Lawmakers in the European Parliament have reached an agreement on a proposed Parliamentary negotiating position on the EU Commission’s Omnibus I initiative which would see more significant reductions in the EU’s sustainability reporting and due diligence regulations than those proposed by the Commission.

The deal would see particularly significant cuts to the number of companies covered by the Corporate Sustainability Due Diligence Directive (CSDDD), removing all but the largest businesses from the scope of the regulation requiring companies to address their negative impacts on human rights and the environment across their value chains.

The Omnibus package was released by the Commission in February as part of its simplification agenda to boost European competitiveness and reduce compliance burdens on companies, proposing a wide-ranging series of changes to regulations including the Corporate Sustainability Reporting Directive (CSRD), the CSDDD, the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM).

Among the most significant changes proposed by the Commission’s initiative were a dramatic increase in scope for the CSRD, removing an estimated 80% of companies by moving the regulation to cover only companies with more than 1,000 employees from the current 250 employee threshold, while retaining the CSDDD’s 1,000 employee threshold, but changing the due diligence but requiring full due diligence primarily at the level of direct business partners, and introducing limits to the amount of information that can be requested from smaller supply chain companies under the regulations.

Lawmakers have been sharply divided on the direction of Parliament’s position going into negotiations on the final outcome of the Omnibus package, with left-leaning parties pushing for smaller cuts to the regulations, farther-right parties looking to scrap the CSRD and CSDDD altogether, and Omnibus rapporteur Jörgen Warborn of the European People’s Party (EPP) – the largest party in Parliament – recently proposing raising the thresholds of the regulations to 3,000 employees.

After intense negotiations, the left and center parties aligned with a “compromise” package proposed last week by the EPP, which will retain the CSRD’s 1,000 employee CSRD scope, but add a €450 million revenue threshold, while dramatically increasing the threshold of the CSDDD to cover only companies with 5,000 employees and more than €1.5 billion in revenues. The CSDDD will also shift to a “risk-based approach” towards due diligence from the former entity-based approach.

The ”compromise” package agreed to by lawmakers was reached after the EPP reportedly threatened to align with the farther-right parties on a package that would increase the CSRD’s scope to 1,750 employees, and remove requirements in the CSDDD for companies to adopt climate transition plans.

The agreed position will be presented for a vote in Parliament’s Legal Affairs committee early next week, followed by a full vote in Parliament later this month to establish its position for negotiations with the EU Council. Several aspects of the agreement align with Council’s agreed position, including the CSRD and CSDDD thresholds, and the risk-based approach for the CSDDD.