To enhance companies’ ESG (Environmental, Social, and Governance) practices and improve the reliability and comparability of ESG criteria, the European Union (EU) has implemented numerous regulations. While these measures aim to strengthen sustainability reporting, they have also significantly expanded the reporting requirements, making the process more complex.
KEY POINTS :
- A key question raised by the proposed Omnibus legislation is whether it will undermine the progress made in sustainability reporting
- There is growing concern that the Omnibus legislation will be regressive
- This regulatory instability encourages companies to view CSDR and associated frameworks as mere compliance obligations rather than opportunities for strategic transformation
- Companies may start to see sustainability reporting as a compliance obligation rather than a strategic priority
To tackle this challenge and consequently reduce the bureaucratic complexity placed on businesses, European Commission President Ursula von der Leyen proposed an Omnibus Regulation in November 2024. The proposal seeks to consolidate and simplify the Corporate Sustainability Reporting Directive (CSRD, 2022, which strengthens non-financial reporting obligations for companies), the EU Taxonomy Regulation (2020, which classifies sustainable economic activities) and the Corporate Sustainability Due Diligence Directive (CS3D, 2024, which mandates due diligence to identify and address negative impacts across value chains). While efforts to simplify regulatory requirements are welcome, the proposed omnibus regulation raises a crucial question: will it risk undermining the progress made in sustainability reporting? Moreover, given the complexity of these three regulations (CSRD, CS3D, EU Taxonomy) and the broader political context within the EU, can an omnibus regulation realistically achieve its intended objectives ?
Challenges facing implementation of omnibus package
While well-intentioned, the consolidation of these three frameworks to achieve consensus seems highly challenging given the conflicting approaches and priorities of EU member states. For instance, the CSRD has already faced significant challenges during its development and implementation. As of late 2024, hence just months before the publication of the first CSRD-compliant reports, some European regulators continue to push for a softening of the CSRD framework. Ursula von der Leyen has highlighted the challenges of overregulation for SMEs (Small and Medium Enterprises), while other leaders, such as former French Prime Minister Michel Barnier, suggested a “moratorium” to delay implementing the CSRD in France. Similarly, former German Federal Minister of Justice, Marco Buschmann has called for a revision of the CSRD text. Consensus on the CSRD has yet to be achieved, making it unlikely that an Omnibus package covering these three regulations will be finalized in the short term. According to Forbes, the EU Commission is expected to discuss this matter in February 2025.
They have also significantly expanded the reporting requirements, making the process more complex.
While the Omnibus regulation seeks to reduce the burden and cost of sustainability reporting for businesses, the CS3D goes beyond mere reporting and disclosures. The CS3D also requires companies to establish robust processes to identify and address human rights and environmental issues. Therefore, the scope of the Omnibus regulation must be clearly defined and there are basically two alternatives. As an overarching regulation, the scope of the Omnibus package could encompass those of all three regulations (CSRD, EU Taxonomy and CSRD), which in no manner would reduce the reporting burden on companies. Alternatively, it could simply reflect sustainability reporting and disclosure requirements, common to all three regulations, which would imply excessive simplification at the cost of more quality ESG practices and reporting standards. Furthermore, these regulations remain subject to potential amendments based on stakeholder feedback. Therefore, consolidating them under a single framework is a considerable challenge.
Simplification or Deregulation of Sustainability Reporting ?
Amid negative sentiment, fuelled by sustainability regulations which are stunting European competitiveness and sovereignty, there is growing concern that the Omnibus package could be regressive. The CSRD, EU Taxonomy Regulation, and CS3D – each designed to complete the sustainability framework with distinct ambitions and scopes –could be reduced to just “another” set of regulations. This shift could be counterproductive, lifting the burden on companies at the expense of sustainability goals. For example, the final version of the first set of European Sustainability Reporting Standards (ESRS, standards of CSRD) has already been watered down, i.e., fewer data points and a narrower focus on materiality compared to its earlier drafts. Further simplifications, particularly concerning core CSRD concepts would potentially be counterproductive and undermine efforts to establish robust sustainability reporting practices.
Regulatory changes could penalize early adopters
The proposed Omnibus regulation has created significant uncertainty for businesses, sending troubling signals. Major changes to CSRD requirements risk penalizing early adopters who have invested substantial resources in adjusting their strategies. As shifting regulations can undermine proactive efforts, companies that have been delaying compliance may face fewer disruptions. For years, businesses were encouraged to adopt sustainability measures early on, but due to ongoing revisions, this advice now appears almost ironic. This dynamic echoes to recent cases, as seen with the EU’s deforestation regulation, where early adopters were disadvantaged.
The proposed Omnibus regulation has created significant uncertainty for businesses, sending troubling signals. Major changes to CSRD requirements risk penalizing early adopters who have invested substantial resources in adjusting their strategies. As shifting regulations can undermine proactive efforts,companies that have been delaying compliance may face fewer disruptions.
The CSRD implementation timeline varies by company size and begins with large firms. […]
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