The European Parliament has voted to dramatically wind back the bloc’s ESG rules following intense pressure from US business associations and state attorneys general.

The development means that more than 90% of companies originally in scope of environmental, social and governance reporting requirements will no longer need to comply. Other planks of the rulebook that emerged as a sticking point for the US have been dropped entirely. After Thursday’s vote, the legislation now heads for approval by the European Union’s member states.

The EU responded to concerns raised by America’s fossil-fuel industry and the American Chamber of Commerce, said Pascal Canfin, a senior lawmaker for the centrist Renew Party. “They won,” he said.

As a long-time bastion of ESG, Europe’s decision to slash regulations once viewed as standard-setting marks a stunning retreat. In the US, ESG has been vilified by the Trump administration as “woke” and anti-American. In Europe, however, concerns have centered mostly on the costs associated with complying rather than on ideological arguments.

“We put competitiveness back on the agenda,” said Jorgen Warborn, a Swedish lawmaker from the center-right European People’s Party who oversaw negotiations. He says the outcome shows “that Europe can be both sustainable and competitive.” And while the European Parliament ultimately acts in the interest of Europe, it also must listen to “all the different stakeholders,” he added.

“When I meet our partners in the rest of the world, they think that we are pushing our agenda on them too much, and that complicates our negotiations with them in trade aspects as well,” Warborn, who also sits on the EU parliament’s international trade committee, said at a press conference. “Those trade agreements are so important, not least when it gets more and more complicated to do business with the US.”

The changes agreed on by EU lawmakers mean that 92% of companies that would have been subject to the Corporate Sustainability Reporting Directive will no longer be in scope, according to Julia Otten, a senior policy officer at advocacy NGO Frank Bold. Lawmakers also voted to drop a requirement that companies produce climate transition plans under the Corporate Sustainability Due Diligence Directive. A proposal to introduce EU-wide civil liability is also off the table.

Lawmakers didn’t address the issue of extraterritoriality, whereby countries outside the EU need to comply with its ESG rules if they target the bloc’s markets. But with other parts of the legislation effectively wiped out, lawmakers said the cuts approved by the parliament remove many of the issues that had triggered concern in the US.

Marjorie Chorlins, senior vice president for Europe at the US Chamber of Commerce, said the adjustments to CSDDD “represent meaningful progress toward a more balanced and effective framework,” in an emailed comment late on Thursday.

“However, we remain concerned about the directive’s extraterritorial reach,” she added.

Valdis Dombrovskis, Europe’s economy and productivity commissioner, said in an interview with Bloomberg Radio last week that the EU was listening to such concerns. At the same time Teresa Ribera, executive vice president of the European Commission, has warned against excessive deregulation.

Negotiations with member states to finalize changes to CSRD and CSDDD are expected to begin almost immediately. Thursday’s parliament vote was the latest step in a large-scale regulatory simplification process underway in the EU intended to aid competitiveness in the bloc. However, detractors warn the move risks undermining the bigger goal of delivering on climate and social goals key to EU values.

The legislation was “the best tool to discourage companies from relocating to countries that do not respect social, environmental or human rights,” said Terry Reintke, co-president of the Greens-EFA party, in a statement. “The right and the far right destroyed our ability to regulate economic stakeholders and our major instrument for encouraging companies to preserve and create jobs within the EU.”

The Details:

The EU Parliament agreed to limit CSRD requirements to companies with more than 1,750 employees and annual revenue of more than €450 million. The limit also applies to disclosure requirements under the Taxonomy Regulation.

CSDDD will be limited to companies with more than 5,000 employees and an annual revenue of €1.5 billion. Noncompliance can only be litigated on a national level and could trigger compensation to victims and fines, according to guidelines set by the commission and member states.

A requirement to have climate transition plans under CSDDD has been removed. And there is no longer an EU-wide civil liability clause.