal liability if they failed to purge their value chains of ESG violations. Companies in the EU have warned that complying with CSDDD will make it harder to compete with the US and Asia. In France, officials have gone so far as to ask that CSDDD be shelved.

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In the US, meanwhile, incoming US commerce secretary, Howard Lutnick, told Republican senators last month that he was willing to consider deploying “trade tools” to ensure American companies exposed to the EU market aren’t expected to comply with CSDDD.

The commission is due to unveil its proposal for the so-called omnibus legislation on Feb. 26. Aside from CSDDD, the omnibus process will also look at ways to simplify the EU’s Corporate Sustainability Reporting Directive and the Taxonomy Regulation.

A spokesperson for the commission declined to comment, citing a policy of not responding to leaks.

The proposed amendments to CSDDD seek to:

• Extend the scope of “maximum harmonization” to ensure CSDDD aligns well with other regulations
• Broadly limit the concept of due diligence so that it only applies to direct business partners
• Remove the obligation to end business ties as a “measure of last resort”
• Limit the notion of “stakeholder” and further restrict the stages of the due diligence process that require stakeholder engagement
• Extend the intervals in which companies need to monitor the adequacy and effectiveness of their due diligence measures
• Clarify the principles around monetary penalties, and remove the minimum cap for fines
• Remove aspects of the civil liability clause and the rules regarding representative actions
• Delete the review clause regarding the extent to which financial services firms might be in scope in future

The proposal is already drawing criticism from civil society groups that had been lobbying for the EU to stick to the original principles of CSDDD.

The planned rollback looks “reckless,” said Maria van der Heide, head of EU policy at nonprofit ShareAction. “Sustainability laws designed to tackle the most pressing crises – climate breakdown, human rights abuses, corporate exploitation – are being crossed out behind closed doors and at record speed. This is not simplification, it’s pure deregulation.” (Bloomberg) —

Maria Luis Albuquerque, the EU’s financial services commissioner, said in an interview last month that there’s room for adjustments to ESG rules, but cautioned against expecting outright deregulation.

It’s about “adjusting the pace,” while “maintaining the anchor,” she said then.

Photograph: Solar panels at the Weesow-Willmersdorf solar park, operated by EnBW Energie Baden-Wrttemberg AG, in Werneuchen, Germany, on Tuesday, Aug. 2, 2022. Photo credit: Liesa Johannssen-Koppitz/Bloomberg

Topics Legislation Europe