EU policy makers back down on transition plans amid US pressure

The European Parliament’s Legal Committee agreed to significantly dilute planned climate disclosure rules for firms operating in Europe under the Corporate Sustainability Due Diligence Directive (CSDDD), introduced last year.

The directive requires firms to address human rights and environmental risks across their supply chains or face penalties of up to 5% of global turnover. However, under the revised version — drafted by MEP Jörgen Warborn, the Parliament’s lead negotiator on the Sustainability Omnibus — these requirements would apply only to companies with 5,000 or more employees and turnover of at least €1.5bn, up from the previous threshold of €450m.

In addition, while firms will still be expected to publish transition plans, the rules will no longer require “implementing actions”. Companies will instead be asked to make only “reasonable” efforts to align their business models with EU climate law and the Paris Agreement.

“We have listened to businesses across Europe and engaged extensively with stakeholders and policymakers to take this much-needed step forward for European companies,” said Warborn, arguing that the changes would “cut red tape” and reduce the reporting burden.

“Backroom pressures”

ClientEarth senior lawyer Amandine Van den Berghe warned that the proposed changes risk stripping the law of its core purpose for the sake of “short-term political convenience”.

“What is a cornerstone of responsible business in Europe is being turned into a political bargaining chip,” she said. “The losers will not only be workers and communities in producer countries, but also European consumers, responsible companies, and ultimately the planet.”

The vote follows revelations in the Financial Times that the US administration had urged the EU to soften its green legislation. Washington reportedly called for the scrapping of transition plan requirements for non-EU companies, describing them as “serious and unwarranted regulatory overreach”.

According to the paper, policy makers in Brussels fear that refusing to compromise on ESG regulation could jeopardise the EU-US trade deal agreed in July.

“We are increasingly worried by how polarisation, backroom pressure and breaches of democratic safeguards are becoming the norm under the so-called ‘von der Leyen majority’,” said Van den Berghe. “MEPs must show some backbone and stand up for people and the planet — not give in to parties so keen to kowtow to foreign interests and the Trump administration.”

Despite the political headwinds, both financial regulators and institutional investors continue to recognise the financial relevance of transition planning. The European Central Bank, for example, is set to integrate climate transition risks into its policy framework, introducing a climate factor into its collateral system from 2026.

UK rollout of transition plans

In the UK, the government recently completed a consultation on mandating climate transition disclosures for regulated financial institutions, including banks, asset managers, pension funds and insurers.

For many asset owners, transition planning is not just about compliance but also about securing long-term financial resilience. “If you are a big pension fund and you invest in gilts, you can only be net zero if the whole of the UK is net zero,” said David Russell, chair of the Transition Pathway Initiative, speaking at the Pensions UK Annual Conference in Manchester. “These are not communications tools — they are management tools that help you deliver the outcomes you want.”

Mark Hill, climate and sustainability lead at The Pensions Regulator (TPR), said the regulator is now considering how best to put these requirements into practice. The key challenge, he noted, will be moving from “paper regulation towards real-world decarbonisation” — supporting asset owners in identifying investment opportunities presented by the transition, without penalising necessary exposure to high-emitting sectors that play a vital role in decarbonisation.