The Ominous Omnibus: What New EU Legislation Could Mean For Sustainability Reporting

Following calls to reduce the regulatory burden imposed on businesses, the European Union is poised to reform a series of laws passed under the EU Green Deal that required businesses to address climate change. With a goal of reducing reporting requirements, the Omnibus Simplification Package will look at the EU Taxonomy, Corporate Sustainability Reporting Directive, and the Corporate Sustainability Due Diligence Directive. The result could reshape the international landscape for sustainability reporting, but little is known about the proposal expected to be introduced on February 26.

As part of the European Green Deal, a series of directives were passed by the EU to force businesses to address climate change and report carbon emissions. The goal is to comply with the climate initiates of the Paris Agreement, an international treaty signed in 2015 to prevent climate change. The agreement included a goal of reducing greenhouse gas emissions to net zero by 2050. The EU addressed this through three key legislative actions.

In 2020, the EU adopted the EU Taxonomy for Sustainable Activities. The Taxonomy created a classification system for business and investors to know what activities are considered green or climate friendly.

Then followed the Corporate Sustainability Reporting Directive in 2023. The CSRD created requirements for businesses to report GHG emissions and other environmental, social, and governance actions. For large companies, general reporting begins in 2025 for fiscal year 2024. Small and medium sized companies, non-EU based companies, and companies in high emission sectors will see reporting requirements being drafted and released over the next year.

The final piece, the Corporate Sustainability Due Diligence Directive, was adopted in May 2024. The CSDDD, or CS3D, created additional reporting requirements, as well as legal liability, for companies in relation to their supply chain. The intent is to not only regulate the direct actions of a company, but also assure their suppliers comply with climate and human rights goals. However, the CSDDD faced significant pushback during the final stages. Only finding approval after significant changes that reduced the scope.

Following an informal meeting of Council leadership in mid-November, Ursula von der Leyen, President of the European Commission, announced her intention to revamp sustainability regulations to reduce the burden on businesses. She stated the Council and Commission will have an omnibus bill that will take “a huge approach to reduce in one step, in all the different fields, what is agreed is too much today. We will look at the triangle Taxonomy, CSRD, CSDDD.”

Since November, speculation over the content of the bill has enthralled both businesses interests and climate activists. Every few days a new expert offers insight on what they are certain will be in the proposal. However, no final proposal exists. Insiders familiar with the drafting process have noted that multiple, conflicting proposals have been drafted.

An indicator of the uncertainty of the content of the bill came with a discussion on the content at the January 21 meeting of the Economic and Financial Affairs Council (ECOFIN).

In a Presidency Issue note sent to delegates, members were asked to consider three questions in anticipation of the discussion:

1. How do you envisage the process to identify ideas for simplification, decluttering and administrative burden reduction, including for SMEs and small mid-caps?
2. What concrete suggestions for simplifying or reducing regulatory burdens would you like the European Commission to consider in the field of economic and financial affairs?
3. What can co-legislators and Member States do to support simplification, decluttering and administrative burden reduction?

The general nature of the questions, at such a high level, indicates that there is little consensus on the omnibus bill. The public comments following the ECOFIN meeting offered little clarity. In a public statement following the meeting, ECOFIN stated “Ministers strongly supported the prospect of reducing and simplifying reporting requirements for businesses and expressed a shared commitment to meaningful steps towards regulatory simplification for companies, as an effective way to improve the competitiveness of the EU economy..”

A leaked copy of the European Commission’s Competitive Compass for the EU gave the best insights for the final omnibus bill. The draft stated,

“This Commission will deliver an unprecedented simplification effort. This will aim to achieve the agreed policy objectives in the simplest, most targeted and least burdensome way. This will start with a first Simplification Omnibus proposal next month, including a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy. In this regard, the Commission will ensure tight alignment of the data required with the needs of investors, proportionate timelines, focus on the most harmful activities, financial metrics that do not discourage investments in smaller companies in transition, and obligations proportionate to the scale of activities of different companies. It will notably address the trickle-down effect to prevent smaller companies along the supply chains from being subjected in practice to excessive reporting requests that were never intended by the legislators.”

It seems everyone following the omnibus has a prediction for what will happen. Based on the information available today, here’s mine.

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CSRD

The current status: Reporting for some large businesses began in 2024, with the remainder reporting in 2025. For SMEs and non-EU based companies, reporting begins in 2026. Additionally, the European Financial Reporting Advisory Group is drafting sector specific standards for high risk companies. Those reporting requirements are also set to go into effect in 2026.

What business interests want: The staunchest advocates for reforms through the omnibus is Germany. Therefore, it is logical that the most extreme proposal comes from German business interest. According to Sophie Robinson-Tillett of Real Economy Progress, the German business group BDA has called for “complete withdrawal of the [CSRD’s] delegated act in its present form.” In an interview with French news outlet Novethic, Stéphane Séjourné, Executive Vice-President of the European Commission, stated we keep the climate objectives in particular, but we change the path of companies to achieve them" including the possible "abolition of reporting."

Likely outcome: In my opinion, the omnibus proposal will most likely delay reporting for SMEs and non-EU companies by at least a year. I also expect a proposal to raise the reporting thresholds for both large companies and SMEs, significantly reducing the number of impacted businesses. The Competitive Compass stated there would be a new definition of small mid-caps proposed in the Omnibus to cut reporting obligations for SMEs by 35%.

The latest EFRAG draft for non-EU companies reduced the reporting requirements to below those in the CSRD. Those changes should indicate what will be in the omnibus package.

The two areas to watch are sector specific standards and scope 3 reporting. Expect a lively debate over the elimination of those requirements.

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CSDDD

The current status: The CSDDD is still early in implementation. Countries have until 2026 to transpose it into national law. Large companies with 5,000 employees and a net turnover of €1,500 million will be impacted starting in 2027, 3,000 employees and €900 million starting in 2028, and 1,000 employees and €450 million in 2029.

What business interests want: The CSDDD barely passed in 2024. International business interests that were not paying attention initially are loudly voicing opposition. The French government has called for an indefinite suspension of the CSDDD. The European People’s Party (EPP) are asking for a 2 year delay. Additionally, they state, “an omnibus regulation should limit the scope of these laws to the largest companies with more than 1000 employees, eliminate the indirect effect to SMEs, align legislative overlaps that currently lead to double reporting and significantly reduce the reporting obligations for large companies by at least 50%.”

Likely outcome: In my opinion, the CSDDD will be delayed by at least two years. The legal ramifications of the CSDDD are particularly alarming for businesses, therefore I expect the ability for individuals to bring legal action against companies will be reduced or eliminated.

The area to watch is how they amend the impacts of the CSDDD on the supply chain. To accomplish the goals of reduction of the reporting burden on SMEs, I suspect language will be added to protect SMEs from being asked to provide data to large companies under the CSDDD.

For now, the final draft of the Omnibus Simplification Package is still being debated. We will not know its full impact on the CSRD and CSDDD until it is made public in February. Then the public debate really begins.