The European Union is about to take a major step towards simplifying and harmonising sustainability reporting with the introduction of the first in a series of Simplification Omnibus packages. The proposal, which will come into force in 2025, aims to reduce the administrative burden on companies while maintaining high standards of environmental, social and governance (ESG) reporting.
Background and Objectives
The Omnibus simplification was announced by European Commission President Ursula von der Leyen in November 2024. It aims to consolidate and streamline the often overlapping obligations under the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy Regulation. The Omnibus proposal is designed to reduce bureaucracy without compromising on substance, allowing companies in EU member states to focus on compliance and sustainability.
The introduction of the CSRD has already led to much debate: the number of companies to be affected (in the future) is said to be too large, the number of data points is too many, the approach is too complex and the various sustainability laws are too detailed and insufficiently aligned.
The Omnibus proposal should overcome some of these problems, but the question is how quickly these changes will be introduced and how effective the whole thing will be. First, here are the main components of the proposal, as currently known.
Key elements of the Omnibus package
The Omnibus proposal comprises three main elements:
- Regulatory consolidation: the proposal integrates the CSRD, CSDDD and the EU Taxonomy Regulation, reducing reporting requirements by 25% without losing the essence of these laws.
- Reducing reporting requirements: measures will be taken to reduce the reporting burden for (listed) small and medium-sized enterprises (SMEs). It also identifies a new group of smaller mid-cap companies (in between the current group of ‘large companies’ and ‘listed SMEs’) that need to comply with less complex reporting and due diligence requirements.
- Consistency and simplicity: the proposal promotes consistency between member states to ensure fair and effective compliance.
Comments on the leaked plans
In recent weeks, various interest groups have come out with what they think should be part of the Omnibus proposal. First up are the parties that want to delay sustainability legislation or make it applicable to fewer companies.
- Several countries, including France and Germany, have called for delaying the introduction of the laws by two years. A rigorous idea, to repeal legislation that has not even been fully implemented yet. A suggestion from Germany that has more support is the accelerated introduction of sector-specific standards.
- Less rigorous but comprehensive is the proposal to equalise the criteria for CSRD and CSDD. This would mean that 85% of companies that currently have to comply with CSRD would no longer be subject to reporting requirements.
- A third issue is dual materiality analysis; this would be reduced to financial materiality only. Only the ‘outside in’ perspective would then be included when assessing material themes, and not the ‘inside out’ (what is the organisation’s impact on people and the environment). The consequence is that the ESRS standards will have to be rewritten. The chances of this being chosen are therefore not very high
- Finally, with regard to the CSDDD, 11 topics should be discussed again. There are also voices calling for the entire introduction of the CSDD to be postponed.
There are also lobby groups that instead advocate maintaining the objective of the Green Deal and call on the EU not to water down the three sustainability laws.
- MVO Netherlands, on behalf of a coalition of 40 Dutch companies (including Stedin, Dopper, Tony’s Chocolonely, NS and Triodosbank), urges that “the scope, level of ambition and principles of these laws remain unaffected”. Key reasons are the importance of uniform standards for corporate social responsibility, providing clarity and legal certainty, being able to recoup investments already made, and the promising innovations that fair and sustainable business entails.
- An influential group of investors united in the Institutional Investors Group on Climate Change (IIGCC), the European Sustainable Investment Forum (Eurosif) and the Principles for Responsible Investment (PRI) are calling for “preserving the integrity and ambition of the EU’s sustainable finance framework”. They warn that regulatory review will bring uncertainty, jeopardising the Green Deal’s goals. It is precisely for long-term sustainability and economic growth that these sustainability laws are crucial.
- The EU Platform on Sustainable Finance, an EU advisory committee, is coming up with concrete recommendations on how to better align the laws. In doing so, they focus mainly on the EU Taxonomy.
- Finally, a group of multinationals including Carrefour, L’Oreal, Nestlé, Primark and Unilever are calling on the EU to continue to implement the Green Deal and not reopen legal texts that have been agreed and implemented.
How to move forward. Three adjustments that we as Goal 17 welcome:
- The CSRD’s ESRS standards alone contain almost 1,200 data points that must be reported on, depending on the number of material themes. This number (with unnecessary overlap in several parts) creates a large administrative burden for companies. Reducing the number of data points and consolidating the regulations of the CSRD, CSDDD and the EU taxonomy would already be a big improvement.
- Introducing a new category between companies that already have to comply with the CSRD Act (> €50 million turnover, > €25 million balance sheet total and >250 FTE) and SMEs is a second important step to simplify legislation and drastically reduce the reporting burden for SMEs.
- A modified phasing of reporting requirements, with (listed) SMEs having less stringent requirements than large companies. Another possibility is to phase in certain standards, which do not have to be reported on in the first two years.
And what are we against?
1 Rolling back legislation already introduced (e.g. the CSRD) is not only illogical, it is also hard to explain to all those hundreds of companies that are now preparing for their first sustainability report. Besides, it will take months for the 27 member states to agree on all the changes. And then it will still take months before all the adjustments are incorporated into the law and into the various standards.
2. So no, not putting already introduced EU legislation back into question. Also, equalising the criteria of the CSRD and the CSDD, with the CSDD criteria becoming leading, is a big step backwards in making the European economy more sustainable. To use the turnover criterion as an example, the CSRD requires companies with turnover >€ 50 million to be reportable. If the turnover criterion of the CSDD becomes leading, that amount would be adjusted to a turnover > €450 million. Adjusting the criteria would mean that only a fraction of European companies would become reportable. This would undermine the basic principles of these sustainability laws: improving companies’ sustainability performance, promoting accountability and transparency and encouraging green financing.
Conclusion
While many questions remain about the exact scope and content of the ‘Green Omnibus’, it is clear that transparent reporting on sustainability performance remains essential for investors, customers, employees, suppliers, local residents and governments. Just as annual financial reporting is essential for assessing the company’s financial position and performance, the sustainability report should provide insight into the company’s environmental, human and good governance performance
Thinking about the impact of organisations on their surroundings, people and the environment and the consequences of climate change on the organisation form the basis for a solid sustainability policy. Organisations should therefore continue to do so; how they report on this will hopefully become clear in a few weeks’ time.
The European Commission has indicated that the legislation will aim to “reduce administrative burdens without undermining policy objectives”. If the commission sticks to that, the legislation is likely to focus on streamlining technical standards, reducing reporting requirements and clearer implementation guidelines
So to all EU Commissioners currently considering Omnibus legislation:
- Simplify: definitely do it;
- Procrastinate: prefer not to;
- Rolling back: definitely don’t.