Lara Wolters, the Dutch politician who was the European Parliament’s lead negotiator on the corporate sustainability due diligence directive, or CSDDD, said supporters of the supply chain law “couldn’t have been more clear.” Now she can’t help but feel let down by the European Commission’s so-called “omnibus” package, which proposed on Wednesday sweeping amendments to the CSDDD, the corporate sustainability reporting directive and other legislative instruments meant to hold large corporations liable for their environmental and social impacts.
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“We want to simplify EU rules for companies, but we cannot accept the watering down of sustainability, labor and human rights standards in the CSDDD and CSRD,” she said in an emailed statement that she also posted on LinkedIn. “The commission has pushed through proposals which would allow companies to ignore the vast majority of problems in their supply chains and delete the consequences for corporate negligence. These proposals are crude and badly thought-out, risking actually creating bureaucracy and uncertainty. This is what you get with a rushed process without sufficient consideration, consultation or expertise.”
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Certainly the overall mood has been one of whiplash: The CSDDD, which squeaked through the legislative pipeline after a fraught negotiation process that resulted in several concessions favoring corporate interests last year, was supposed to have been a done deal. And some of the largest companies covered under the CSRD have already begun to roll out the inaugural reports that were due this year.
But the omnibus proposes even further relaxations that would weaken their impact, including limiting the CSDDD’s due diligence to direct Tier 1 suppliers, requiring in-depth assessments to take place once every five years, instead of annually, and waiving the obligation to implement climate transition plans.
It would exclude more than 80 percent of companies from the CSRD’s scope by raising the employee threshold from 250 people to 1,000 and subject those no longer in scope to a voluntary reporting standard that caps the amount of information that in-scope companies or banks can request from them.
Both could see their deadlines postponed, pushing the date for compliance by the biggest firms to the middle of 2028 and signaling that environmental and human rights are no longer priorities. The European action comes amid similar steps by the new administration of President Donald Trump, which is actively de-emphasizing environmental and DEI initiatives as it scales back foreign aid aimed at furthering human rights.
Civil liability regimes, such as the 5 percent of global turnover that offending corporations would have been expected to pony up, have now been eliminated, as has the CSDDD’s requirement that businesses refrain from working with partners if a prevention action plan is not reasonably expected to succeed. In the case of the EU taxonomy, which defines what counts as a sustainable investment, a 10 percent de minimis exception now applies to eligible financially material activities that were previously unable to skirt assessment.
The European Commission defended its decisions as a way to “cut red tape” and “simplify EU rules for citizens and business,” with reduced reporting and administrative costs expected to save businesses 6.3 billion euros ($6.5 billion) annually. It said that companies, generally speaking, will be subject to a sustainability due diligence framework that is “less complex and more harmonized, ensuring burden reduction and a level playing field.”
Even so, many in Europe, short of conservative business bodies, see this as a bad idea. Civil society organizations such as the European Coalition for Corporate Justice disparaged the move as “not simplification, but full-scale deregulation designed to dismantle corporate accountability.”
Investors led by three of Europe’s leading membership bodies — Eurosif, the Institutional Investors Group on Climate Change and Principles for Responsible Investment — recently warned that “reopening these regulations in their entirety risks creating regulatory uncertainty and could ultimately jeopardize the commission’s goal to reorient capital in support of the European Green Deal.”
And a coalition of large companies, including Mars, Primark and Unilever, cautioned the European Commission in January that reopening legislation, parts of which were already in force, would undermine the potential of the initiatives to “drive long-term resilience and value for European businesses in support of competitive advantage.”
Such critics face off against organizations such as the Confederation of European Business, also known as BusinessEurope, which seek even “more harmonization” to avoid future fragmentation. For them, this isn’t the final destination, but only the start.
“Doing better with fewer and clearer norms is what European companies of all sizes are asking for,” said BusinessEurope director general Markus J. Beyre in a statement. “By reducing unnecessary reporting and regulatory burdens, the first omnibus will allow companies to contribute more effectively to the EU’s sustainability objectives while also preserving the EU economy’s competitiveness.”
‘A step backward’
Cascale, the multi-stakeholder organization formerly known as the Sustainable Apparel Coalition, also called the proposal a “step backward in the EU’s sustainability ambitions,” especially concerning the previous dilution of the CSDDD, which ended up applying to companies with more than 1,000 employees and a net global turnover of 450 million euros ($468 million) instead of the originally suggested 500 employees and net global turnover of 150 million euros ($156 million).
