Pivot and Slash
The European Parliament voted on November 13 to weaken the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) and scale back its Corporate Sustainability Reporting Directive (CSRD). These two flagship pieces of legislation set environmental and human rights due diligence obligations for firms and require them to report standardized sustainability data.
The vote marks a sharp political shift for two reasons. First, the parliament’s position hollows out key pieces of the European Commission’s Green Deal agenda by raising thresholds for mandatory reporting, removing climate-transition-plan requirements, softening civil-liability provisions, and restricting obligations to only the largest companies. Second, to approve the amended legislation, the European People’s Party—the largest parliamentary group, situated on the center-right—openly opposed other centrist groups and sided with far-right parties, reversing years of an unofficial firewall, or “cordon sanitaire”, that prohibited collaboration with them.
The case now moves to a three-part discussion with the European Council and Commission. That process may restore elements of the legislation. It could also dilute them further since France and Germany have signalled that they would prefer to scrap the CSDDD entirely. They consider it too cumbersome for businesses, which are put at a disadvantage compared to international peers.
US pressure contributed to the parliament’s vote but was not decisive. Trump administration officials and US business leaders have pressured Europe to roll back climate policies and explicitly called out the CSDDD as an irritant in last summer’s US-EU trade deal. (US officials are now looking to influence EU methane rules after what they see as a win on the CSDDD and the CSRD). But French and German resistance was also consistent and long-standing, and many large European firms campaigned against the rules. Certain EU industry groups even sought support from Washington to reinforce their stance.
The vote has road-tested a new alliance between the EPP and far-right groups, which could define the parliament’s balance of power through 2029. Centrist MEPs have subsequently warned that this would create instability by breaking with a tradition of working only with “pro-European” parties. But the EPP-far-right axis may itself become the new default, or at least more common, especially with four more “omnibus simplification” packages in key economic sectors scheduled before the end of 2026.
More volatility could emerge from the deregulatory push itself. Rolling back rules after firms have already invested in compliance imposes yet more costs and undermines predictability, particularly if legal challenges lead to a partial or complete upholding of the original directives.
The debates over the CSDDD and the CSRD expose a deeper challenge for EU policymaking: the absence of a shared understanding of the meaning of competitiveness, the year’s most critical and most overused term. The EPP argued that costly compliance burdens weakened Europe’s industrial competitiveness, while opponents countered that due diligence reduces supply-chain risk and strengthens the global position of EU firms compared to countries with weaker environmental and human rights rules.
In either case, the rules are now caught up in a broader backlash over EU regulatory overreach just as firms and governments are coming to understand the need for more supply-chain transparency to reinforce European and transatlantic economic security. Retreating on key provisions of the Green Deal demonstrates the extent to which the geopolitical environment has shifted in the past year and underscores the erosion of the EU’s regulatory influence, which depends on its relative economic clout and political cohesion. The bloc will need to boost both to reassert its economic power in an increasingly multipolar world.
The views expressed herein are those solely of the author(s). GMF as an institution does not take positions.