Corporate sustainability reporting and due diligence requirements

The European Parliament adopted by 382 votes to 249, with 13 abstentions, amendments to the proposal for a directive of the European Parliament and of the Council amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 as regards certain corporate sustainability reporting and due diligence requirements.

The issue has been referred back to the committee responsible for interinstitutional negotiations.

Due diligence only for large companies

To reduce the reporting burden on companies, the obligation to prepare and publish an individual sustainability statement should be limited to companies with an average of more than 1 000 employees and net sales of EUR 450 million or more during the financial year. It should be possible to exempt ultimate parent undertakings which are financial holding undertakings not involved in management activities from complying with reporting obligations.

For companies no longer bound by rules, reporting would be voluntary, in accordance with the Commission's guidelines. Smaller companies would be protected from the reporting requirements of their large business partners, which would not be allowed to request more information than what is set out in the voluntary standards.

The reporting obligations should not require a company to disclose information on intellectual capital, intellectual property or know-how, business information or technological information which constitutes trade secrets.

Voluntary guidelines

Following consultation with relevant stakeholders, the Commission should develop voluntary sector-specific guidelines to assist companies assess their risks, opportunities and impacts in specific sectors, to facilitate the application of mandatory European sustainability reporting standards (ESRS) in a given sector, to identify sustainability issues that may be important for a specific sector and to reduce the reporting burden.

Risk-based approach

The reporting undertaking should adopt a risk-based approach, prioritising efforts to gather information on high-risk impacts and sustainability issues commonly associated with its sector.

When it comes to defining the value chain for identifying adverse impacts, large companies should not seek information from their trading partners, but rely solely on information that is already reasonably available (public information, information from research, or information obtained through prior cooperation). According to Members, it will only be possible to request information from trading partners when, based on a risk-based approach, such information is necessary in light of indications of likely adverse impacts from business partners with fewer than 5 000 employees, and when this additional information cannot be obtained through other means.

Corporate due diligence on sustainability

Directive (EU) 2024/1760 on corporate due diligence regarding sustainability, laying down rules concerning companies' obligations regarding adverse human rights impacts and adverse environmental impacts, should apply to (i) companies with an average of over 5 000 employees and a net worldwide turnover of over EUR 1.5 billion in the last financial year and (ii) companies with a net turnover of over EUR 1.5 billion in the Union in the financial year preceding the last financial year.

Companies would no longer be required to develop a climate change transition plan.

Responsibility and penalties

Businesses should be liable for damages caused by breaches of due diligence obligations under national law, rather than at the EU level. The maximum fine level for offending companies would be at 5% of their global turnover. Moreover, to harmonise enforcement practices across the Union, the Commission, in collaboration with the Member States, should develop guidelines to assist supervisory authorities in determining the level of penalties.

Digital portal

To facilitate compliance by companies with reporting and due diligence obligations under Union law, and to enhance the accessibility and usability of sustainability-related information, the Commission should establish a dedicated digital reporting portal. That portal should serve as a one-stop shop, providing companies, free of charge, with tailored access to templates, guidelines, reporting requirements, including voluntary tools, and information on funding and tendering opportunities.