“With the EU now set to weaken the rules and narrow the scope even further, we risk undermining years of progress in improving labor practices, reducing environmental harm, and driving decarbonization,” said Elisabeth von Reitzenstein, its senior director of public affairs. “A lower level playing field could emerge, where companies that are not prioritizing sustainability gain a competitive advantage. More concerning is the message this sends to the market: effective sustainability reporting and due diligence measures are no longer a priority, potentially allowing businesses to scale back or abandon sustainability efforts altogether.”
Writing on LinkedIn, however, Axel Voss, a member of the European Parliament for the Cologne/Bonn region in Germany, pushed back at criticism of the omnibus, saying that the “decision to simplify and change bureaucratic proposals is to be welcomed” and urging detractors to look at the bigger picture of why burden reduction for the sake of competitiveness is so important. “We are in an economic crisis,” he wrote. “We are facing severe pushback from the U.S. and China, and thereby a paradigm shift in transatlantic relations.”
Voss, in fact, said that the package should have had a much wider scope, hinting that more cuts could be forthcoming. “Companies are not complaining solely because of the CSDDD and its questionnaire,” he said. “They are complaining because on top of that they have to fill in information on deforestation, forced labor, conflict minerals, chemicals, batteries and packaging on top of that. I could go on with hundreds of more examples. Removing obsolete sector-specific obligations under a holistic framework of CSRD and CSDDD would have really cut red tape.”
At the same time, diminishing these landmark regulations could have a chilling effect on other, as-yet-untouched rules, such as the EU’s forced labor regulation, said Samira Rafaela, a former MEP and CSDDD rapporteur who was the European Parliament’s negotiator on the ban. She said that businesses, consumers and regulators deserve clarity and limiting due diligence to Tier 1 suppliers “fundamentally contradicts” the purpose of the CSDDD.
“These reversals also have serious consequences for the fight against forced labor, particularly the removal of civil liability and the obligation to terminate contracts where human rights cannot be guaranteed,” she wrote in an email. “I hope the European Parliament rejects the omnibus proposal and stands firm in defending the original CSDDD and CSRD. The omnibus proposal has not only weakened the results of democratic negotiations but also undermined the credibility of EU decision-making.”
Jason Judd and Sarosh Kuruvilla, executive director and academic director of Cornell University’s ILR Global Labor Institute, respectively, have worked for years to shift industries from voluntary corporate schemes to basic mandatory rules that safeguard workers in the global supply chain. For them, three decades of private regulation in fashion and food and other sectors have, for the most part, failed to prevent harm to workers and the environment.
“The CSDDD and CSRD are responses to this,” they wrote in a joint email. “But the promised simplification in the omnibus fails on two critical counts. One, it effectively does away with CSDDD legal liability for lead firms causing harms to workers. And two, it radically reduces CSRD scope instead of simplifying and strengthening. Focused, quantitative reporting on outcomes — not firms’ policies or plans or programs —should be the bedrock of corporate reporting on labor practices.”
Time to ‘double down’
For those on the lowest rung of the supply chain, the blow that the omnibus package strikes could not be more acute, especially with the wrecking ball of U.S. foreign aid cuts that are already roiling organizations that are often the only means of providing garment workers with assistance or redress. That is certainly the case for Kalpona Akter, founder and executive director of the Bangladesh Center for Workers Solidarity and a former child garment worker. From her vantage point, the changes are a “clear sign” of what she describes as “collusion” between developed countries and business interests, with the former giving the latter a “safe space” to inflict damage on both people and planet.
“The CSDDD gave us hope that positive change in workers’ lives could be possible, but we are witnessing that it is going backwards and becoming another piece of document like voluntary corporate agreements, which never improve working conditions nor livelihoods,” Akter said.
What the European Commission is proposing could also backfire, said Alexander Kohnstamm, executive director of the Fair Wear Foundation, a multi-stakeholder organization based in Amsterdam. He said that contrary to the omnibus’ intended purpose, the current proposal “reduces impact while increasing unnecessary burden on companies.”
“It doesn’t work for workers and it doesn’t work for business,” Kohnstamm said. “To ensure a truly effective legislative framework, the omnibus proposal must maintain a level playing field, support a risk-based approach as outlined in the OECD guidelines, and avoid shifting undue burdens onto suppliers. This is the only way to drive meaningful impact for workers in global supply chains.”
