The European Union reached a sweeping agreement this week that would sharply reduce corporate sustainability reporting and due diligence obligations, marking one of the most significant regulatory reversals since the bloc first positioned itself as a global pioneer in environmental governance. The provisional deal on the so-called omnibus proposal — central to the EU sustainability reporting deal — frees more than 80 percent of companies from current green disclosure rules and redraws the political landscape around the European Green Deal.
A Turning Point in Europe’s Regulatory Trajectory
The agreement arrives at a moment when Europe is grappling with slow economic growth, rising geopolitical pressures and intensifying climate impacts. The omnibus package dramatically narrows the scope of the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive, two frameworks that had become pillars of the EU’s environmental agenda in the previous legislative term.
At the center of the shift is a move to raise the reporting threshold to companies with more than 1,000 employees and €450 million in turnover under CSRD, and to more than 5,000 employees and €1.5 billion in turnover under CSDDD. Listed SMEs and financial holding undertakings are excluded entirely. The Commission’s original aim — to harmonize ESG reporting and strengthen due diligence across supply chains — has been replaced with a competitiveness-driven recalibration.
The political price was immediate. To secure the deal, the center-right European People’s Party allied with far-right groups, breaking the long-standing cordon sanitaire that traditionally kept such cooperation off limits. That decision strained the coalition that supported President Ursula von der Leyen’s reelection and introduced new tensions into European policymaking.
Competition Pressures and the Rewriting of Supply Chain Rules
Inside the negotiating rooms, governments and lawmakers argued over how far to push deregulatory reforms as businesses warned of rising administrative burdens and constraints on European competitiveness. Companies will no longer be required to publish transition plans showing how they intend to align with Paris Agreement goals, and the EU-wide liability regime for environmental or human rights harm in supply chains has been removed.
The risk-based due diligence system adopted in the new agreement shifts corporate attention to areas of the supply chain where negative impacts are most likely to occur, but it also allows companies with under 1,000 employees to decline requests for detailed reporting data. Larger firms may rely on “reasonably available information,” rather than systematically seeking information from smaller business partners. Penalties under CSDDD are capped at 3 percent of global revenues.
Non-EU companies are included only if they generate €450 million in EU revenues under CSRD and €1.5 billion under CSDDD, reflecting sensitivity over diplomatic pressures from partners such as the United States and Qatar.
“This is an important step towards our common goal to create a more favourable business environment to help our companies grow and innovate,” said Danish minister for European affairs Marie Bjerre, whose country led the talks on behalf of EU governments.
“This agreement brings historic cost reduction. We have achieved something very good for businesses in Europe … I hope this omnibus has its final destination next week in Strasbourg where we will vote this in plenary,” added the EPP’s Jörgen Warborn.
The Political Divide Behind the Deregulation Drive
The deal exposes widening fractures in Europe’s climate and sustainability agenda. Civil society groups, Green lawmakers and some businesses argued that weakening reporting obligations undermines protections for communities affected by environmental degradation and reduces visibility into companies’ climate risks. Critics also noted that the negotiations unfolded during a year of worsening extreme weather across Europe, intensifying concerns about preparedness.
Morten Bødskov, Denmark’s minister for industry, business and financial affairs, defended the shift, saying: “For years, European businesses have faced wave after wave of red tape. This has slowed green investments and weakened our competitiveness. Now we are taking a big and important step in the right direction. With clear and simple rules, companies can focus on their core business, so we achieve better value for money in the green transition, create European jobs and strengthen companies’ ability to grow and invest.”
A Regulatory Retreat With Global Implications
Beyond Europe, the recalibration could influence global ESG reporting norms. The EU’s disclosure rules had been moving the world’s largest corporations toward more standardized sustainability reporting; scaling them back may shift momentum toward other frameworks, such as the ISSB standards, or increase reliance on voluntary reporting.
The new agreement also affects governance across global supply chains. Without EU-wide liability provisions, enforcement falls to national authorities, raising the likelihood of uneven implementation and potential regulatory fragmentation across the bloc. Review clauses, however, leave open the possibility that future political cycles may revisit and potentially expand the rules.
What Comes Next as Parliament Prepares Its Vote
A final vote is scheduled for December 16, offering Parliament a last opportunity to reject the deal if lawmakers judge it too far removed from their earlier positions. While supporters describe the agreement as a necessary reset for Europe’s economic competitiveness, opponents warn that it risks undermining long-term resilience at a moment when climate impacts, biodiversity loss and supply chain disruptions are accelerating.
If adopted, the omnibus package will serve as the blueprint for a series of upcoming simplification bills covering areas such as data protection, finance, chemical use, agriculture and defense — signaling the start of a broader deregulatory phase in EU policymaking.
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