EU Parl panel clears changes to report sustainability, due diligence

The voting saw 17 votes for the amendment, six against and two abstentions.

The European Parliament’s legal affairs committee has approved its position on a series of changes to sustainability reporting and due diligence requirements for firms.
Fewer companies are required to report on sustainability and comply with due diligence obligations.
No civil liability exists at the EU level, but victims to receive full compensation from companies breaching due diligence obligations.

The European Commission originally proposed cutting the number of companies required to carry out social and environmental reporting by 80 per cent, whereas Parliament members (MEPs) want to reduce the scope further to cover only those companies with over 1,000 employees on an average and a net annual turnover above €450 million. This would also apply to sustainability reporting under taxonomy rules, i.e. a classification of sustainable investments.

For firms no longer covered by the rules, reporting would be voluntary, in line with Commission guidelines. To prevent large companies from shifting their reporting duties onto their smaller business partners, these would not be allowed to request information beyond the voluntary standards.

Sector-specific reporting would also become voluntary and existing sustainability reporting standards would be further simplified with a focus on quantitative information and on reducing the administrative and financial burden, an official release said.

The Commission would also establish a digital portal for companies with free access to templates, guidelines and information on all European Union (EU) reporting requirements complementing the European Single Access Point.

According to MEPs, due diligence rules requiring companies to prevent and limit their adverse impact on human rights and the environment should only apply to large EU businesses with more than 5,000 employees and a net yearly turnover above €1.5 billion, and to foreign businesses with a net turnover in the EU above the same threshold.

Instead of systematically asking for information required for their due diligence assessments from their business partners, MEPs want these companies to adopt a risk-based approach, whereby they only ask for the necessary information where there is a prospect of an adverse impact in their business partners’ activities.

In the case of firms outside the scope of the rules, this would be possible only as a last resort. Companies would still be required to prepare a transition plan aligning their strategy to a sustainable economy and the Paris Agreement.

Businesses should be liable for damages caused by breaches of due diligence obligations under national law, rather than at the EU level. The maximum fine level for offending companies would be at 5 per cent of their global turnover, and the Commission and EU member states should provide guidance for national authorities on these penalties.

Should the Parliament approve the committee mandate at the next plenary session, MEPs and EU governments should start negotiations on the final text of the legislation on 24 October.

The Commission presented its Omnibus I simplification package on 26 February. Besides rules simplifying due diligence requirements and sustainability reporting, it also contained file delaying application of these rules for some companies, which was approved by the European Parliament via urgent procedure in April this year.

Fibre2Fashion News Desk (DS)