The European Union’s flagship sustainability law, the Corporate Sustainability Due Diligence Directive (CSDDD) is set for major dilution after lawmakers in the European Parliament reached an agreement to dramatically narrow its scope, according to multiple officials involved in the negotiations. The move marks one of the sharpest retreats yet in Europe’s green regulatory agenda and comes amid a wider global rollback of climate and sustainability commitments. Originally adopted in 2023, the CSDDD was designed to hold corporations accountable for human rights and environmental abuses within their global supply chains. Under the directive, large companies operating in the EU would be required to identify, prevent, and remedy issues such as forced labor, deforestation, and pollution throughout their production networks or face fines of up to 5% of global annual turnover.

Major Cutbacks to Scope and Coverage

The latest political deal, reached between the centre-right European People’s Party (EPP) and allied socialist and liberal groups, raises the size threshold dramatically. Instead of applying to companies with 1,000 or more employees and turnover above €450 million, the new proposal limits the directive to only the largest corporations, those with 5,000 employees or more and annual turnover exceeding €1.5 billion ($1.74 billion). The change would exclude thousands of medium and large companies previously covered by the directive, weakening one of the EU’s most ambitious attempts to embed corporate responsibility into law.

“The goal is to simplify and make the rules more proportionate,” said Jörgen Warborn, the EPP lawmaker leading the negotiations. “We want to ensure that European businesses remain competitive while still upholding sustainability principles.”

Critics, however, say the move guts the core intent of the directive. Civil society organizations and Green Party members have warned that the cuts could delay progress on human rights and environmental due diligence by another decade, effectively removing most EU-based multinationals from compliance obligations.

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Pushback from Germany, France and Beyond

The rollback follows months of lobbying from major EU member states particularly Germany and France, home to large industrial and energy conglomerates that had warned the rules could overburden companies already grappling with weak economic growth and high energy costs. Pressure also came from international trade partners such as the United States and Qatar, as well as corporate giants like ExxonMobil, which argued that the law’s scope was too broad and risked deterring foreign investment. For Brussels, the political calculus has shifted sharply since 2022, when a surge in energy prices and inflation led to a backlash against what some governments viewed as overreach in the EU’s Green Deal. The CSDDD has since become one of the most politically divisive pillars of the bloc’s climate and social governance agenda.

A Parallel Rollback in the United States

The European retreat comes as the United States is also scaling back elements of its clean energy policy. According to documents obtained by Reuters, the U.S. government is considering canceling billions of dollars in funding for renewable energy and decarbonization projects approved under the Biden administration. The cuts include two major direct air capture hubs that received billion-dollar grants, one involving oil giant Occidental Petroleum, as well as hundreds of other projects across 16 states. The Department of Energy has already announced plans to withdraw $7.56 billion in financing, citing insufficient taxpayer returns. White House budget director Russell Vought confirmed on social media that nearly $8 billion in climate-related funding is expected to be terminated, with Democratic-led states such as California and New York among those most affected. Analysts say the shift could significantly slow progress on U.S. decarbonization targets, particularly in carbon capture, EV manufacturing, and renewable infrastructure, sectors once viewed as cornerstones of the Inflation Reduction Act’s climate spending.

Corporate Climate Alliances Under Pressure

At the same time, the private sector is also pulling back from collective climate commitments. Swiss food giant Nestlé has withdrawn from the Dairy Methane Action Alliance, a coalition launched in late 2023 to cut methane emissions across global dairy supply chains. The alliance sought to encourage transparency by requiring members to publicly measure, report, and reduce methane emissions, a powerful greenhouse gas with more than 80 times the warming potential of carbon dioxide over 20 years. Nestlé’s exit follows rising industry resistance to binding disclosure requirements and growing concern about consumer backlash in politically polarized markets. The company said it remains committed to reducing emissions within its dairy operations but will pursue its own internal pathways rather than participating in the alliance framework.

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A Global Pattern of Retreat

The simultaneous policy reversals in Brussels, Washington, and major corporate boardrooms signal a broader trend: a temporary cooling of global momentum on climate regulation and ESG enforcement. After years of rapid legislative expansion, policymakers and businesses are recalibrating citing competitiveness, regulatory fatigue, and political backlash as reasons to ease pressure. Yet experts warn that the timing could not be worse. With the world far off track to meet the Paris Agreement’s 1.5°C goal, weaker enforcement risks widening the gap between political pledges and real-world emissions cuts.

“This wave of rollbacks sends the wrong signal,” said an EU sustainability policy advisor. “It suggests that when economic or political pressure mounts, sustainability is negotiable, when in reality, it’s the foundation of long-term stability.”

As the European Parliament prepares to vote on the revised CSDDD framework later this year, the outcome will reveal how far the bloc’s climate and human rights commitments can bend under pressure and whether the EU can continue to claim its role as the world’s regulatory leader on sustainability.

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