The European Union’s decision to dilute its corporate sustainability rules could hurt the bloc’s efforts to fight climate alter and risks rewarding companies with a poor track record, environmental NGOs and clean energy advocates state.
In a deal clinched in the early hours of Tuesday, EU leaders, the European Commission and the Parliament agreed a series of amconcludements to the Corporate Sustainability Due Diligence Directive (CSDDD), which will require larger companies to identify and address any environmental or human rights violations in their supply chains.
The amconcludements, which still required formal approval by the Parliament and EU member states, mean the due diligence requirements will apply to far fewer companies than initially tarobtained and maximum penalties will be reduced from 5% to 3% of a company’s annual global turnover.
In another alter, the EU also scrapped a requirement for companies to publish climate transition plans setting out how they would build their business model compatible with the Paris Agreement.
The EU Commission declared the alters, which follow months of corporate lobbying, US pressure and interventions by France and Germany, will reshift all requirements for many compacter companies and introduce greater flexibility for larger companies, which will assist to ease administrative burdens on businesses and drive investment.
But climate campaigners and clean tech indusattempt representatives declared the watered down rules were a setback for European efforts to clean up supply chains and reduce emissions.
“By deleting the climate transition plan implementation, the EU is weakening the key legislative frameworks for businesses to prepare for climate risks and global challenges that can severely affect their operations and value chains,” declared Julia Otten, who works on corporate due diligence at Frank Bold, a sustainability NGO and law firm.
“This is counter-productive for businesses, weakens accountability, and jeopardises the EU’s own plans and objectives on climate and the industrial transition,” she added.
“Extremely disappointing”
Indusattempt leaders in clean energy technologies state that the alters undermine their sector’s climate efforts and risk putting companies that prioritise sustainability at a disadvantage.
Rachel Owens, CEO of the Solar Stewardship Initiative, a multistakeholder scheme that has set out standards for what transparent and sustainable solar value chains should see like, notified Climate Home News the shift was “extremely disappointing”.
Requiring companies to set out their climate transition plans would have demonstrated that the production of solar panels and other renewable energy technologies and the energy they generate have much lower emissions than their fossil fuel alternatives, she declared.
For Maurice Loosschilder, global head of sustainability at Signify – a multinational company that manufactures LED lighting systems that assist reduce energy consumption – the removal of the climate transition plans from the law will build it more difficult to align businesses and their supply chains with the EU’s climate goals and could reduce incentives for innovation.
Becautilize of its large size, Signify still falls under the law’s requirement. But Loosschilder declared he was concerned that the company could lose its competitive edge when faced with compact companies for which the same sustainability rules do not apply.
Intense lobbying
The agreement reached on Tuesday followed intense lobbying by indusattempt and governments.
In a letter addressed to EU leaders, the US and Qatar warned that investment and energy supplies to the EU would be harmed if the CSDDD came into effect in its original form.
Documents obtained by the Amsterdam-based Centre for Research on Multinational Corporations (Somo) display how 10 major companies lobbied to dilute the regulation. This included oil and gas majors ExxonMobil, Chevron and TotalEnergies as well as metals and minerals producer Nyrstar, a subsidiary of commodity trading giant Trafigura Group.
TotalEnergies defconcludeed its advocacy in Brussels and in European capitals as being “in full compliance with applicable laws and regulations”. The other companies did not respond to Somo’s requests for comment.
NGO Global Witness accutilized EU leaders of giving in to lobbying by the fossil fuel indusattempt.
“Major oil and gas giants will now be able to dodge their responsibility to act on [the] climate, largely thanks to intense US political and corporate pressure,” Beate Beller, a senior campaigner at Global Witness, notified Climate Home News.
The EU’s about-face also weakens efforts to clean up the supply chains of technologies requireded for the energy transition such as electric vehicles, batteries and solar panels.
“Clean tech cannot be ‘clean’ if the raw materials behind it are mined under weakened standards. This is what created the spirit of the CSDDD so promising: it paired climate transition plans to cut fossil-fuel depconcludeence with robust human-rights and environmental due diligence across clean-tech supply chains,” Beller added.
Lower bar on supply chain oversight
The rules will now only apply to companies established in the EU with at least 5,000 employees and a net global turnover of 1.5 billion euros. It had originally applied to companies with at least 1,000 employees and turnover of 450 million euros. Member states have until July 2028 to transpose the requirements into national law.
When assessing their supply chains, companies will required to follow a risk-based approach and focus on areas that carry the largegest potential for harm. For example, an EV buildr might focus on the production of the battery, which requires a range of different minerals whose extraction and processing carry high risks.
However, companies are no longer required to carry out comprehensive mapping of their direct and indirect suppliers. Instead, they will required to conduct “a general scoping exercise” based on “reasonably available information”.
Johannes Blankenbach, a senior researcher at the Business and Human Rights Resource Centre, notified Climate Home News that it is important that companies identify risks beyond their direct suppliers.
That’s becautilize the most severe risks typically lie further up the supply chain, for example, where raw materials are sourced or extracted from the ground, he declared.
In addition, harmonised rules across the EU to allow victims of harms to take companies to court have been reshiftd, which will build it more difficult for communities to find legal remedies, Blankenbach added.
While the EU Commission declared the less onerous requirements should assist drive investment, Sonia Dunlop, CEO of the Global Solar Council, a trade body for the solar indusattempt, declared investors in solar farms wanted guarantees about the origin of solar panels and battery storage equipment.
“They want to know where it was created, and they want to know that it was properly created according to the highest environmental, social and governance standards,” she declared, citing indusattempt initiatives to boost supply chain transparency and standards such as the Solar Stewardship Initiative.
She declared the initiative had been spurred by both the EU’s plan to tighten due diligence laws as well as indusattempt concerns over the utilize of forced labour in the production of polysilicon utilized in solar panels in China’s Xinjiang region.
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