Negotiators from the European Union member states and the European Parliament have reached a provisional agreement significantly watering down the proposed corporate supply chain due diligence law, intended to protect human rights and environmental standards. The compromise, struck in Brussels late Monday night, represents a marked retreat from the initial ambitious scope of the legislation and has drawn immediate criticism from human rights advocates.
The agreement seeks to streamline the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Social Responsibility and Due Diligence Directive (CS3D) by considerably reducing reporting obligations and limiting the reach of the regulations, particularly impacting smaller businesses and those operating outside of the EU. Experts suggest this revision reflects intense lobbying efforts from corporate interests concerned about the compliance burden.
Under the revised terms, comprehensive social and environmental reporting requirements will now apply only to EU-based companies employing over 1,000 individuals and generating annual revenues exceeding €450 million. A similar revenue threshold of €450 million applies to non-EU entities, but only if that revenue is generated within the EU market. This represents a substantial reduction from the initially proposed thresholds.
Further complicating the impact, smaller companies, defined as those with fewer than 1,000 employees, are entirely excluded from reporting obligations. Moreover, companies retain the option to withhold information exceeding voluntary standards, effectively undermining transparency and accountability throughout complex global supply chains.
Due diligence obligations, designed to ensure companies are actively identifying and addressing human rights risks in their operations and those of their suppliers, are now applicable only to large EU conglomerates boasting over 5,000 employees and annual revenues surpassing €1.5 billion. The same thresholds apply to non-EU firms generating such revenue within the EU. Though non-compliance will result in national-level liability and potential fines of up to 3% of global net annual revenue, critics contend that these thresholds create loopholes that allow large corporations to avoid stringent oversight.
While the provisional agreement now requires formal approval from the Council and the European Parliament – widely expected to be a formality – the compromise has triggered widespread concern. Civil society organizations are arguing that the weakened legislation undermines the EU’s commitments to upholding human rights and environmental protection, exposing vulnerable populations and ecosystems to continued exploitation. The deal’s outcome highlights the persistent challenge of balancing corporate interests with ethical and sustainable business practices within the European Union’s regulatory framework.
