Corporate sustainability: what the EU expects from companies
The EU has established rules aimed at making companies more accountable when it comes to their impact on local communities and the environment.
The EU wants to make sure that companies respect human rights, protect the planet and are open about their actions.
The Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive has set out how businesses are expected to operate and what kind of information they must reveal.
Some changes were proposed by the European Commission in February 2025 to make the rules easier to implement, especially for smaller companies. The simplification proposal came in response to concerns that the rules may be creating an excessive administrative burden for some businesses.
The European Parliament has fast-tracked a decision to postpone the implementation of the directives.
Corporate Sustainability Reporting Directive
Under the Corporate Sustainability Reporting Directive, large companies are required to provide transparent data concerning their societal and environmental measures.
The companies will be subject to independent auditing and certification to ensure they provide digitally accessible and reliable information. Financial and sustainability reporting must follow certain standards, thus making comparable data easily accessible for investors.
The directive was adopted by Parliament in November 2022. The rules about sustainability reporting are implemented in waves: the largest companies had to comply first, smaller ones later. In April 2025, Parliament voted to postpone application of sustainability reporting for two years for the second and third waves of companies.
Corporate Sustainability Due Diligence Directive
The EU has also introduced the Corporate Sustainability Due Diligence Directive, which requires firms to actively prevent, end or mitigate negative impacts on human rights and the environment such as slavery, child labour or biodiversity loss.
Approved by the European Parliament in April 2024, this directive applies to EU companies with over 1,000 employees and a worldwide turnover higher than €450 million, and non-EU companies with a turnover exceeding €450 million in the EU.
Under the rules, companies must establish a transition plan to align their business practices with the Paris Agreement's climate goals, specifically targeting the global warming limit of 1.5°C.
The directive emphasises the importance of integrating sustainability into core business strategies - companies will have to consider their long-term impact on the planet and society.
Additionally, they must conduct due diligence regarding their business partners (suppliers, distributors, clients) to prevent and mitigate social and environmental issues.
Companies found in breach of the obligations may incur fines of up to 5% of their net worldwide turnover. They can also be required to compensate affected individuals and communities.
Similarly to the sustainability reporting rules, in April 2025 Parliament voted to postpone the application of due diligence rules. The largest companies, which should be the first to start applying the rules, will have one extra year to comply.