Jeff Vockrodt, president and chief executive officer of the Fair Labor Association, a multi-stakeholder group headquartered in Washington, D.C., agreed. While the CSDDD was “far from perfect,” he admitted, it was a “concrete and critical step toward enshrining worker protections into law.” Instead, the backsliding will only embolden corporations that have no interest in improving anything beyond their bottom lines, he claimed.
“Unfortunately, the omnibus currently under discussion waters down any measure of accountability for companies that are not already committed to this work,” he said. “It’s very disappointing to see the European Union backing away from corporate responsibility under the guise of efficiency.”
Cascale, whose roster includes fashion nameplates such as H&M Group, Nike and Zara owner Inditex, said the mandate for brands and suppliers to stay committed to sustainability has never been clearer. Regardless of whether the regulatory environment strengthens or weakens, responsible practices will “ultimately be rewarded,” with companies that invest in sustainability today better positioned in the future.
“Transparency and traceability will be key, as both regulators and consumers demand greater accountability,” von Reitzenstein said. “Now is the time to double down on sustainability, not scale back. Brands must collaborate with industry experts and multi-stakeholder initiatives to ensure they are not only compliant but also contributing to meaningful global change.”
What about the U.S.?
Only the largest non-EU businesses with more than 1,000 employees and earning 450 million euros or more within the 27-member bloc will be covered by the CSDDD and the omnibus version of the CSRD, which had originally placed the bar at 150 million euros ($156 million). Still, the changes are expected to have ripple effects on other parts of the world that have been looking into ramping up regulatory compliance, even if some types of legislation might be more insulated than others.
“There is a bit of a niche for forced labor regulations that kind of resists these changes a little bit more,” Rachel Rozak, a senior intelligence analyst at Everstream Analytics, said during a webinar on Thursday. “You can see in the U.S.’ Uyghur Forced Labor Prevention Act. If anything, there have been record additions to the UFLPA Entity List. And then, similarly, the forced labor directive in the EU isn’t going anywhere as of yet. And if anything, we’re seeing the U.K. ramp up their actions to come more in line with UFLPA and the forced labor directive to be more competitive from a forced labor specific standpoint.”
And the current Trump administration notwithstanding, regulation isn’t going away even across the pond, said Rachel Kibbe, CEO of American Circular Textiles, the trade group known as ACT that recently represented the likes of ThredUp, TheRealReal, H&M Group, Reformation and Vestiaire Collective at a bipartisan lobbying day on Capitol Hill. The companies that lean into “proactive advocacy,” particularly for incentives that support compliance, will be better poised for future success.
“What we are seeing—on both sides of the Atlantic—is that brands are navigating an increasingly complex regulatory landscape, especially with the rapid emergence of state-level policies in the U.S.,” she said. “While this pace can feel overwhelming, staying in defense mode isn’t a long-term strategy. Rather than just resisting regulation, brands need to engage in shaping policies that are both effective and workable.”
That’s also the tack of the American Apparel & Footwear Association, a trade group that represents Adidas, Gap Inc., J.Crew Group and others. While the proposed changes are significant, said Nate Herman, its senior vice president of policy, the AAFA will closely monitor debates within the European Parliament and among the European Council to keep its members informed of their progress.
“Regardless of the EU’s ultimate revisions, we know many AAFA members, including companies that would not have been required to report in the EU under the previous iterations of CSRD or CSDDD, have conducted double materiality assessments and moved forward on their due diligence efforts,” he said in an email, adding that the organization will continue to support then.
Maxine Bédat, director of the think-and-do tank The New Standard Institute and an architect of the New York Fashion Act, said that the world is in an “era desperate for leadership.” She said that while she’s behind streamlining overlapping regulations and reducing reporting burdens on small to medium-sized enterprises, many of the changes are “clearly just bowing to lobbyist pressure from dinosaur companies.”
Europe, Bédat pointed out, is already dealing with rising temperatures, floods and wildfires that are killing tens of thousands. She asked: Do future generations only have deadly heat waves, crop failures and increased insurance costs to look forward to?
“As far as impact in the U.S., the vacuum of global leadership is clear,” Bédat said. “States, individual government leaders, corporate leaders and philanthropy will need to fill that void. This relinquishment of leadership in the EU certainly makes the need for policies like the New York and California Fashion Act and any other policy that moves the needle to move forward all the more evident.”