On 9 December 2025, the institutions of the Council of the European Union and the European Parliament struck a provisional deal to simplify and scale back corporate sustainability-reporting and due-diligence requirements across the European Union. The agreement substantially narrows the scope of firms covered, and removes several obligations originally considered central to driving corporate accountability on environmental, human-rights and climate issues.
The outcome: only companies with more than 1,000 employees and net turnover over €450 million will need to meet CSRD reporting requirements, a far narrower group than under earlier rules. For the due diligence law (CSDDD), only the largest corporations - those with over 5,000 employees and at least €1.5 billion in turnover - will be subject to obligations.
The deal aims to reduce reporting burdens on European companies, with the aim of making them more internationally competitive. The cuts are estimated to reduce companies’ administrative costs by more than 4.5 billion euros (Reuters).
Moreover, the deal removes the requirement for mandatory “climate transition plans,” and drops the previously envisaged EU-wide harmonised liability regime. Instead, liability will be determined by individual member states.
In short: the scope of affected firms is drastically reduced; many smaller and mid-sized companies are now out of scope; and some of the more stringent obligations (climate plans, unified liability rules), considered key levers for real change, have been dropped.
This recalibration comes after significant pressure from businesses, industry groups, and some EU member states. These stakeholders argued that the original rules created excessive red tape, placed EU firms at a disadvantage globally, and threatened competitiveness.
In the agreement itself, Denmark’s European affairs minister Marie Bjerre described the deal as “an important step towards our common goal to create a more favourable business environment to help our companies grow and innovate (European Council)”.
For many in industry and some politicians, the reforms represent a necessary corrective: moving from arguably overambitious, heavy-handed regulatory burdens to a lighter, more targeted regime that prioritises competitiveness and innovation.
Some critics don’t think the reforms went far enough, with one ExxonMobile spokesperson stating "The Trump administration has made clear this is a non-starter for trade talks and we look forward to a common-sense resolution in the near future,". (Reuters) Foreign companies whose EU turnover exceeds the 5,000 employees & €1.5 billion annual turnover threshold will still be required to comply with CSDDD.
But for critics, this deal is a blow to the EU’s sustainability and human-rights ambitions.
The narrowing of scope means that many mid-size companies - and their supply-chain partners - will no longer have to publish sustainability data or carry out due diligence on human-rights or environmental risks. That risks reducing overall transparency across business operations and supply chains.
The removal of mandatory climate transition plans undermines a direct tool by which companies would have to commit to, and plan for, long-term decarbonisation and climate alignment. Many observers fear this dilutes the ambition and credibility of the EU’s sustainability agenda.
Perhaps more worrying, the elimination of a harmonised EU liability framework for harms linked to corporate supply-chains means that accountability will now vary significantly across member states — undermining one of the original goals of the directive: consistent, cross-border protection for environmental rights and human rights.
For investors and ESG-focused funds, the deal likely erodes data availability. With fewer companies required to disclose, and with due diligence obligations only applying to the very largest firms, investors may find it much harder to assess environmental, social, and governance risks, or monitor sustainability across supply chains.
Larger Corporates — Safe For Now
Big multinationals and mega-corporations remain in scope. They will still have to report environmental and social impact, and conduct due diligence on their operations and value chains.
In the short-term, these firms have a slight reprieve, with deadlines to comply with CSDDD pushed out to mid-2029 and Wave One companies (those that had to start reporting on CSRD from financial year 2024) being granted a respite for 2025 and 2026.
Mid-size and Smaller Firms — Out of the Picture
For many mid-size companies — and their suppliers — the compliance burden has now effectively been lifted. That could reduce administrative and operational overheads, but also risks making those companies invisible to investors’ ESG scrutiny.
In particular, smaller suppliers might no longer be asked for sustainability data by their larger clients, weakening the “trickle-down” effect that the original rules were meant to create.
Investors & ESG-conscious Finance — Less Transparency, Bigger Blind Spots
With a smaller universe of reporting companies, and fewer mandatory disclosures, ESG analysts and funds may struggle to assess risks across sectors and supply chains.
This creates a potential “data gap”: companies that previously would have provided sustainability data may now fall outside requirements, reducing visibility over environmental, social, and climate risks.
EU’s Credibility on Climate & Human Rights — Under Strain
In a moment where many expected the EU to deepen its role as a global leader on sustainability, climate and human-rights accountability, the deal may feel like a strategic retreat.
By weakening obligations, limiting liability, and exempting many firms, the EU risks undermining long-term ambitions: supply chain transparency, decarbonization plans, risk mitigation and enforcement.
Political pressure, business competitiveness, and cost arguments may have won this roun, but at what cost to the bloc’s broader sustainability and ESG commitments?
The agreement reached on 9 December 2025 is still provisional. It must be formally endorsed by both the European Parliament and the Council before becoming law.
If approved, the deadline for transposition of the due-diligence directive (CSDDD) will be postponed to July 2028, with full compliance by July 2029.
Importantly, there is a “review clause” built in: the legislation allows for the possibility that scope could be extended again in future - for example, if sustainability data is deemed necessary to mobilise private investment under the broader green agenda.
But much now depends on how companies, investors, and supply-chain actors react. Will large firms continue to hold themselves to high ESG standards, voluntarily exceeding the weaker regulatory baseline? Will investors demand more than the minimum disclosures? Or will many slip back into minimal compliance?
The answers will shape whether this deal becomes a pragmatic recalibration, or a setback for the EU’s sustainability ambitions.
The 9 December 2025 deal marks a significant recalibration of the EU’s approach to corporate sustainability. On the one hand, it responds to genuine concerns about burden, compliance cost, and the competitive disadvantage for EU firms, particularly in a global market where regulatory standards vary. The voices of business, industry, and some member states have clearly been heard.
As Morten Bodskov, Minister for industry, business and financial affairs of Denmark, described it “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 (Reuters)”.
Yet, for every voice of pragmatism, there are voices raising alarms about what has been lost: transparency, accountability, enforceability, and long-term alignment with climate and human-rights goals.
Whether this deal proves to be a sensible “reset”, trimming excess while preserving core ESG accountability for large firms, or a retreat from meaningful corporate sustainability largely depends on what happens next: both in how stakeholders behave, and whether future reviews expand scope or reinstate stronger obligations