EU vote to water down sustainability rules could spell bad news for impact firms

With 17 votes in favour, 6 against and 2 abstentions, the EU Parliament's legal affairs committee yesterday approved proposals that entail major changes in how companies must report on sustainability and conduct so-called due diligence assessments.

Only large companies face requirements

According to the 'omnibus' proposals, only companies with more than 1,000 employees on average and an annual net turnover exceeding €450m will need to report on environmental and human rights issues. This is a further reduction compared to the Commission's original proposal.

For companies no longer covered by the rules, reporting will be voluntary according to the Commission's guidelines. To prevent large companies from shifting the reporting burden onto smaller suppliers, they cannot request information beyond the voluntary standards.

Held accountable for damages

According to the MEPs’ proposal, due diligence rules – requiring companies to prevent and mitigate their negative impact on human rights and the environment in their supply chains – would only apply to large EU firms with more than 5,000 employees and an annual net turnover exceeding €1.5bn.

Companies could be held liable for damages caused by breaches of due diligence obligations under national legislation, rather than at the EU level. Maximum fines for companies violating the rules should be 5% of their global turnover.

Potentially bad news for impact companies

According to Swedish MEP Jörgen Warborn, with the centre-right European People’s Party (EPP), the vote will help simplify of rules as part of a wider EU push to ease corporate red tape and level the playing field with the US and China.

Kira Marie Peter-Hansen, the Greens/EFA negotiator on the file, strongly criticised the agreement, asserting that it "undermines Europe's sustainability regulations and relinquishes accountability."

And for the companies helping businesses with sustainability reporting, it's potentially a step closer to potentially fewer customers.

Sweden-based consultant The Climate Action Agency, which recently went bankrupt, cited a relaxation of EU eased climate reporting rules as the culprit. Founder Petter Palander said the company “lost a big customer” and that the regulatory shift “pulled the rug out from under us.”

Negotiations between MEPs and EU governments on the final legislation are expected to begin on 24 October.