The European Commission has published its omnibus package of proposals designed to simplify EU rules and boost competitiveness but has been accused of “a total dereliction of responsibility” as leaks suggesting the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy would be watered down were confirmed.
The Commission stated it had set a clear target to deliver “an unprecedented simplification effort” by attempting to achieve at least a 25% reduction in administrative burdens, including a 35% reduction for SMEs, until the end of the mandate. If adopted, the proposals are “conservatively estimated” to bring total savings in annual administrative costs of around €6.3bn while mobilising additional public and private investment capacity totalling €50bn to support policy priorities.
“This is a major step forward in creating a more favourable business environment to help EU companies grow, innovate and create quality jobs,” the Commission said. However, there has been much criticism from activists, law firms and industry bodies, with the “radical deregulatory shift” at risk of causing further confusion and creating “legal uncertainty” for businesses and investors alike.
Summarising the proposal from a sustainable investors perspective, Andreas Rasche, professor and associate dean at Copenhagen Business School, told PA Future: “The proposal implies that investors can only expect structured and comparable ESG data from the very big companies, as both CSRD and the Taxonomy have been limited severely in terms of their scope. This will make benchmarking and more fine-grained analyses across a large set of companies almost impossible.
“I think it is also relevant for investors into smaller companies – for example, via private equity – as these firms will not have any ESG-related risk information anymore. So, overall, it will limit the scale and scope of ESG data, and it will also make comparisons more difficult.”
Omnibus changes: Sustainability reporting
Concerning sustainability reporting, the omnibus proposes to remove around 80% of companies from the scope of CSRD, focusing sustainability reporting obligations on the largest companies.
Additionally, the Commission suggested a postponement of reporting requirements for companies currently under the scope of CSRD by two years until 2028.
The Commission is also aiming to reduce the burden of EU Taxonomy reporting obligations by limiting it to the largest companies, in line with CSDDD, while keeping the possibility to report voluntarily for other large companies within the future scope of the CSRD.
Alongside this, the omnibus introduces a financial materiality threshold for the Taxonomy reporting and reduces the reporting templates by around 70%.
The most complex elements of ‘Do No Significant Harm’ criteria for pollution prevention and control related to the use and presence of chemicals under the EU Taxonomy have also been simplified in what the Commission described as “a first step in revising and simplifying all such criteria”.
“If the Commission aims to make European business more competitive, then cutting the ambition of the CSRD is a backward step, given the crucial importance of sustainability data in driving innovation and investment into Europe. It also raises serious questions about how to achieve a climate-neutral EU, as the cornerstone of the Green Deal,” commented Global Reporting Initiative CEO, Robin Hodess.
“Double materiality, which has been retained as a key feature of the CSRD, recognises the strategic importance of transparency for the impacts of companies on the economy, environment and people. However, reducing the scope, with even fewer companies included than under the previous NFRD, undermines the level playing field needed to achieve sustainable growth. As Commission vice-president Ribera said today, ‘going back to the past is not a solution’.”
Eurosif’s executive director, Aleksandra Palinska, agreed: “The Commission’s proposal to reopen the CSRD and European Sustainability Reporting Standards for renegotiation creates legal uncertainty for investors and businesses, and harms the first movers who have already prepared their first sustainability reports or started working towards compliance.
“The proposal aims to reduce the number of in-scope companies by over 80%. Drastic changes to the scope of sustainability reporting rules will limit investor access to comparable and reliable sustainability data and impair their ability to scale up investments for industrial decarbonisation and long-term growth. Voluntary reporting by companies will not fill this data gap.”
Omnibus changes: Due diligence
In terms of sustainability due diligence, Lucy Blake, partner at law firm Jenner & Block, noted that the most critical change proposed to the CSDDD is that companies in scope should conduct environmental and human rights due diligence only on business partners directly above and below them in the supply chain, rather than the entire global chain of activities. Such an assessment would only be required for ‘indirect’ business partners where the relevant company has “plausible information” that an adverse impact has occurred.
According to the Commission, this reduces the burden and trickle-down effects for SMEs and SMCs by limiting the amount of information that may be requested as part of the value chain mapping by large companies.
The Omnibus also proposes removing EU civil liability conditions to protect companies against over-compensation, alongside an increase in harmonisation of due diligence requirements to ensure a “level playing field” across the EU.
Companies would be given more time to prepare to comply with the new requirements, with sustainability due diligence requirements postponed for the largest companies by one year to 26 July 2028, while adoption of the guidelines would move forward one year to July 2026.
On the Commission’s proposal to rewrite the CSDDD, Beate Beller, campaigner at Global Witness accused Commission President, Ursula von der Leyen (pictured), of attacking her own sustainability agenda.
“Her Commission wants to make sure Europe’s biggest polluters escape having to act on climate, to make sure mining giants can’t be taken to court in Europe for environmental damage or human rights abuses outside the EU, and that all big companies will only have to perform the most basic – and least effective – form of due diligence to clean up their supply chains.
“Corporate lobbyists are trying to paint public interest laws like the CSDDD as being bad for business – but watering them down will only guarantee a more unsafe world for people in Europe and beyond by locking in the climate emergency.
“This total dereliction of responsibility to people and planet – and a free pass for polluters – needs an urgent rethink. The European Parliament and Member States must uphold the original law.”
Palinska observed the Commission also proposed measures to erase requirements for the largest companies to implement climate transition plans. Such plans “are necessary for investors to assess the credibility of companies’ decarbonisation trajectories”.
“Deleting requirements for the largest EU companies to implement transition plans and watering down the rules on environmental and human rights due diligence across their value chain would detrimentally impact the ability of investors to allocate capital for industrial decarbonisation, to conduct forward-looking risk assessments and to support the transition to sustainable growth.”
As an example of the far-reaching implications of such changes, representative organisations of smallholder farmers from the global south recently warned the EU would fail them if it walked back on the CSDDD in a joint letter. Bindu Sukumarapilla, CEO of the Fairtrade Network of Asia Pacific Producers, commented: “A CSDDD without civil liability and reduced fines for wrongdoings leaves farmers and their families with little. Companies often disengage and switch suppliers rather than co-invest in solutions that build resilience within supply chains. Meanwhile, meaningful stakeholder engagement is further limited, reinforcing power imbalance. What does this leave for farmers?”
Further reaction
While diluting the CSDDD’s effectiveness would be “misguided”, Alexandra Mihailescu Cichon, chief commercial officer at RepRisk, observed that businesses must recognise that simplified regulation “does not eradicate risks, it simply means less guidance”.
“In fact, data indicates that risk exposure is growing, making proactive, data-driven risk management more critical than ever. While compliance is essential, so too is smart risk management: because while regulations may change, risks persist – and therefore, so does the need for due diligence.
“Forward-thinking organisations understand that supply chain due diligence builds resilience and safeguards against reputational damage. The EU’s Omnibus package has the potential to free up capacity. Investors and businesses should grasp this opportunity to focus more attention on smart due diligence and risk management as well as leverage timely data to track risks as they emerge to ensure long-term resilience and competitiveness.”
Blake, meanwhile, added that though global ESG regulation is at a crossroads, it remains to be seen whether the proposed Omnibus directive will be adopted by the European Parliament and Council and – given the politicised nature of the topic – in what form.
“Whatever the outcome, what is clear is that there is limited appetite in the EU to exclude the operations of large global corporations entirely from the ambit of European sustainability laws, noting the press release describes the proposals as being intended to “focus [the EU] regulatory framework on the largest companies which are likely to have a bigger impact on the climate and environment”.
